Question

6. Porter's five forces

The costs of producing steel have declined substantially from building a conventional hot-rolled steel mill down to the new minimill technology that requires only scrap metal, an electric furnace, and 300 workers rather than iron ore raw materials, enormous blast furnaces, rolling mills, reheating furnaces, and thousands of workers.

Which of the following forces in Porter’s Five Forces framework would suggest that this technology decrease potential industry profitability?

The power of suppliers

The threat of entry

The threat of substitutes

The power of buyers

The intensity of rivalrous tactics

Answer 1

Ans-D) The threat of entry

Porter's Five Forces were developed in 1979 by Michael E Porter for assessing and evaluating the competitive strength and position of a business organisation.

Porter’s five forces of competitive position analysis

1. Supplier power

2. Buyer power

3. Competitive rivalry

4. Threat of substitution

5. Threat of new entry

Profitable markets attract new entrants, which affect profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.