Rivalry Among Competitors - Michael Porter's Five Competitive Forces Model

Published: 2021-06-29 06:56:55
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Category: Business

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Michael porter's five competitive forces model is a framework used to understand the structure of an industry. The five competitive forces are bargaining power of buyers, bargaining power of suppliers, threat of substitute, threat of new entrants and rivalry among existing firms. Each of the five forces impacts the average rate of return for the firms in an industry by applying pressure on industry profitability.
First, buyers can suppress the profitability of the industry from which they purchase by demanding price concessions or increase in quality . If the industries only have few buyers, they can force the suppliers for lower cost and thus affect the profitability of the industry. In 2006, there are 3million of smokers in Malaysia which is a large amount of buyers, thus, the buyers not able to forces the supplier to lower price. Thus, suppliers able to have the power to control the price to gain the large profit from the market.
Second, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. When there are only few suppliers of a product, the suppliers will have the advantages in bargaining. In Malaysia, there are only few suppliers of cigarettes such as British American Tobacco (Malaysia) Berhad and Japan Tobacco International. Thus, these suppliers have the power on the prices of cigarettes and buyers have to follow the prices set due to they don't have much choices. The cigarettes suppliers in Malaysia have high power as there are fewer substitutes for buyer to choose.

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