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The five forces are environmental forces that impact on a companys ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.
Barriers to Entry
Switching Costs
Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy
Expected Retaliation
Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product
Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases
Staging advertising battles Increasing consumer warranties or service Making new product introductions
Yet, the five forces affect all the other businesses in that industry.
Growth
Internal External
Licensing Franchising Strategic Alliance Joint venture Merger & Acquisitions Green field ventures
Concentration growth
If a companys current product lines have real growth potential. Growing firms in a growing industry tend to choose these strategies
Vertical
Forward integration
Assuming a function previously provided by distributors Assuming a function previously provided by a supplier
Backward integration
Horizontal
Concentric growth
Related diversification
Transferring competitively valuable expertise, technological know-how and other capabilities from one business to another. Combining related activities to reduced cost Achieving economies of scope Exploiting well known common brand name / contact Achieving synergy 1+ 2 > 3 Examples Rolls royce Aircraft , Automobiles eng GE electrical appliances , captive power gensets, energy generation / diesel locomotives
Conglomerate growth
Un-related diversification
Diversifying into an industry unrelated to its current one. Future growth given importance To spread the business risk Ex TATA : steel / Automobile / IT / Tea / FMCG / Life Style / Publishing / Power & energy ITC Cigarettes / FMCG/ Packaging King fisher Hard Drinks / Airlines Wipro FMCG/ IT / Electricals Godrej Machine tools / FMCG
Turn Around
Turn around management refers to the management measures that reverse the negative trends in the performance indicators of the company (ie) turn a sick company back to a healthy one.
Persistence negative cash flow Declining Market Share Deterioration in physical facilities
Changes in Top management To initiate credibility action Neutralizing external pressure Initial control / cost control Revenue generation thru liquidation of Nonperforming assets Better co-ordination