Question

You are about to open your business and ventures into technology industry. Your selling products could include computers, smartphones, IT services, e-commerce, software and hardware, games, robotic and any other business model that can be viewed include in technology industry. Consider the following factors:

You decided to operate in 500 square feet retail space in one of the popular shopping malls located in Cheras, Kuala Lumpur. The rent is RM8000 per month. To create a business strategy and explore the commercial values of your new business, you need to gain the overall assessment of the attractiveness and market position of the industry that you choose to enter. Describe the benefits and drawbacks of being a new market entrant in the technology industry by using Porter’s Competitive Forces Model.

Answer 1

If we want to sustain in the business you should get minimum RM96,000 per year, since your fixed cost is RM96,000 as rent per year.

Porter's competitive forces model is –

1. Competitive Rivalry
2. Supplier Power
3. Buyer Power
4. Threat of Substitution
5. Threat of New Entry

1.Competitive Rivalry : We should understand the capacity of the competitors before entering into the industry. If your competitors are more stronger, it will be very difficult to penetrate into the market and get the market share from the existing competitors.

Technology industry : You are going to operate in technology industry, one should understand the who are selling the same products in the industry. For example computers, the competitors are HP, IBM etc., We should understand the selling prices of these competitors and since products are technology products, we should understand the features of product giving by the competitors. Competitors always try to restrict the new ones come in to their industry by cutting their selling price and high impact marketing campaigns. Who are already penetrated in the market are try to give the high discounts to protect from market share losses due to new market entrants.

2.Supplier Power: We need to understand the suppliers of the input material of your final products. If the supplier are stronger, they will decide at what rate you need to buy the inputs from them. If your input supplier is the monopolistic in nature, supplier bargaining power will be higher. Supplier status is decided by the alternatives available in the market. If the supplier is unique, he would be very strong in the market. If number of alternative vendor is availbale in the market place, we can choose the cheapest vendor and as a buyer we can decide the vendor. We need to understand what is the stitch over cost from changing form one vendor to another, if your switch over cost is more, your supplier will have the more power than you. Supplier prices will impact your cost and profit.

Technology industry : If you are going to start the e-commerce business, we should analyse the who are the supplier are giving the products and services to customers. You should go and meet and convince them for the better prices. Many factors like payment methodology, goodwill will decide the supplier prices. Since you are newly going to start the business, you should strictly follow the commit to your suppliers.

3.Buyer Power: The buyers power decides the future of your business. Buys are always choose the product from the alternative available in the markets, buyers will go with the lowest cost among the same featured products. In some case for getting the orders, we need to accept the prices of the buyers. If your selling capacity is more and buyers are less, your buyer will be more stronger.

Technology industry : We gets the bulk orders from the institutions. But the buyers are more powerful because of their buying power is more. The industry is growing rapidly in Malaysia, the buyers of the technology products will be more. In the scenario, if you start the business, you will get the benefit of growing industry.

4.Theart of Substitutions : Most of the products having the alternatives and substitution in this world. Before entering into the business, we should understand the substitutions of our selling product.

Technology industry : Earlier computers are used for data preparation, analysation and sending communications etc., few of the companies are now using the laptops instead of computers. For receiving and sending the mails mobile phones and note pads are using. Technology is changing rapidly in this industry, you need to update based the emerging market. So, before entering into the business we should analyse, what is the treat of substitutions for your products.   

5.Threat of New Entry: It is very important that, if entering into your industry is easy, then you will have more threat of new entrants. Your business will be volatile based on the new entrants. We should analyse, what is the cost to be born for enter into the industry, how much time it will take to enter, what is the policies for starting a business in the industry. If it is easy your will be volatile.

Technology industry : Since growth is there in the industry and the government in Malaysia is encouraging the new companies in the technology industry, there is always been a threat of new entrants in the technology industry.