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Porter's five forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition". Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re assess the marketplace. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Finns are able to apply 'their core competences, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models have been able to make a return in excess of the industry average. According to Porter, the five forces mode! should be used at the industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers. Firms that compete in a single industry should develop, at a minimum, one live forces analysis for its industry. Porter makes clear that for diversified companies, the first fundamental issue in corporate strategy is the selection of industries (lines of business) in which the company should compete; and each line of business should develop its own, industry-specific, five forces analysis. The average Global 1,000 Company competes in approximately 52 industries.
Access to distribution
Absolute cost advantages Learning curve advantages Expected retaliation by incumbents Government policies
Diversity of competitors
Informational complexity and asymmetry Fixed cost allocation per value added Level of advertising expense Economies of scale Sustainable competitive advantage through improvisation
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Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution
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The number of good journalists are low There is no substitute. Satellite connections are available and their signals have less competition Cost of input is high relative to the selling price of the product.
The viewers propensity to substitute to other media is very high The price of news papers are very low compared to TV channels.
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The radio programs are also cheap compared to TV channels Programs telecasted by TV channels are now available on internet the same day after few hours.