That a business works does not depend exclusively on the entrepreneur and his resources, raises this expert in his already classic model. The forces that make up a sector determine many possibilities for success. Many businesses fail even when they have qualified money resources and entrepreneurs. In the structure and forces at play in an industrial sector may be the keys to understand not only the entry barriers that hinder access.
The dynamics that can make it impossible to move forward with a new business. Harvard expert Michael Porter developed an already classic model of business management to analyze the industrial sector that is, forces acting on a set of companies offering similar products or services pharmacies, Gastronomic sector, supermarket, etc. Briefly, these five forces to consider understanding a line of activity are:
The internal rivalry can affect all participants for example through price competition, cooperation launching similar products alliances among other behaviors, some positive and some negative. Substitute products. Also identified as indirect competition it refers to products, which have a function like or wholly or partly satisfy the same need as the product of the sector. For example, in the soft drink market can affect juices or flavored waters. In diet, supermarkets in the shoe shops, the sports houses.
Which companies can enter the sector and become competitors? What entry barriers can prevent you? Maybe my business is the first in the business in my city. I cannot forget to keep in mind that the big chains or other entrepreneurs decide to arrive if I do well. In some sectors, customers are powerful large purchasing companies while in others they have low individual impact kiosks home services retailing in general. How can buyers affect the sector? Forcing down prices negotiating superior quality requiring greater services integrating to the market.
Suppliers are an essential part of the dynamics of a sector. They can establish and modify prices reduce the quality of products or services integrate to the market generate shortages or delays in production etc. They exert more pressure when they are unique or very few. You can see more about their behavior in this note.
Each force can act positively or negatively on the sector creating opportunities and threats for the participants. If the competitive forces as a whole have a positive impact the sector has a greater attractiveness and potential for profitability whereas if they are negative they can affect the profitability and the chances of success of the companies in the market. For example, no matter how skillfully you operate a necktie typewriter or paddle tennis business it is likely to go wrong and you should revert because the industry is very unattractive at present.