1/20/2024 0 Comments Micro environment factors![]() ![]() Industry growth can increase or decrease the chances a new entrant will succeed. For example, the firms in the airline industry rarely face threats from new entrants because it is very expensive to obtain the equipment, airport landing rights, and expertise to start up a new airline.īrand loyalty can also keep new firms from entering an industry, because customers who are familiar with a strong brand name may be unwilling to try a new, unknown brand. Common barriers to entry include cost, brand loyalty, and industry growth. These either are firms that start-up in the industry as new companies or are firms from another industry that expand their capabilities or target markets to compete in an industry that is new to them.ĭifferent industries may be easier or harder to enter depending on barriers to entry, and factors that prevent new firms from successfully competing in the industry. If an industry has a growing market or is very profitable, however, it may attract new entrants. In an industry, there are incumbent (existing) firms that compete against each other as rivals. An industry with weak rivalry will have few firms, meaning that there are enough customers for everyone, or will have firms that have each staked out a unique position in the industry, meaning that customers will be more loyal to the firm that best meets their particular needs. Strong rivalry in an industry reduces the profit potential for all firms because consumers have many firms from which to purchase products or services and can make at least part of their purchasing decisions based on prices. In the case of rivalry, the question of strength focuses on how hard firms must fight against industry rivals (competitors) to gain customers and market share. When using Porter’s model, an analyst will determine if each force has a strong or weak impact on industry firms. This is because each force can affect how hard firms in an industry must compete against each other to gain customers, establish favourable supplier relationships, and defend themselves against new firms entering the industry. Note that the arrows in the diagram show two-way relationships between rivalry and all of the other forces. Industry rivalry, the first of Porter’s forces, is in the centre of the diagram. ![]() Image © Rice University & OpenStax, CC BY 4.0 Industry Rivalry 5.4 Porter’s Five Forces Model of Industry Competition It is important to note that this tool is different than Porter’s generic strategy typology that we will discuss later. Each of the forces represents an aspect of competition that affects a firm’s potential to be successful in its industry. Porter’s Five Forces is a tool used to examine different micro-environmental groups in order to understand the impact each group has on a firm in an industry (Figure 5.4). Harvard strategy professor Michael Porter developed an analysis tool to evaluate a firm’s micro environment. Firms in an industry may or may not compete directly against one another, as we’ll discuss shortly, but they all face similar situations in terms of customer interests, supplier relations, and industry growth or decline. All firms are part of an industry-a group of firms all making similar products or offering similar services, for example, automobile manufacturers or airlines. 5.4 A Firm’s Micro Environment: Porter’s Five ForcesĪ firm’s micro environment is directly connected to the firm in some way, and firms must understand the micro environment in order to successfully compete in an industry. ![]()
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