Sample Industry Analysis of Textile Industry
Porter’s Five Forces- Threat of New Entrants
Since its introduction in 1979, Porter’s Five Forces has become the de facto framework for industry analysis. The five forces measure the competitiveness of the market deriving its attractiveness. The analyst uses conclusions derived from the analysis to determine the company’s risk from in its industry (current or potential). The five forces are (1) Threat of New Entrants, (2) Threat of Substitute Products or Services, (3) Bargaining Power of Buyers, (4) Bargaining Power of Suppliers, (5) Competitive Rivalry Among Existing Firms. Don’t forget to check out an example of a Porter’s Five Forces analysis of the Coca-Cola company.
1. Threat of New Entrants: Microeconomics teaches that profitable industries attract new competition until the downward pressure on prices has squeezed all the economic profit from the firms. New firms in an industry put downward pressure on prices, upward pressure on costs and an increased necessity for capital expenditures in order to compete. The less threat there is from firms entering the industry, the more stable a firm’s profits are. An attractive, low-risk industry, is one in which there are significant barriers to entry such as:
Economies of Scale: The theory behind supply side economies of scale state is that the most efficient level of production in an industry is at the point in which the average total costs are at a minimum. In some industries, this takes a significant market share to attain and if a firm cannot attain this level of efficiency, than the firm’s cost structure is too high and the firm will not be competitive. Demand side economies of scale, or “network effects,” is the theory that the value of a product is dependent on the others using the same product. For example, a competitor to Microsoft’s Excel is highly unlikely to emerge because of the huge network of business consumers that currently utilize the program. Any spreadsheet software that aspires
Since its introduction in 1979, Porter’s Five Forces has become the de facto framework for industry analysis. The five forces measure the competitiveness of the market deriving its attractiveness. The analyst uses conclusions derived from the analysis to determine the company’s risk from in its industry (current or potential). The five forces are (1) Threat of New Entrants, (2) Threat of Substitute Products or Services, (3) Bargaining Power of Buyers, (4) Bargaining Power of Suppliers, (5) Competitive Rivalry Among Existing Firms. Don’t forget to check out an example of a Porter’s Five Forces analysis of the Coca-Cola company.
1. Threat of New Entrants: Microeconomics teaches that profitable industries attract new competition until the downward pressure on prices has squeezed all the economic profit from the firms. New firms in an industry put downward pressure on prices, upward pressure on costs and an increased necessity for capital expenditures in order to compete. The less threat there is from firms entering the industry, the more stable a firm’s profits are. An attractive, low-risk industry, is one in which there are significant barriers to entry such as:
Economies of Scale: The theory behind supply side economies of scale state is that the most efficient level of production in an industry is at the point in which the average total costs are at a minimum. In some industries, this takes a significant market share to attain and if a firm cannot attain this level of efficiency, than the firm’s cost structure is too high and the firm will not be competitive. Demand side economies of scale, or “network effects,” is the theory that the value of a product is dependent on the others using the same product. For example, a competitor to Microsoft’s Excel is highly unlikely to emerge because of the huge network of business consumers that currently utilize the program. Any spreadsheet software that aspires