Porters analysis


2.0 Porters Analysis

The Porter's 5 forces is a simple tool but powerful enough to understand where powers lies in a business situation. Porter have introduce that 5 forces that is 6the bargaining power of customers, the threat of the entry of new competitors, the threat of substitute products, the intensity of competitive rivalry and the bargaining power of suppliers. The bargaining power of customers means the ability of the customers to put the firm under pressure to change the price of the goods and also affects the customer's sensitivity to price changes. The customer bargaining power will be high when there a large volume of customers buying the product means there's is concentration of buyers, if these large group of buyer stop buying the product the company will be making a loss of the market share will also making a loss in the profit. The second factor would be the product is undifferentiated and can be replaces by substitutes means the customer can buy the same product from the other manufacturer. Acer substitute would be hp and Dell and Lenovo because they do manufacturer laptop and desktop. But Acer has come out with a very unique line of product that is the Acer Timeline Series, this series offer the screen size from 13.3 inch to 15.6 inch. The threat of the entry of new competitors means the barriers of entering into the industry. There are several things the company needs to be considering before going into any industry that is the high exit costs, interrelated businesses and customer loyalty. There will be high exit cost due to a lot of machinery need to be setups for manufacturing laptop and desktop all this setup need a large amount of money and when the manufacturer tends to leave the business it will lost all of this capital and asset unless he decide to sell those machinery to the other company this well lower down the exit cost. Interrelated businesses means there will be other manufacturer doing the same product as you are manufacturing, means they will be your competitor in the market. Customer loyalty means customer would like to stay with the brand they are using at the moment, this may be the company is doing a really good in after sales service. For example their product like Acer has a 3 year warranty for the laptop, while others rand doesn't provide this service for their customer.

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The threat of substitute products means the customer can find the product that almost has the same function with your company product. This may be due to the product you are selling is too expensive or the price is not reasonable thus making the customer to buy the product from other manufacturer. The other factor may be current trends now day's people like to follow on the latest trend or so called fashion. Acer has come out with the trendiest laptop that is thin and long life time for the battery that can up to 8 hours.

That is the Acer Timeline Series it does not only have 8hours of battery life, it also ultra thin that less than 1 inch, that makes convenient for people to bring along anywhere, it also has multi gesture touch pad which can used like a mouse and also has a HD(high definition) which is as high as 16:9. We can see how it looks like in appendix 1 for the Acer Timeline Series. The Acer Timeline Series will cost from RM 2,000.00 to RM 3,250.00. Even though Apple has come out with the Macbook air but it still doesn't get a lot of attention due to it expensive price its price starts from RM 5,599.00 to RM 6,799.00 and it does not have a long battery life. By referring to appendix 2 we can see how a Macbook Air looks like. Sony has recently launched on 10th November 2009, but it price starts from RM 3,999.00 to RM 5,299.00. We can see how the Sony VAIO X looks like in appendix 3. Overall from the price review Acer Timeline Series still leading ahead of Macbook Air and the Sony VAIO X due to the price. 15The intensity of competitive rivalry in most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. By sustaining in the market a manufacturer has to make improvement or come out with new products that the other manufacturer does not manufacture or the product can be environmental friendly because now people want things that can reduce rubbish or wastage. Thus this will lead to a high barrier to exit. Acer has been doing this through manufacturing the Acer Timeline Series that allows a long battery life up to 8hours. Acer notebook pc market share in Europe increased in the third quarter of 2004, versus 11.4 percent in the third quarter of 2003.

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The bargaining power of suppliers is described as the market inputs. Supplier bargaining power will be high when the market is dominated or monopoly by one or a few suppliers. Thus when the supplier refuse to supply goods to the manufacturer the whole manufacturing process will stop. For example Acer main processor supplier will be AMD and Intel. If both of these suppliers simultaneously increase their price and Acer has no choice either to continue to buy the processor from them. This will lead the product of Acer to increase the price due to more expensive on processor if this happens consumer will tend to buy other brand of laptop or desktop thus Acer has loss part of its market share. To mitigate the power of supplier is to build win-win relationships with suppliers or arrange to use multiple suppliers. By making a win-win situation we can pay advance payment or pay the debt on time.

3.0 Limitation of the Porters analysis

In the Porters analysis it has introduce the 5 forces that is the bargaining power of customers, the threat of the entry of new competitors, the threat of substitute products, the intensity of competitive rivalry and the bargaining power of suppliers. Michael Porter 5 forces analysis mostly focus on company external competitive environment. Below are the ways that can be used to overcome the limitation of Porters 5 forces. We can use SWOT analysis to overcome the limitation of Porters 5 forces, SWOT analysis is a strategic planning used to estimate the strengths, weakness, opportunities and threats involves in a business operation. It involves specifying the objective of the business operation or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. When the company has identified their strength they will put more effort to manufacturing or the best good. While the company have known or indentify the weakness they will correct it. Thus SWOT analysis will be used in decision making because it can provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea. The strength of Acer is the support sales activities by understanding their customers' businesses better and, able to keep fully up to date on their competitors' business structure, strategy and prospects and qualify prospective partners and suppliers. PEST analysis can be used to overcome the limitation of Porters 5 forces. PEST stands for political, economic, social, and technological. PEST is a scan of the external macro-environment in which the firm operates. PEST analysis is a useful tool for the company to understand market growth or decline, and as such the position, potential and direction for a business. PEST analysis is a business measurement tool. Based on Acer strong research capabilities it allows them to determine the needs of their customers and their expectations. PEST analysis and market research findings can segment the market and develop cost effective ways of reaching them.

This ultimately translates into strengthening Acer position in the market place and displacing competitors. The third way to overcome is the product life cycled (PLC) is a new product progresses through a sequence of stages from introduction to growth, maturity, and decline. Product life cycled is developed by Raymond Vernon. After a product moves through all these stages, it's pricing, promotion, packaging, and distribution are re-evaluated and changed if required to prolong its life the life span of the product in the market. We can see how a product life cycle will go in the appendix 4.

By preventing his product to fall at decline stage, Acer has a plan that is to upgrade his existing laptop into window 7 or by upgrading its storage volume this allow it to keep in trend with the latest window in the market. Value chain analysis is a concept from business management that was first described and popularized by Michael Porter in his 1985. Value chain analysis states how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. By referring to appendix 5 will see the process of value chain analysis. Value chain analysis will help the company to specifically analyze and help create to a competitive advantage. Value chain is a very useful way to deliver maximum value to your consumer and to maximize the value of your product in the market. Acer has making a very wise decision that is by providing its product to have a 3 years warranty, thus customer will prefer to buy Acer because it has a longer period of warranty compare to other brand of laptop. Benchmarking will also be another way to provide solution for the Porters 5 forces.

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Benchmarking is the process of comparing the business processes and performance metrics including cost, cycle time, productivity, or quality to another that is widely considered to be an industry standard benchmark. There are 4 keys steps involving in the application of benchmarking that is understand in detail existing business processes, analyze the business processes of others, compare own business performance with that of others analyzed and implement the steps necessary to close the performance gap. Acer has used the benchmarking for role of key performance such as quality, distribution, supply chain management and pricing. The last way that I can mention to overcome or give solution is the six sigma. Six sigma is a business management strategy originally developed by Motorola. Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects and controlling variability in manufacturing and business processes. By using the six sigma theory Acer has give a three year warranty on its laptop, this is to give confident to the customer that their lifespan is longer than other brand laptop.

4.0 Conclusion

Acer is a laptop and computer manufacturer The Company owns the largest franchised computer retail chain in Taipei, Taiwan. Acer is an ISO 9001 and 14001 certified company, meaning their quality control and environmental management systems meet international standards. Porters 5 forces are a tool that helps company to understand the business environment more. The 5 forces are bargaining power of customers, the threat of the entry of new competitors, the threat of substitute products, the intensity of competitive rivalry and the bargaining power of suppliers. Acer has used these 5 forces to gain the competitive advantage, gaining the market share, and how to provide a win-win relationship with the supplier. Since Porters 5 forces does not really cover all the information that a company need, we have to used other analysis such as SWOT analysis, PEST analysis, product life cycled (PLC), Value chain analysis ,Benchmarking and six sigma . By using this analysis we can overcome the limitation of Porters 5 forces.