Question

Question 1: Identify the five competitive forces (Porter's Five Forces) that determine industry profitability. Are some industries more profitable than others? If so, give an example of a profitable industry and a not-profitable industry.

Question 2: Choose a health care related industry. Analyze the industry in terms of Porter's Five Forces

Answer 1

1. Porters Five Force model is a concept used to analyze the market conditions and the competition they can face. The model is divided in to 5 areas:

• Threat of new entrants
• Threat of substitutes
• Bargaining power of Customers
• Bargaining power of Suppliers
• Industry Rivalry

Threat of new entrants: This is the area, where new completion will come into the market and can give high completion to existing players. For such a scenario, there will be low entry barriers, easy government regulations, less switching cost for customers, lower capital funding and high industry profitability.

Threat of substitutes: This force is about the alternatives present in the market for the given product or service. In such cases, buyer should be willing to move to new alternative, switching costs should be less, better performance or quality is needed in substitute and very high number of substitutes is available in the market.

Bargaining power of customer: This is the ability of the consumers to get their requirements at their conditions and costs. For such a scenario, buyer switching costs should be les and a high number of alternatives should be available in the market.

Bargaining power of Suppliers: This is the ability of suppliers to get their conditions and costs set for any product or service. In such cases, there will be low alternate suppliers and high demand of the product in the market, high switching costs, low substitute products and high threat of new entrants.

Industry Rivalry: For companies already existing in the same business space, there will always be inter rivalry between them. When firm A provides a service as Cost A, firm B will ensure that the similar service is available at cost B where B < A.

2. For health care sector:

• Threat of new entrants : Very low risk new entrants since entry costs are high. Getting a government regulation and approval also takes time and high costs are involved in the same.
• Threat of substitutes: There are very less to no substitutes for healthcare industry
• Bargaining power of Customers: Customer bargaining powers are also be moderate in this industry. There will be alternatives in terms if hospitals or medicines but every where the costs will be similar as the one they first visited.
• Bargaining power of Suppliers: Suppliers powers are fairly moderate in this industry. There are many suppliers for pharmaceuticals and other drugs and though some provide specialized medication, the dependency on them can be reduced over time.
• Industry Rivalry : there is high level of competition in healthcare area, where a lot of hospitals and private clinics are already present. In addition to that, new ventures help in focused treatment using non western techniques too.