If you already own a business and looking for additional insights into the prospects of your existing company, or on the other hand, you are going to take a start of a new business, you possess a number of questions in your mind. To answer those questions, you need some way and porter’s five forces model is one of the several ways available to do so.
In the year 1979, the Michael E. Porter presented the model that focuses majorly on five forces. All these forces combine to proffer the information if someone’s business is going to be profitable or not, depending on the concerned industry scenario.
Understanding the Five Forces: A Generic Overview
The porter’s five forces model consist of the following five forces:
1. Competitive rivalry
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products
Porter’s Five Forces Model: General Motors
A quick overview of porter’s five forces analysis of General Motors GM
1. The threat of new entrants – LOW
2. The power of buyers – LOW
3. The power of suppliers –LOW
4. The threat of substitutes – HIGH
5. The threat of competitors – HIGH
Competitive Rivalry
The first force of the porter five forces model focuses on the competitive rivalry of the concerned industry. For instance, at this point, you are going to get to know about the current competition level in the concerned marketplace. You get to know about your potential competitors in a particular segment and judge their capability. The competition is considered high if there are a number of competitors manufacturing the same quality products as yours.
As a matter of fact, the GM has a number of competitors in the market, for instance, Ford, Chrysler, Toyota, Nissan, etc. All these competitors are well-reputed like GM and giving a tough competition to it. In this regard, the GM Company has to proffer its customers the attractive offers, new and amazing products as well as the low prices, so that it could stand out from the crowd of its competitors.
Threat of Substitutes
This force of porter’s five forces model determines the threat of substitute services or products. At this stage, you determine the ease or the difficulty level of your customers to switch to others, in case if you are not proffering them the satisfactory products or services.
As mentioned above, there are a number of companies which are proffering the tough competition to the GM. In this regard, if the company raises the price of its products, the customers can easily switch to the other service providers that proffer them the same sort of products at much reasonable prices. So, we get to know that the threat of substitutes for GM is at its peak. In this regard, to minimize the threat, the GM needs to constantly look at its policies, the prices of the products in comparison to the other competitors as well as the quality and the features too.
Threat for New Entrants
This force of porter’s five forces analysis is the threat of new entrants. At this stage, we determine the ease or difficulty level for a newcomer to enter the concerned marketplace. You are going to face risk as a business owner if it is easy for a newcomer to enter and establish the business in your industry and vice versa. The potential barriers for the new entrants may include cost, economies of scale, access to inputs and well-reputed brands etc.
The threat for GM about the new entrants is really low. What are the potential reasons behind? The first and foremost reason is that entrance in this industry requires a huge amount of investment, development and research costs and lots of other things like this. All these things combine and make it nearly impossible for the new entrants to enter the market. The second thing is that, if one manages to do so, it also becomes really difficult to earn such a good repute like GM for the reason that earning a good name in comparison to other existing and well-reputed companies make it impossible for the new entrant to come and compete against them.
The Power of Suppliers
This force of the porter forces model deals with the bargaining power of the supplier. The bargaining power of the supplier is analyzing the supplier’s power to raise the prices which will consequently lower the business profitability.
The suppliers have usually the less power in case if they are reliant on high volumes. The reason behind this statement is that the producer can cut down the huge volumes and this will definitely have a negative effect on the supplier’s profits. As mentioned above, thevolume is really vital for suppliers, so in thecase of General Motors, keeping in mind the same statement, the supplier hold the less bargaining power.
The Power of Buyers
This force of the porter model is the bargaining power of the customer analyzes the power of the customers and its effects on pricing as well as quality. Customers are considered in power in case there is less number of customers but the sellers are more in quantity.
If this case, the buyers trust the brand and have very little information about the prices as well as the quality. They like to go to well-reputed brand due to limited information and buy. General Motors have a large number of customers and in this scenario; the customers don’t have the tendency for bargaining so this is a really positive thing for GM. So, we get to the point that the bargaining power of the customers is low as well as they are not going to switch to other producers.
References
Kotha, S. and Orne, D., 1989. Generic manufacturing strategies: a conceptual synthesis. Strategic Management Journal, 10(3), pp.211-231.
Miller, D., 1988. Relating Porter’s business strategies to environment and structure: Analysis and performance implications. Academy of management Journal, 31(2), pp.280-308.