The Five Forces The Five Forces

The Five Forces
The Five Forces, which was made by Michael E Porter in 1979, are external tools that analyze the competition of a business and help to determine a company’s weaknesses and strengths. It also drives the way economic value among industry actors. The five forces are divided into Competition in the industry, Potential of new entrants into an industry, Power of suppliers, Power of customers and Threat of substitutes. (Staff, 2018)
Competition in the industry
It shows the competition in the market, which investigates the number of competitors and what are companies able of doing. The more the number of competitors is high, the less power company has. The chance of looking for a suitable deal from suppliers and buyers will rise if they are unable to find their appropriate deal. When the number of competitors low, it will give to company power to do whatever they want to do to reach higher sales and profit. (Staff, 2018)
For example, in Nike Inc., competition in the industry effect to its share of the sports footwear market. The high market infiltration and saturation of Nike create a strong force to the company. Nike is high aggressiveness and has strong power among its competitors, to beat other competitors for bigger market shares. (Rowland, 2018)

Potential of new entrants into an industry
The power and the market shares of the company can affect the new entrants of the industry. If the company has most of the market shares, it will be difficult for new entrants to join. On the other hand, if the company has fewer market shares, it will be easier for new entrants to join. If an industry is profitable and the new entrants have few barriers to enter, the new competitors will come up rapidly. (Staff, 2018)
For example, in Nike Inc., new entrants or new company may disturb Nike’s market share. However, since Nike has a high reputation for sports shoes, apparels, and equipment market, this force will give the weak force. The high cost of brand development gives new entrants less motivation to enter the industry and to beat the Nike. The high economies of scale and cost of operating give Nike a cost advantage more than new entrants. (Rowland, 2018)

Power of Suppliers
It shows how much suppliers have the power to control the price of goods and services, which would affect company’s profitability. The more suppliers in the market, the less power of bargaining the price. (Competition, 2018)
For example, the large number of competitors affects Nike Inc. to has less power for bargaining the price. The high overall supply and the large population of suppliers decrease effect on Nike’s business which reduces the impact of individual suppliers’ demands on Nike. (Rowland, 2018)

Power of customers
It is focusing on how much the power of consumers to affect item’s price and quality. Consumers have more power when there are fewer consumers and many sellers. (Competition, 2018)
For example, the number of customers effects to Nike’s performance. Nike has low switching cost to customers, which boosts customers to buy other brands of apparels or shoes. (Rowland, 2018)

Threat of substitutes
It examines how easy for customers to move to competitors. It studies the number of competitors and their prices and qualities in the market, which helps corporates to make a decision on setting the prices of products. Furthermore, it is informed by the short-term and long-term switching cost. (Competition, 2018)
For example, the threat of substitutes to Nike depends on Nike’s performance as a dominant shoe market. Since customers have substitutes for Nike’s products and the moderate performance per price of substitutes, these threats of substitutes give moderate force to Nike. (Rowland, 2018)

Scenario planning, which is a way to be ready for multiple potential futures, is based on preparing multiple situations more than predicting. Company prepares several possible future circumstances based on the recent data. Each future prediction that company prepare is just one potential future out of many cases, which impossible to explore all of them. Company must create a handful of plausible alternative futures that capture the most relevant uncertainties and driving factors. The preparation gives company advantages of gaining potential market shares and its competitiveness. Scenario planning offers a real benefit for a company to replace the futile job of predicting future events.
Actually, there is no need to predict specific events, it is more important to identify the smaller number of relevant effects that these events can trigger. For example, we are not able to predict an earthquake, pandemic, economic collapse or an industrial disaster by data. Also, the historical data is hard to gather and only gives the past information to the company, but not the future. It is difficult for the company to prepare the potential future situation. (Introduction to Scenario Planning Video, 2011)
For example, in the 80s, each Detroit three Automakers’ management team were wondering about what the future of their industry. As Figure 1, they prepared 4 plausible scenarios, which are two possible uncertainties during those years: oil prices fluctuations and consumer values evolution over time. They all predicted to “Long live Detroit” scenario which did not see enough to predict the new competitors from Japan