When deciding whether or not to enter into a particular industry, doing extensive research is essential. Especially doing a thorough industry analysis is necessary into determine the success of a business. By applying porter’s five forces, we can better understand an industry context in which our future firm will operates in. The logic behind porter’s five forces (supplier power, barriers to entry, threat of substitutes, buyer power, and rivalry) is to determine if an industry is profitable or not by using the five forces. The five categories describe by porter are problems that a business often encounter in a industry and greatly influence the outcome of the business. Porter’s five is an effective way to analysis an industry by examine the supplier and buyer power which in turn can determine our bargain for better terms and to minimize our cost factor. For example, for suppliers, we need to find out how many suppliers is within the industry, the number of buyers, if anything, what is the switching costs to buyers and the important one, the availability of substitutes in case we need to switch a supplier. For buyer, we need to examine the number of sellers or competitors within an industry to determine our bargain power with the buyer to come up with a gross profit. This leads to our next two forces, the current competition and potential competition which are critical for a business to decide whether or not to enter into a particular industry.
To apply the porter’s five forces to the nonalcoholic beverage industry we can say that this industry has high barriers to entry; as a result it keeps potential new competitors out of the market. For example, there is brand loyalty of existing firms, like pepsi and coca cola that dominant the market which is one of an existing barrier to enter to this industry. Other factor should as capital requirements to establish a factory, research development, advertisement to promote your existing product which will be costly.
