Introduction

In 1979, Michael Porter discovered a new business strategy tool called the

Five Forces model. This tool enables a company to understand it’s level of

competitiveness in a given economic environment. The Five Forces Model

consists of five aspects or forces which are, (1) Power of Buyers; (2) Rivalry of

Competitors; (3) Power of Suppliers; (4) Threat of Substitution and; (5) Threat of

New Entrants. All of these play a key role on the potential profitability of a company

and its strategy.

This case study will tackle on the use of Prof. Michael Porter’s, 1979

discovery of the Five Forces Model and its effect on a company’s level of

competitiveness especially for a new entrant in the market. It will center on

Teresa’s decision as new entrant in an economic environment after her retirement

of whether to put up a Sari-sari store at St. Martin Subdivision, Brgy. Market Site,

Daraga, Albay or to buy an agricultural land in Albay instead.

FINDINGS

Observations

St. Martin Subdivision, Brgy. Market Site, Daraga, Albay, has seen a growth

in the number of possible consumers with only four competitors dominating the

market. Though, it is an ideal investment after retirement to invest in a business,

such as a Sari-sari store in our area, it is not as advisable. St. Martin Subdivision

is located near the Market Area of Daraga, thus people within the place may walk

to the market to seek for cheaper produce and a more complete store. Second,
the subdivision is also near to LCC Daraga, a mall readily available to cater to the

needs of the consumers and offering far lower prices especially in bulk quantities.

Though a sari-sari store may be able to cater to small quantities market, especially

for last minute needed commodities, it also may generate a smaller profit,

especially with four competitors within the area.

According to business mirror, in order for investments to be sustainable, the

investor must think for long term. Thus, it is more recommended to invest in long

term assets such as land. Land itself does not easily depreciate, thus making it an

ideal investment for long term profit generation.

Statistics confirm that Albay has seen an exponential growth, in terms of

economic development and population. In a 2015 census, Albay has an estimated

population of 1.315 million and has an annual population growth rate of 1.22%

from 2010-2015. More people means a higher demand especially for produce and

goods. Albay is a province in the Bicol Region which is a center of agriculture and

currently having an economic boom. Thus, making Albay an ideal place for

establishing businesses.

Five Forces Model

1. Power of Buyers

Consumers or buyers, are the lifeblood of a business, without buyers, a

company would not be able to generate profit. Buyers have more power against a

sari-sari store compared to an agricultural land. Sari-sari stores would need to

follow trends of the market and would need to be able to sell merchandise at a low
price without sacrificing its gross profit. Also, the scope of a sari-sari store would

only be within the subdivision compared to agriculture where it could cater not only

consumers and buyers within the province but also the whole country. And with

the current growth of the population, agriculture would be the ablest to take

advantage of such, compared to the small scope of a sari-sari store.

2. Rivalry of Competitors

A sari-sari store is seen as a small time merchandising business that has a

low margin for profit, low scope of market and offer few variations of products to

sell. These kinds of businesses are directly affected especially if it is located near

a public market and a mall that would be able to sell more varieties of products at

a lower cost.

Agriculture also has a lot of competitors especially within the province of

Albay. Then again, as we see in the local news, there is still an increase of demand

of produce alongside the current growth of our country’s population, not all

competitors combined, would be able to cope up with this demand especially in

the future. Thus, an agricultural business would be able to sight and supply those

where other competitors have yet to explore and dominate.

Another would be the ability of agricultural land to adapt and integrate

different kinds of crops and have a variety of produce and can supply to different

industries, not only in public markets but also to restaurants and even directly to

the basic consumers.

3. Power of Suppliers

Just like in the power of buyers, sari-sari stores are also greatly affected by

this, because of the suggested retail price. If suppliers increase their costs, this will

have a domino effect to entities which they supply. This would also limit a business’

growth especially if it operates in a small scale.

Agriculture on the other hand would have suppliers from companies who

produce feeds and fertilizers, then again, this cost could be easily evaded by using

organic composts for crops or crop left overs for livestock.

4. Threat of Substitution

With the current expansion of malls in the area and their greater capability

to offer a variety of items in one building, this serves as the greatest threat to a

sari-sari store. Also, products that a sari-sari store offers, is limited to what its

suppliers offer, therefore if can be easily substituted by other competitors or by DIY

projects by individuals.

Agriculture can also be substituted, but the ability of an individual to produce

a variety of crops that would be able to sustain them for long term without time

constraints would be hard. Especially nowadays, people tend to have less time at

home and more at work, thus can lead to home grown crops wilting easily.

Furthermore, agriculture is a basic necessity, though the consummation of canned

and processed goods per household has increased, this would not affect

agriculture market due to canned goods are just processed agricultural produce

such as Pork and Beans and Tomato sauce.

5. Threat of New Entrants

Sari-sari stores not only breath with buyers and consumers but its main

lifeblood is the number of people whom the seller is close too. This is what we call

in Filipino terms as “suki”. Such practice helps a business to keep on going and

assures that there would be buyers from once in a while. Then again, when an

new entrant comes along with more people close too, becomes also a threat to a

sari-sari store, especially if the new entrant has more products also. If such

possibility has been evaded by also offering more products, the new threat would

be the diminishing scope of your already small scope of market within the

community.

With Agriculture, new entrants would seem to be as new opportunities for

growth as it also helps you compete better in the market. Next if a new entrant

came in the industry, it is least likely that it would greatly affect your operations

unless it started stronger and the company’s current operation did not improve

throughout its growth. Another factor would be the ability of the market and

demand to grow and double faster as compared to what the industry can supply.

CONCLUSION

After a thorough research and analysis of data and, given the state of life

nowadays, it is seen that the best choice for Teresa would be to buy an agricultural

land in Albay to further her investments and a more expansive market and industry

with more opportunities.