Section 2: Strategic analysis
Attractiveness of an industry
The attractiveness of an industry - whether or not it is a profitable industry to be in or get into - and the level of competition within it will depend on five things:
- threat of new entrants
- rivalry among existing firms
- bargaining power of buyers
- bargaining power of suppliers
- threat of substitute products and services.
Hover over the boxes in the diagram below (adapted from Porter, 1980) to find out more about the things that affect the strength of each of the five forces.
If you want to find out more about these factors, click here to download a document entitled 'Factors that can influence the strength of each of the Five Forces'.
Activity
Match each of the following examples to one of the five forces by dragging and dropping the profiles into the appropriate place in the table below.
Having looked at the five factors and those things that might contribute to the strength of each force, you need to be able to quantify whether the threat in each case is low, medium or high.
Activity
To try this rating out, think how you might rate the strength of each force for the world car industry by selecting low, medium or high. When you have completed the activity, click on the feedback heading for our assessment.
Having identified the strength of each of the factors, you need to stand back and look at the whole picture to assess the overall attractiveness of, or level of challenges within, the industry.
It is also important to remember that what you have is a current picture - things may alter rapidly. You need to be aware of standards and trends within your own industry that may prompt change. The role of technology, networks and information may be significant.