Apply Porter’s five competitive forces to explain the profit potential of different industries. ¦...

Apply Porter’s five competitive forces to explain the profit potential of different industries.

■ Competition must be viewed more broadly to encompass not only direct rivals but also a set of other forces in an industry: buyers, suppliers, the potential new entry of other firms, and the threat of substitutes.

■ The profit potential of an industry is a function of the five forces that shape competition: (1) threat of entry, (2) power of suppliers, (3) power of buyers, (4) threat of substitutes, and (5) rivalry among existing competitors.

■ The stronger a competitive force, the greater the threat it represents. The weaker the competitive force, the greater the opportunity it presents.

■ A firm can shape an industry’s structure in its favor through its strategy.