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Five Forces Analysis

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Five Forces Analysis

Michael Porter’s five forces Analysis is a tool for the structural analysis and shape the competitive structure of the company. The objective of strategic planning is to modify these competitive forces such that the company’s position is improved. Management can decide how to influence or to develop industry characteristics, based on the information given by the Five Forces model. There are:

2.1 Threat of New Entrants: New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. New entrants frequently bring additional capacity to an industry. Thus it is possible that prices will be bid down and industry profits diminished. In the knitwear industry, new entrants could quickly enter the industry because it costs little in time or money to enter the market and compete effectively, and there are few economies of scale in place, or have little protection for the key technologies, so that new competitors can quickly enter the market.

2.2 Threat of Substitutes: Substitutes are new products (or services) that are quite different than the original product or service. A threat exists when a product’s demand is affected by the price change of a substitute product. When the demand for a product declines due to either lower prices of better performing substitute product, low brand loyalty, new current trends or low switching cost. There is a high threat of substitutes in the knitwear industry such as sweater, cardigan and cashmere or other dressing and the fashion trend change in every season, people wants to buy the fashionable clothing and make the elastic of the knitwear is very high.

2.3 Bargaining Power of Buyers: A ratio of suppliers to buyers in the market is the foremost factor affects the buyer’s power. If there are many suppliers and only a few buyers, the buyer’s have the power to negotiate the price. The idea is that the buyers would have many choices of where to buy the materials they need. Such as the Knitwear industry, if the price of the goods is too high, then customer could easily go to the competitors that would offer the same product for less. Brand loyalty, threat of backward integration and marketing based on factors other than price also influence buyer power.

2.4 Bargaining Power of Suppliers: Supplier’s power is the ability of a supplier to control the cost and supply of the inputs in the market.

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