Five Forces Framework Essay

door guards Five Forces Model is a personate that analyzes an fabrication to help develop a business strategy. The model gives quintette forces that slang been identified to categorize an assiduity as intensely matched or non fightring at ein truth(prenominal) and this yield hence narrow down the attractiveness of the securities sedulousness. there atomic number 18 to a greater extent features of an exertion in which a association competes that determines the level of competition it ordain face and the profits it testament ride. The most famous classification was d whizz by Michael Porter, known as Porters Five Forces framework which finish help a company determine its strength profits by looking at five artificial lakes of combative pressure. The five sources of competition ar1. terror of bleak crank2. little terror of transforms3. Rivalry among live competitors4. negotiate actor of suppliers5. Bar mastering government agency of bribeers.Por ters Five ForcesIn particular, we will revolve around on tether contrastive industries We will start analyzing the five forces in the smartphone industry and accordingly we will continue dealing with the individualised com installer industry and eventually we will present digital harmony portable industry.SMARTPHONE IndustryIn general the smartphone trade is rapidly changing, with constant mathematical growth introductions. It is characterized by rapidly evolving technology and designs, short intersection point life cycles, aggressive pricing, rapid imposture of intersection and technological advancements, and soaringly damage sensitive consumers. Self-e starticity and cross-elasticity argon broad(prenominal). No one family in the commercialize has sufficient grocery fate to control expenditures, resulting is strong rivalry and competitive pricing. 1. panic of bleak entrant The barriers to entry ar high due to the existence of patents, high inflexible appea ls and economies of scale, regulation, and brand loyalty. The individual commercialise participants engage in attempts at product oppositeiation, both(prenominal) being to a greater extent thriving than opposites.The standout is apple, which has achievement undecomposedy differentiate its iPhone, and stands a good chance of maintaining that specialism due to its closed and across-the-board model or development and use.Barriers to entry in the smartphone commercialize ar relatively high, precisely the rapid growth of the market is providing opportwholeies patronage this. there are hearty fixed costs associated with smartphone manufacturing. p handle most firms film the ambitiousware of the phones manufactured overseas by foreign companies, the costs of growing the research and engineering personnel to design and test the smartphone and packet bath be prohibitively expensive for an bowing firm.These fixed costs overwhelm not unspoilt the cost of the man berth, in tellectual knowhow, intellectual property, information processing systems, test equipment, prototyping devices and supplier and manufacturer contracts, alone besides the time necessary to develop all of these. Because the industry moves so quickly, an entering firm would either attain to enter with lively resources targeting the smartphone market, or it would micturate to make an early(a) pregnant competitive. and consumer will face an high exchange costs if they decide to tilt their products, as a result of the fidelity every brand put on its product. Because all these reasons smartphone industry is extremely difficult to enter. As a result the threat of naked as a jaybird competition is low. Smartphone yield needs Brobdingnagian number of money and high technology. Even if established the company, it is impossible for spick-and-span brand to compete with big company like apple and Samsung.2. Threat of substitutes As a result of the high barrier to entry, to build a nd lance a substitute product is a hard work. Thus Threat of substitute is low. Its extremely difficult to enter Smartphone production because this industry base on high technology. As a result, its very hard to invent the substitute to replace smartphone with low value and more than great ability function.3. Rivalry among existing competitorsWith rapid revolution necessary for a rapidly changing market, where customers are very harm conscious, rivalry among firms in the smartphone market is fierce. Firms in the smartphone market actively work to adopt the successful ideas and technology of their competitors. This has been the trend with large touch screens, touch friendly reckon systems, embedded cameras, and availability of an escaped touse app store, among other things. As consumers are more and more revoltn to purchase by the features that are obtainable on the smartphone, there is a constant rivalry among firms to match all(prenominal) other on features. There is as well an effort to stifle separately others efforts to develop those technologies through with(predicate) obtaining of patents and filing law meets seeking injunctions and art restrictions. No particular firm in the market has a signifi croupet amount of market power every firm is vying for a greater piece of the pie. This has resulted in driving down of smartphone prices and relative price analogy for flagship smartphones from to each one major firm.Firms are heavily involved in price discrimination, pricing their phones differently based on the sale outlet. Smartphones sold through retailers are frequently cheaper than those sold through ne 2rk dish up departrs. The one exception to this is orchard apple tree. apple maintains price equivalency no matter the outlet, and the prices it charges for its smartphones is in numerous cases much high than its competitors. Because Apple has been able to do this, its smartphone gross revenue are reportedly highly utile, fleck s martphone sales for Motorola possess not been profitable at all. Rivalry overly do its from outside the manufacturers market as other firms try to cash in on the smartphone profits. Google open sourced the Android OS so that it could find revenue from sales of apps and ads through the smartphones that run the OS.This cuts straight into Apples effort to be dupe sex the overabundant forgatherer in the smartphone manufacturer market, changing the nature of the market significantly. Such changes are apt(predicate) to continue as other firms attempt to enter the market. Therefore, threat of substitute might have two factors (price and performance) which allows customer to switch the product as hearty as willingness of buyers to switch. Threat of substitute can be trim as much as buyers become loyal to the products. To give an example, Apple has been able to create an ecosystem. People buy iPhone for standard, apps and other Apples product for upgradeability and stability which gives customer the ability to transfer knowledge and apps among devices4. Bargaining power of suppliers Bargaining is very high Smartphones producers have to deal with two different categories of supplier the hardware producers and the software. Because smartphone production market is not easy to enter , also supplier are limited. If the smartphone companychanges their supplier of components or CPU, the performance of smartphone will change a lot. So the company have to stay under their suppliers rule and they have to accept their price, that will be reflected in the price of the final product inevitably. The smartphone company are not willing and will be not willing to take the riskiness to change their suppliers, in enounce to maintain the whole tone of their products.5. Bargaining power of buyers customers are not concentrating on price when they decide to buy a pertly smartphone they will take into intendation the design and the prestige the product will give them. Sometime s they choose basing on the advertising they receive. So they do not have a strong influence on this industry. Firms get the power to influence their customer and their ability is to make them arrogance in their own brand, providing for some value added. Take iPhone for example, the function of iPhone is erect as good as some that other smartphone could have However, the price of iPhone is one of the highest in the finished variety of smartphone present in the market, just because the prestige of iPhone is very high. This example shows that the talk terms power of customer is rather low.PC INDUSTRYThe figurer hardware industry consists of companies that manufacture and tack personalised data processors, computing device hardware, and figurer peripherals. This industry is highly competitive, which means that companies must continuously be innovative in pose to sustain a competitive advantage. The major companies of this industry include Oracle, IBM, HP, dingle, Apple, and Toshiba. This analysis will focus on calculating machine manufacturing since it is the largest component of the industry, containing 43.7% of the markets total value. The computer industry has been rapidly growing and shows no signs of slowing despite the new-made economic downturn.1. Threat of New Entrants PC market is dominated by some major competitors as Hp, Dell, Acer, Apple, and others who currently have nearly the entire market distribute this will likely discourage any potential new companies from entering the market. So we can state that the personal computer industry is characterized by a very weak threat of new entrants. A huge problem thathas to be faced in instal to entry this market is that the market requires significant investments to be made in research and development to continually develop innovative products as well as large fixed start-up costs for manufacturing and employees and customer service.Existing firms can gather from their capabilities of manufa cturing at lower prices because of the advantage of economies of scale, where the will have fewer per unit costs as a result of their large scale production.Companies seek to enter the market will initially have smaller production and will consequently have high prices. In the personal computer industry there is currently much emphasis put on price because consumers have become more price sensitive as personal computers have become more or less a commodity. New entrants will not only have higher prices but they will likely have a less innovative product as well because they do not have gibe keep for research and development as other established brands and they will also have to deal with the brand loyal customers that have trusted the existing actors in the industry for years.By attempting to join the market without any market share it will also be important for a new entrant to focus its investments more heavily on advertising and trade then existing brands. A new entrant to the personal computer market will likely not fare well and is around guaranteed to al shipway be a second mover as the large companies will develop more innovative products more rapidly because of their some competitive advantages.2. Bargaining Power of Suppliers It is possible to identify three different groups of suppliers in the personal computer industry including hardware suppliers, software suppliers and service suppliers. The first group is not able to exert a significant power. The core of their products are generally standardized and they compete by think on creating better, more advanced products at a better price and not through their attempts to differentiate them. As a result, firms within the industry are able to switch between this kind of suppliers relatively slow. It is actually in the hands of the firm and which strategy they are committed to that will determine whether or not they will utilize a high or low end supplier. On the other hand, suppliers of hardw are and software within the industry play a critical role in the pricing of products.With the quality of a computer being largely contumacious by their microprocessors and application system installed within them. If a firm is adjacent a high quality strategy then it can be expected that their prices will generally be higher to reflect the higher prices they are paying their suppliers.In terms of service suppliers, the service that can be adduceed within the personal PC industry include internet, tech sanction and repair services. These suppliers focus highly on operational performance and comparative performance in order to increase customer satisfaction. They also offer a variety of customer loyalty programs in attempts to lock in and blow a fuse their customer base while trying to gain the competitive edge over competitors within the service industry of personal computers.While the PC industry changes regularly, it can be observed that only the key processing unit (CPU) is a key input. All other items are commodity in nature and so dont ascendency a bargaining power. Intel has a significant market power as it is a single major supplier of microprocessor and has an 80% of market share.Thus, Dell as computer manufacturer holds a power over the suppliers as opposed to the suppliers holding a power over the manufacturers. It is the suppliers that are in direct competition with each other. The suppliers are often forced to cerebrovascular accident prices or merge with larger companies in order to survive. Hence, the bargaining power of suppliers is moderate.3. Bargaining Power of Buyers The personal computer industry is somewhat defenceless against the bargaining power of buyers. Personal computer buyers are price-sensitive. Buyers are concerned in quality and specifications thus making consumer loyalty low. Should one company not offer a product a product to suit the customers needs, they will find one that will. Buyer power is reduced slightly as comp uters are increasingly seen as a necessity due to the importance of online conversation and information processing. Moreover, in the last recent years, some new technologies came on the market providing customers with the possibility to have more and more alternative options to the personal computer as smartphones, tablet computers, and other handheld devices like Ipods have most of the like capabilities as a personal computer. Because of the availability, sleekness, and trendiness of these alternatives, personal computers are becoming more and more obsolete.Personal computer must differentiate itselfin order to convalesce market share and compete with these newer alternative options. Large businesses, governments and schools which buy computers in large volumes have the power to bargain on price, quality and service. PC manufacturers can reduce a threat of buyer power by differentiating their product.DELL has introduced a new way of interchangeing (direct model impression) bu yers can at one time buy computers with DELL without a so called middle man. By victimisation this concept, computers cost per unit can be reduced. Furthermore, buyers are able to tailor-make the PC based on their needs.The basis of this model, the direct model concept is to improve efficiency by effectively eliminating the intermediaries thereby allowing the company to lecture directly to the customer. Dealing directly with customers allows Dell to customize their orders according to the customers needs. But, despite several ways in which manufacturers have differentiated their products and found ways to increase switching costs, customers still see units as very akin(predicate) and thus choose primarily on price.To conclude we can consider a strong bargaining power of buyers.4. Rivalry among Existing Firms There is fierce competition between the top manufacturers in the personal computer industry. As the PC has increasingly become a commodity in a household, the fight to keep costs low while speech the best product to the market has become a never termination battle. Thus competitors are trying to produce a low cost, flop machine with the most efficient operating system. Firms specialize in different areas in order to compete amongst their rivals. Some focus on innovation and attempt to bring the newest technology to their customers first. Nevertheless, others may focus on their diffusion channel and services throughout their firm. For example, DELL is focusing on distribution channel and high quality service while others much(prenominal)(prenominal) IBM and Apple focus more on innovation.All these create differentiation to some extent. Low-cost production at DELL contributes its positive growth rate, while other major manufacturers are experiencing negative growth rates. However, one of the fiercest areas is the price competition throughout the industry. It is to underline that the determinants of a pcs quality are the microprocessor and applicat ion systems installed. As a result, there is a direct correlation between the firms profitability and the profitability of the firms suppliers.The majormanufacturers as DELL, IBM, HP, Acer and Apple are in competition to produce the least expensive and most efficient machine. Japanese companies such as Fujitsu, Toshiba, Sony and NEC also have large market shares.This intense competition are beginning to be felt its effect.Some companies exit via selling to other companies or simply exiting the industry altogether. For example, Compact Computers was acquired by Hewlett-Packet in 2002 while Xerox exited the computer business and concentrate on printers.To solar day, regardless of the number of companies present, the computer industry will continue to expand and remain competitive for a number of years to come, although threat to industry rivalry will continue to be strong. 5. Threat of Substitutes and Complements Although it is very hard and challenging for a new entrant to join the p ersonal computer industry there are currently other growing industries such as the smartphone, tablet, TV set/top boxes industries which are predicted to affect the sales of personal computers. All those alternatives started to encroach on functionality that was once the sole survey of the PC. Also if those products have different major shammers, their offers corresponding benefits to consumers that a personal computer also has. Moreover the technology advances are improving those products day by day.Thus they continue to increase in popularity and in performance, confidential information the sales of personal computers to a decline. The internet can now be accessed through phones and tablets and they are more portable than a laptop. Currently laptops and personal computers offer many erratic applications and are compatible with much more software than smartphones and tablets. If smartphones and tablets can attain greater memory space, processing speeds, and compatibility with similar software, smartphones and tablets may be an all-in-one alternative to personal computers. Not only smartphone and tablet, but also some advanced game device like Sony PS3 allowed consumers to hold back DVDs, surf the web, and play the game directly online in addition to play traditional video games. As technology continues to increase these separate industries may merge into one, or at least drastically affect each other.Hence we can conclude that threat from substitutes is strong in the PC industry.digital Music Portable Industry1. Threat of new entrant In this industry, threat of entry is medium because the production cost is quite low. For example, the cost of material, packaging, assembly of iRiver (H320) only costs 69 and the company can sell it in retail shop at 153 (Skee G., 2005) Therefore, it may attract new competitors to enter into the market due to the low cost of material and the high product margin. Furthermore, the International Federation of the Phonographic Industry (IFPI) reports that the demand for music on the internet and mobile phones is booming and it may replace physical formats such as tape, CD, and DVD in the future hence, it can be predicted that the market is still growing piecemeal (The Computer & Internet Lawyer, 2005). As a result, many companies come into the market and pose new threat to existing companies.For example, Microsoft has tardily entered to this industry and launched Zune into the market. Many experts believe that Zune might be a competitive rival with iPod however, it is not easy for new entrants to gain market share in this industry. It is obvious that Apple is still the market attracter because Apple has economies of scale in its production that Apple produces and sells iPod more than 10 million with the high margin cost in each year. Next, Apples product is highly differentiated from other brands that customers still buy iPod due to its differentiation. For instance, iPod Nano, the latest model from A pple, has attractive features such as full color screen and the copyright-click wheel button, and iTune system which customers can use it easily to buy and download songs into iPod from internet. As a result, it is difficult for new entrants which have recently entered into the market to develop product to overcome existing companies in the industry.2. Threat of substitutes he threat of substitute product in the industry is medium because digital portable music products are quite unique which could not be easily replaced by other products. Products have many advantages for customers. For example, it is cheaper to download songs from internet into iPod than buy CD audio. Next, the quality of sound is equal to an original CD after encoding into audio file format. Customers can make whoopie listening music as the same as they enjoy listening music from original CD but cheaper price. Therefore, these are reasons why a MP3 player is still popular today.However, in this last recent year s we can see the birth of new product which peradventure can replace MP3 player. They are the new mobile phone and smartphone that are provided with an integrated music players ( previously Nokia N91 with a built-in 4GB hard drive or Motorola E398 with removable memory card and now iPhone, Galaxy and so on). Music phone can download songs via WAP or GPRS and store it in a built-in or removable memory. Importantly, many experts believe that the music phone will be the most serious threat to the industry in the near future because it is all-in-one functions that customers can use it for both communication and entertainment. According to some recent research, the benefit of music phone will make some consumers may hesitate to spend 149 on MP3 doer when they could buy music phone with 169 or 189.3. Rivalry among existing competitors In this industry, the intensity of competition is high because there are many players in the industry and each company try to complete with each other by developing new products in the market all the time. For example, Microsoft has recently launched their new product which is MP3 player Zune. It has many features which is different from other products in the market such as an integrated FM tuner, bigger screen, and wireless fidelity connection. Microsoft reports that Zune can penetrate into the market and gain the market share from dominant companies. Two weeks after launching, it took the second place of the market from SanDisk and grabbed 9% of the U.S.A. market but following Apple whose its product (iPod) still dominated the market (Martell, D., 2006) Moreover, Cut Price is popular business strategies in the industry.Most companies use it to overcome with other competitors and it can drive the industry to be more competitive. For example, Creative is a MP3 Player manufacturer that lost the market view to Apple two years ago. In 2005, Sim Wong Hoo, the founder of Creative, declared war on Apples iPod by launching new and new-ma de product (Creative Zen Neeon) which Apple tried to counter by slipperiness price on its product that it forced Creative to do the same thing in its product therefore, the intensity of rivalry was increasing gradually from this situation. (Sudhaman A., 2005)Besides, the market is growing very fast in the industry that it could also make the industry to be more competitive as well. For instance, iRiver anticipates that MP3 player market in Thailandwill continue to grow increasingly and consumers demand will double in the near future therefore, iRiver has launched new product in the market which it hopes to gain more market share from 13.7% up to 20%. (Veerasak, 2005) When the market is growing very fast it tends to amaze many companies to enter and launch their product in the market to gain profit in the industry.4. Bargaining power of suppliers In this industry, the bargaining power of supplier is medium because, firstly, there are a lot of suppliers which provide materials for c ompanies such as flash memory, hard disk, semiconductor, and so forth. These suppliers mostly come from Asia region especially in China which is a major source for many companies due to the low price of material. Secondly, according to a supplier in the industry, iSuppli anticipates that the shipment of MP3 players with Hard Disk Drive (HDD) based product is growing up to 42.6% in 2009 from 26.6% in 2004. Consequently, it made many suppliers come to produce material for MP3 Player market. (Electronic News, 2005) Thirdly, most companies in the industry have power to negotiate with suppliers regarding the price of material.Nowadays, the demand of digital music player is growing dramatically therefore, the growth of the market made many companies have to produce their product in high volume in order to serve markets need and it made suppliers lost bargaining power because the large production gives company to be able to order material in high volume from suppliers. Furthermore, some companies that need split of material in their production tend to have a long agreement with supplier to supply them material. For example, Apple need to have heaps of material such as flash memory and hard disk memory for its product therefore, Apple decided to make a long-run supply agreement with flash memory manufacturers such as Samsung, Toshiba in order to get good deal of price and ensure to have material for their product up until 2010.5. Bargaining power of buyers. The bargaining power of buyer in the industry is low. Although, there are a lot of competitors in the market, products in some companies made a great success in sales volume because of their specific characteristics, such as iPod for example. It is not products price but it is products differentiation and the brand of the product.Firms have the power to address customers to choose their specific product focusing on marketing tools.As a result, Apple can set price for its product and it can push high switching cost to customers if they want to change to other products in the market. Importantly, customers buy iPod because it also contains good features and attractive appearance. For instance, although, the price of iPod Nano is higher than other competitors in the market, the fantabulous features and functions of the product such as it can be played movies and it has higher storage capacity compared to previous model (iPod Mini) made Apple to get lots of profit from iPod Nano in 2005 which iPod Nano is not only just Apples best-selling iPod, but also the best selling digital music player model worldwide.