5.

3 Michael Porters Five Forces Model

5.3.1 Introduction

Analysis of Porter's Five Forces for Shipping Industry

Porter's five forces is a framework for analysis of industry and development of business
strategy, it also determines the competitive intensity and attractiveness of a market.
Attractiveness is referred to overall profitability of industry while unattractiveness drives
down profitability. This model implies that profitability or return should be constant across
firms and industries; however studies have affirmed that different industries can have
different levels of profitability due to their varied structure. The model can be used by
organizations to develop edge over rivals. Conventionally, this tool is used to identify
whether new products, services or businesses have the potential to be profitable.

Attractiveness for Shipping Industry

Government of most of the countries is liberal towards the licensing and development of
shipping business. Major part of the countrys economic profit will be evolved from the
shipping business. So the threat of new entrance is high, but as the profit margin is high, the
attractiveness is also high. Many competitors are available in the market and they provide
perfect substitution in terms of services, freight rates etc, but the resources are also easily
available. So the attractiveness is also high. Suppliers are more in this field and the available
facility is very less so the cost is high, which makes suppliers in weak and buyers in strong
position. So the industry attractiveness is low in this case. The bargaining power of buyer is
high and potentiality of business is high then many buyers will be there in the market. This
will increase the attractiveness. Existing players are many, but constant technological
advancement and updated services and facilities will increase the attractiveness.
 PORTERS FIVE FOECE MODEL DIAGRAM :

PORTERS FIVE FORCE MODEL :

1.Threats Of New Entrants.

2. Bargaining Power Of Buyers.
3. Bargaining Power Of Suppliers.
4. Treats Of Substitutes
5. Rivalry Among Existing Competitors.

1. Threat of New Entrant:

With the increase in world trade and ease of norms and barriers, it is an incentive attracting
new entrants

Government assisted lines

However the problem pertains to large capital investments in form of vessel and container
procurements and risk of operating vessels.

Many foreign players involved who have their arms extended in India

Sr Factor Wight Low 2 Mode 4 High Total

no 1 5
rat
3
1. Existance of Barriers to 0.20 0.80
Entry

2. Capital Requirement 0.25 1.25

3. Access to Distribution 0.15 0.30

4. Chance New Sector 0.10 0.10

5. Absolute Cost 0.10 0.10

6. Government Restriction 0.20 0.40

TOTAL 1 2.95

o The Threats of New Entrance in the shipping industry is 2.95/5.i.e Low to

Moderate For The Shipping Industry.
2. Bargaining Power Of Buyer:

Buyer is one of the strongest factor in shipping line business. Buyers may be in form of
importer and exporter, clearing agent, freight forwarder or manufacturer of goods.

Due to high competition the bargaining power of the buyers is high

Buyers information and awareness is also moderate to high

Sr no Factor Wight Low 2 Mode 4 High Total

1 rate 5
3

1. Swiching cost of buyers 0.25 0.50

2. Size Of Purchase 0.10 0.10

3. No. Of Buyers 0.30 0.90

4. Emergency Of Buying 0.10 0.10

5. Availability Subsitute 0.25 0.50

TOTAL 2.10

o The Bargaining Power Of Buyers in the shipping industry is 2.10/5.i.e Low to

Moderate For The Shipping Industry.

3.Bargaining Power Of Supplier:

Due to the high number of suppliers the price factor remains weak for them

For the suppliers perspective the switching cost is very high.

Sr Factor Weight Low 1 2 Mod 4 High Total

No erate
5
3

1. Swiching Cost 0.20 0.40

2. No. Of Suppliers 0.30 0.90

3. Strength Distribution Channel 0.20 0.40

4. Supplier Compition 0.20 0.40

5. Supplier Awareness 0.10 0.10

TOTAL 1 2.20

o The Bargaining Power Of Suppliers in the shipping industry is 2.20/5.i.e Low to

Moderate For The Shipping Industry.
4.Treats Of Substitutes:

Threat of substitutes is low. But the increase in FDI is making local manufacturing popular
and therefore a threat to the shipping industry.

Sr Factor Weight Low 1 2 Moderat 4 High Total

No
3 5

1 Availability of the substitutes 0.25 0.75

2 Price of substitutes 0.25 0.75

3 Quality performance of substitutes 0.20 0.40

4 Buyer Switching cost 0.20 0.40

5 Cost factor is less. 0.10 0.20

Total 1 2.50

o The Threats of Substitutions in the shipping industry is 2.50/5.i.e Low to

Moderate For The Shipping Industry.
5. Competitor Rivarly
There is large number of competitors and therefore the competition is high. Industrial growth
and new opportunities attract new entrants.

Sr Factor Weight Low 2 Moder 4 High Total

No. 1 ate 5
3

1. Powerfull Competitive Strategy 0.30 0.90

2. Level Of Advertising Expanses 0.10 0.10

3. Switching cost 0.25 0.50

4. Research And Development 0.25 0.50

5. Product Differentiation 0.10 0.10

TOTAL 1 2.10

o The Rivarly Among Existing Competitors in the shipping industry is 2.10/5.i.e Low to
Moderate For The Shipping Industry.
 CONCLUSION

Poeater Five Force Model Analysis

Sr No. Factor Result Analysis

1 Treats Of New Entrants. 2.95 Low To Moderate

2 Bargaining Power Of Buyers. 2.10 Low To Moderate

3 Bargaining Power Of Suppliers. 2.20 Low To Moderate

4 Treats Of Substitute Product. 2.50 Low To Moderate

5 Riverly Among Competitives. 2.10 Low To Moderate

TOTAL =11.85

Industry Attractiveness = Total/ Five Force Model

= 11.85/5
= 2.37