Porter’s 5 forces

A company should analysis the micro and macro environment to understand it situation. Porter’s 5 forces is a tool to analysis the micro environment and identify the profitability of a company. It analysis on 5 ways, threat of substitute products, threat of new entrants, bargaining power of buyers, bargaining power of suppliers and intensity of rivalry within the industry. http://www.youtube.com/watch?v=9CHZ44_at6I This video is using sports wear for an example, and below I will use Smartphone industry for an example :

Threat of substitute products (+ +)

Smartphone is a useful thing for everyone, most people have own at least one of it. A smartphone not only can call or text to someone else, but also playing games, listening music or watching video.  http://www.youtube.com/watch?v=2LHv1FPd1EcThere are no substitutes can replace it in any other industry.

Threat of new entrants (+ +)

There are high barriers to entry this industry, high cost, high switching cost and hard to separate market share from other company. If a company would like to enter this industry, they should invest a lot of money on technology, engineering, development and design, and this increase the switching cost. Apple and Samsung are the market leader in this industry; they own a large percentage of market shares and have a lot of loyal customers. Thus, a new entrance is very difficult to own many market shares.

Bargaining power of buyers (+)

Customers have low bargaining power in this market. Although there are a lot of different brand of smartphone on the market, they cannot affect to the price because smartphone is high-technology products, it has its market price. The bargaining power is on the company.

Bargaining power of suppliers (-)

A high bargaining power of suppliers influences the company profit. There are few suppliers and the products are distinctive, so the company cannot argues on the price.

Intensity of rivalry within the industry (-)

It is a high intensity of rivalry within the industry; there are many brands such as Apple, Samsung, Google, Blackberry, Sony and HTC provide similar products in the market. They all and fight for market share, therefore, company should focus on development on the phone become more different to other brand to attract customers buy their products.