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ISA 235 exam 1 ch 1-4

Terms in this set (54)

Porter's Five Forces is a business analysis model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. It is frequently used to identify an industry's structure to determine corporate strategy. Porter's model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company's long-term profitability. The five forces are competition in the industry, potential of new entrants into the industry, power of suppliers, power of customers & threat of substitute products. The first refers to the number of competitors and their ability to undercut a company. The second refers to the barriers to entry- if there are low barriers to enter an industry, this is bad for existing competitors in the field. The third refers to whether or not it is easy for a supplier to drive up the cost of inputs. The fewer suppliers to an industry, the more a company would depend on a supplier. The fourth refers to the customer's ability to drive prices lower in an industry. A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability. And finally the last force focuses on whether or not there are substitute goods or services that can be used in place of a company's products or services.