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What Are Porter Five (5) Forces

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326 views3 pages

What Are Porter Five (5) Forces

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Uploaded by

Saurabh Ninave
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What are Porter Five (5) Forces

In his revolutionary article - "Five Forces that Shape Strategy", Michael Porter observed five forces that
have significant impact on a firm's profitability in its industry. These five forces analysis today in
business world is also known as -Porter Five Forces Analysis. The Porter Five (5) Forces are -

 Threat of New Entrants


 Bargaining Power of Suppliers
 Bargaining Power of Buyers
 Threat from Substitute Products
 Rivalry among the existing players.

Porter Five Forces is a holistic strategy framework that took strategic decision away from just
analyzing the present competition. Porter Five Forces focuses on - how Dr. Reddy's Laboratories
Limited can build a sustainable competitive advantage in Drug Manufacturers - Other industry.
Managers at Dr. Reddy's Laboratories Limited can not only use Porter Five Forces to develop a
strategic position with in Drug Manufacturers - Other industry but also can explore profitable
opportunities in whole Healthcare sector.

Dr. Reddy's Laboratories Limited Porter Five (5) Forces


Analysis for Healthcare Industry
Threats of New Entrants
New entrants in Drug Manufacturers - Other brings innovation, new ways of doing things and put
pressure on Dr. Reddy's Laboratories Limited through lower pricing strategy, reducing  costs, and
providing new value propositions to the customers. Dr. Reddy's Laboratories Limited has to manage
all these challenges and build effective barriers to safeguard its competitive edge.

How Dr. Reddy's Laboratories Limited can tackle the Threats of New Entrants
 By innovating new products and services. New products not only brings new customers to the
fold but also give old customer a reason to buy Dr. Reddy's Laboratories Limited ‘s products.
 By building economies of scale so that it can lower the fixed cost per unit. 
 Building capacities and spending money on research and development. New entrants are less
likely to enter a dynamic industry where the established players such as Dr. Reddy's
Laboratories Limited keep defining the standards regularly. It significantly reduces the window
of extraordinary profits for the new firms thus discourage new players in the industry.

Bargaining Power of Suppliers


All most all the companies in the Drug Manufacturers - Other industry buy their raw material from
numerous suppliers. Suppliers in dominant position can decrease the margins Dr. Reddy's
Laboratories Limited can earn in the market. Powerful suppliers in Healthcare sector use their
negotiating power to extract higher prices from the firms in Drug Manufacturers - Other field. The
overall impact of higher supplier bargaining power is that it lowers the overall profitability of Drug
Manufacturers - Other.

How Dr. Reddy's Laboratories Limited can tackle Bargaining Power of the
Suppliers
 By building efficient supply chain with multiple suppliers.
 By experimenting with product designs using different materials so that if the prices go up of
one raw material then company can shift to another.
 Developing dedicated suppliers whose business depends upon the firm. One of the lessons Dr.
Reddy's Laboratories Limited can learn from Wal-Mart and Nike is how these companies
developed third party manufacturers whose business solely depends on them thus creating a
scenario where these third party manufacturers have significantly less bargaining power
compare to Wal-Mart and Nike.

Bargaining Power of Buyers


Buyers are often a demanding lot. They want to buy the best offerings available by paying the
minimum price as possible. This put pressure on Dr. Reddy's Laboratories Limited profitability in the
long run. The smaller and more powerful the customer base is of Dr. Reddy's Laboratories Limited the
higher the bargaining power of the customers and higher their ability to seek increasing discounts
and offers.

How Dr. Reddy's Laboratories Limited can tackle the Bargaining Power of
Buyers
 By building a large base of customers. This will be helpful in two ways. It will reduce the
bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its
sales and production process.
 By rapidly innovating new products. Customers often seek discounts and offerings on
established products so if Dr. Reddy's Laboratories Limited keep on coming up with new
products then it can limit the bargaining power of buyers.
 New products will also reduce the defection of existing customers of Dr. Reddy's Laboratories
Limited to its competitors.

Threats of Substitute Products or Services


When a new product or service meets a similar customer needs in different ways, industry profitability
suffers. For example services like Dropbox and Google Drive are substitute to storage hardware
drives. The threat of a substitute product or service is high if it offers a value proposition that is
uniquely different from present offerings of the industry.

How Dr. Reddy's Laboratories Limited can tackle the Treat of Substitute
Products / Services
 By being service oriented rather than just product oriented.
 By understanding the core need of the customer rather than what the customer is buying.
 By increasing the switching cost for the customers.

Rivalry among the Existing Competitors


If the rivalry among the existing players in an industry is intense then it will drive down prices and
decrease the overall profitability of the industry. Dr. Reddy's Laboratories Limited operates in a very
competitive Drug Manufacturers - Other industry. This competition does take toll on the overall long
term profitability of the organization.

How Dr. Reddy's Laboratories Limited can tackle Intense Rivalry among the
Existing Competitors in Drug Manufacturers - Other industry
 By building a sustainable differentiation
 By building scale so that it can compete better
 Collaborating with competitors to increase the market size rather than just competing for small
market.

Implications of Porter Five Forces on Dr. Reddy's


Laboratories Limited
By analyzing all the five competitive forces Dr. Reddy's Laboratories Limited strategists can gain a
complete picture of what impacts the profitability of the organization in Drug Manufacturers - Other
industry. They can identify game changing trends early on and can swiftly respond to exploit the
emerging opportunity. By understanding the Porter Five Forces in great detail Dr. Reddy's
Laboratories Limited 's managers can shape those forces in their favor.

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