Question

Using porter five force model explain how strong is the existing rivalry competition of the sportswear industry? Explain why you answered the way you did.

How strong is the threat of new entrants of the sportswear industry? Explain why you answered the way you did.

How strong is the bargaining power of buyers of the sportswear industry? Explain why you answered the way you did

Answer 1

Michael Porter's five force model is a is a tool for analyzing competition of a business. It has horizontal tools like competition--the threat of substitutes, the threat of existing rivals, and the threat of new entrants.

And two others from 'vertical' tools--the bargaining power of suppliers and the bargaining power of customers.

Assumption: USA sportswear industry

Existing rivalry is very strong as this industry is oligopolistic in nature. A few dominant players decide prices. Eg. Nike, Adidas.

Oligopoly markets have very strong competition.

How strong is the threat of new entrants of the sportswear industry? Explain why you answered the way you did.

The threat of new entry is limited as existing players are controlling higher market shares with diversified products and are also price makers and can follow aggressive pricing strategy to kill new entrant in the market. Hence entry is difficult for a new firm.

How strong is the bargaining power of buyers of the sportswear industry? Explain why you answered the way you did?

Buyer have limited bargaining power because sellers are price makers and there is tacit collusion in which prices are set in a particular band and customers do not get high difference in prices. All major sellers charge a higher price. Customers are many a times brand loyal and hence bargaining power reduces for them. It is also a fact that existing sellers compete on features and not on price aspects.