Question

Outline Porter’s five forces model of industry competition. How are the various barriers to entry relevant to global marketing?

Answer 1

Q.1)

These forces are as below:

1. Challenge from new entrants

2. Substitute goods or services

3. Suppliers’ perspective

4. Buyers’ perspective

5. Industry competition

The model is described below:

Challenge from new entrants: if the market is free, the entry for new firms is open; it happens in perfectly competitive industry. The industry is monopoly if there is only one firm and new entry is restricted.

Substitute goods or services: Tea is a substitute product of coffee. If the coffee price is high, consumers may switch to tea. In that case the business of coffee could be down.

Suppliers’ perspective: They can bargain for increasing price. Sometimes their bargain might not be ruled out, which can damage the business.

Buyers’ perspective: They bargains for decreasing price. But price cut is not always possible by the coffee shop because of maintaining profit.

Industry competition: The industry as a whole is a great challenge to a business firm. The firm has to monitor what new flavor, taste, quality, and price of products are introduced in the market. This is necessary for updating, which is required to stay in the competition by keeping customers.

Q.2)

The restriction on entry of new firms in an industry is called barrier to entry.

If there is no barrier, like perfectly competitive market, entry has no restriction for global marketing. New farms enter the market by seeing the other firms enjoying abnormal profits (Price > Average Total Cost). Once they enter, they create competition to pull down price and because of it enjoying such abnormal profits is no longer remained.

In order to minimize such competition barrier to entry is required. It happens to monopoly (with single seller) and oligopoly (with very few sellers) businesses. These businesses do not require completion for betterment of their products and/or prices, because either they are dealing with scare resources or social interests. Competition could damage their purpose. Global marketing is not possible there.

Some country has import restriction. This is also a barrier to entry, because marketing is not possible in that country. Global marketing is only possible in those countries where the government is liberal to foreign goods and firms.