A comparison of the two analyses would reveal which of the two companies would continue to generate greater profits in the next five years. Whichever company has the greater positive expectations of the future would be a better buy. Porter’s five forces analysis A company’s business performance is not a world of its own. It operates in an industry the performance of which will affect the performance of its own operations. It happens rarely that one business organization can alter the course of an entire industry. One of those rare cases is the software industry which Microsoft dominates.
Microsoft has such a commanding presence in the software industry that whatever it does has a major impact on the industry as a whole and the other players in the industry have little choice but to follow its lead. In the consumer goods industry however, in which Marks & Spencer operates, the situation is hardly that simple. The consumer goods industry is a highly competitive industry and therefore Marks & Spencer on its own will not be able to make an impact to the extent that it can turn the whole industry around assuming that the industry is not doing so well.
Therefore the five forces analysis will have to be conducted rigourously to make sure that the future projections concerning the company’s profitability are reliable. In the case of the consumer goods industry, barriers to entry are very low. This has happened because of the emergence of the e-commerce business model which Amazon. com pioneered. Because most of the consumer goods can be sold online, capital expenditures have been brought down to a minimal. A company like Amazon. com does not have to invest billions of dollars in renting space.
It does have to maintain distribution warehouses, but then those companies in the consumer goods industry which do not conduct operations online or which, at the very least, jumped on the internet bandwagon a bit late in the game and are currently selling online and the traditional way concurrently, have to maintain not only the distribution warehouses but also miles of space for brick-and-mortar department stores. This nearly doubles operating expenses for companies like Marks & Spencer. Therefore, the low barriers to entry are definitely a threat for MarksSpencer.
The remaining four forces of Porter’s industry analysis do not present a brightly glowing prospect either. There is the threat of substitutes which is a very real threat indeed for the company. Consumer goods like sports equipment are widely available resulting in the fact that consumers shopping for sports equipment have a wide array of choices. When this happens, majority of the consumers look for price rather than quality. Therefore whichever company can offer these goods at the lowest price will attract the greatest number of customers.
E-commerce companies are in the best position to do that. Amazon. com, which developed the e-commerce business model to the level of popular support that it enjoys today, sell their products at a much lower price than its counterparts following the traditional business model are in a position to. Because operating expenses at Amazon. com are minimal compared to those that traditional business models like MarksSpencer have to bear, Amazon. com can get away with charging very low prices.
For the same reason, MarksSpencer is not in a position to set a price that will compete effectively with those set by the businesses like Amazon. com doing their businesses exclusively online. Because the operating expenses of maintaining department stores are high, the company will have to set proportionately higher prices and that will not work in the company’s favour. By the same token, threat of competition facing MarksSpencer is not to be taken lightly either. Low barriers to entry and the high threat of substitute products ensure that the consumer goods industry will never be short of competition.
This is good for the consumers but not for MarksSpencer. The fact that consumers welcome competition and suppliers like MarksSpencer do not and the additional fact that there is a high level of competition in the consumer goods industry ensure that as far MarksSpencer is concerned, buyers will be enjoying higher bargaining power than suppliers. Consumers in this industry enjoy so much in terms of choices that any company which seeks to set a slightly higher price than the industry average stands to lose market share drastically.