1. Porter’s Five-Force Model (P5CFM) Rev: Sep, 2013 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: http://posmit.postech.ac.kr) Dept. of Industrial & Management Engineering POSTECH

2. 2 P5CFM (1/3) ■What is P5CFM (Porter’s Five-Force Model)? –A tool to know about difference forces that impact on a company’s ability to compete –A tool to diagnose the principal competitive pressures in a market –A tool to assess how strong and important each force is Degree of Existing Rivalry Bargaining Power of Suppliers Threat of Potential Entrants Bargaining Power of Buyers Threat of Substitutes

3. 3 P5CFM (2/3) ForceDescription Degree of existing rivalryThe major determinant of the competitiveness of the industry for most industries Threat of potential entrantsMany new entrants will decrease profitability for all firms in the industry Bargaining power of suppliers When suppliers of raw materials, components, labor, and services have a strong power, they may refuse to work with the firm, or charge excessively high prices for unique resources Bargaining power of buyers The ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes Threat of substitutes The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives Degree of Existing Rivalry Bargaining Power of Suppliers Threat of Potential Entrants Bargaining Power of Buyers Threat of Substitutes ■How to use P5CFM? –External Analysis for the firm –Analysis all the activities according to the description below

4. 4 P5CFM (3/3) ■Example –A lubricants industry analysis