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Porter Five (5) Forces Model

Porter Five (5) Forces Model was proposed by Michael E. Porter in 1979. The purpose was to
assess and evaluate the competitive positioning and strengths of business organisations. The model
has three horizontal competitive forces (Threat of Substitute Products or services, the threat of new
entrants and rivalry among existing firms) and two vertical forces (Bargaining power of buyers and
bargaining power of suppliers).
These forces shape the competition within any industry. The overall industry competitiveness
declines when these forces reduce profitability. Porter found SWOT analysis lacking in rigour. Many
new companies use the Porter Five (5) Forces Model to decide whether it is profitable to enter in a
particular industry.
Here is the pictorial presentation of the Porter Five (5) Forces Model:

UNIQLO Porter Five (5) Forces Analysis

Application of this model can help UNIQLO to determine the industry attractiveness and understand
its competitive positioning in the market. The analysis can also be used to make some strategically
wise decisions that could improve the performance of UNIQLO and ensure long-term survival.

Threats of new entrants

Threat of new entrants reflects how new market players impose threats to the existing market
players. If the industry will be profitable and barriers to enter the industry will be low, it will attract
more players and hence, the threat of new entrants. will be high.
Here are some factors that reduce the threat of new entrants for UNIQLO:

 Entry in the industry requires substantial capital and resource investment. This force also
loses the strength if product differentiation is high and customers place high importance to
the unique experience.
 UNIQLO will face the low threat of new entrants if existing regulatory framework imposes
certain challenges to the new firms interested to enter in the market. In this case, new
players will be required to fulfil strict, time consuming regulatory requirements, which may
discourage some players from entering the market.
 The threat will be low if psychological switching cost for consumers is high and existing
brands have established a loyal customer base.
 New entrants will be discouraged if access to the distribution channels is restricted.

UNIQLO will be facing high new entrants threat if

 Existing regulations support the entry of new players.

 Consumers can easily switch the brands due to weak/no brand loyalty.
 Initial capital investment is high.
 Building a distribution network is easy for new players.
 Retaliation from the existing market players is not a discouraging factor.

How UNIQLO can tackle the Threat of New Entrants?

 UNIQLO can develop brand loyalty by working on customer relationship management. It will
raise psychological switching costs.
 It can develop long-term contractual relationships with distributors to widen access to the
target market.
 UNIQLO can also an investment in research and development activities, get valuable
customer data and introduce innovative products/services to set strong differentiation basis.

Threat of Substitute Products or services

The availability of substitute products or services makes the competitive environment challenging for
UNIQLO and other existing players. High substitute threat shows that customers can use alternative
products/services from other industries to meet their needs. Various factors determine the intensity
of this threat for UNIQLO
The Threat of Substitute Products or services increases when;
  A cheaper substitute product/service is available from another industry
 The psychological switching costs of moving from industry to substitute products are low.
 Substitute product offers the same or even superior quality and performance as offered by
UNIQLO’s product.

However, this threat is substantially low for UNIQLO when;

 The switching cost of using the substitute product is high (due to high psychological costs or
higher economic costs)
 Customers cannot derive the same utility (in terms of quality and performance) from
substitute product as they derive from the UNIQLO’s product.

How UNIQLO can tackle the Threat of Substitute Products or services?

 UNIQLO can reduce the Threat of Substitute Products or services by clearly emphasising
how its offered product/service is better than the available substitutes.
 It should provide convincing reasons to the customers by offering a better experience and
high value for money.
 It can raise switching costs by working on loyalty.
 Lastly, it can improve the quality, maximise value for money and set strong differentiation
basis to discourage customers from using the substitute product.

Rivalry among existing firms

The Rivalry among existing firms shows the number of competitors that give tough competition to the
UNIQLO High rivalry shows UNIQLO can face strong pressure from the rival firms, which can limit
each other’s growth potential. Profitability in such industries is low as firms adopt aggressive
targeting and pricing strategies against each other.
The Rivalry among existing firms will be low for UNIQLO if;

 There are only a limited number of players in the market

 The industry is growing at a fast rate
 There is a clear market leader
 The products are highly differentiated, and each market player targets different sub-
segments
 The economic/psychological switching costs for consumers are high.
 The exit barriers are low, which means firms can easily leave the industry without incurring
huge losses.

Similarly, there are some factors that increase the Rivalry among existing firms for UNIQLO For
example, the company will face intense Rivalry among existing firms if market players are
strategically diverse and target the same market. The rivalry will also be intense if customers are not
loyal with existing brands and it is easier to attract others’ customers due to low switching costs.
Competitors with equal size and offering undifferentiated products with slow industry growth tend to
adopt aggressive strategies against each other. These all factors make the Rivalry among existing
firms a major strategic concern for UNIQLO

How UNIQLO can tackle the Rivalry among existing firms?

UNIQLO should focus on the implicit needs and expectations of its customers to strengthen the
differentiation basis. It should raise switching costs by developing long-term customer relationships.
The organisation should also invest in research and development activities to identify new customer
segments. In some cases, collaborating with competitors can be mutually beneficial. The
organisation can look for this option as well.

Bargaining Power of Suppliers

Bargaining power of suppliers in the Porter 5 force model reflects the pressure exerted by suppliers
on business organisations by adopting different tactics like reducing the product availability, reducing
the quality or increasing the prices. When suppliers have strong bargaining power, it costs the
buyers- (business organisations). Moreover, high supplier bargaining power can increase the
competition in the industry and lower the profit and growth potential for UNIQLO Similarly, weak
supplier power can make the industry more attractive due to high profitability and growth potential.
Bargaining power of suppliers will be high for UNIQLO if:

 Suppliers have concentrated into a specific region, and their concentration is higher than
their buyers.
 This force is particularly strong when the cost to switch from one supplier to other is high for
buyers (for example, due to contractual relationships).
 When suppliers are few and demand for their offered product is high, it strengthens the
suppliers’ position against UNIQLO
 Suppliers’ forward integration weakens the UNIQLO’s position as they also become the
competitors in that area.
 If UNIQLO is not well educated, does not have adequate market knowledge and lacks the
price sensitivity, it automatically strengthens the suppliers' position against the organisation.
 Other factors that increase the suppliers’ bargaining power include-high product
differentiation offered by suppliers, UNIQLO making only a small proportion of suppliers’
overall sales and unavailability of the substitute products.

Contrarily, the bargaining power of suppliers will be low for UNIQLO if:

 Suppliers are not concentrated

 Switching costs are low
 Product lacks differentiation
 Substitute products are available
 UNIQLO is highly price sensitive and has adequate market knowledge
 There is no threat of forward integration by suppliers.

How UNIQLO can tackle the Bargaining Power of Suppliers?

UNIQLO can strengthen its position against suppliers by decreasing the dependency on one or a
few suppliers. It will increase its price sensitivity. Developing the long-term contractual relationships
with suppliers from different regions not only lowers their bargaining power but also allows UNIQLO
to improve its supply chain efficiency. Finally, UNIQLO can find the alternate ways of producing the
product if product demand is high enough and the firm has required competencies and expertise.
However, it requires detailed cost-benefit analysis to determine its feasibility. Product redesign and
diversification of the product lines can also help the organisation reduce the suppliers’ power in the
market.

Bargaining Power of Buyers

Bargaining power of buyers indicates the pressure that customers exert on the business
organisations to get high quality products at affordable prices with excellent customer service. This
force directly influences the UNIQLO’s ability to accomplish the business objectives. Strong
bargaining power lowers profitability and makes the industry more competitive. Whereas, when
buyer power is weak, it makes the industry less competitive and increase the profitability and growth
opportunities for UNIQLO
There are some factors that increase the bargaining power of buyers:

 A more concentrated customer base increases their bargaining power against UNIQLO
 Buyer power will also be high if there are few in number whereas a number of sellers
(business organisations) are too many.
 Low switching costs (economic and psychological) also increase the buyers’ bargaining
power.
 In case of corporate customers, their ability to do backward integration strengthen their
position in the market. Backward integration shows the buyers' ability to produce the
products themselves instead of purchasing them from UNIQLO
 Consumers’ price sensitivity, high market knowledge and purchasing standardised products
in large volumes also increase the buyers' bargaining power.

Some factors that decrease the bargaining power of buyers include lower customer concentration
(means the customer base is geographically dispersed), customers’ inability to integrate backwards,
low price sensitivity, lower market knowledge, high switching costs and purchasing customised
products in small volumes.

How UNIQLO can tackle the Bargaining Power of Buyers?

UNIQLO can manage the bargaining power of buyers by increasing and diversifying their customer
base. It can be done by introducing new products, targeting new market segments and adopting the
product diversification strategies. Marketing and promotional strategies can also be helpful in this
regard. Building loyalty by embedding innovation and offering excellent customer experience can
raise the switching costs, which will ultimately reduce their bargaining power. UNIQLO can adopt
these strategies to strengthen its competitive positioning in the market.

Porter 5 force model implications

The application of Porter five (5) forces model in real-world context allows organisations to .make
wise strategic decisions. Impact and importance of each of the five forces is context dependent. By
using Five Force analysis, UNIQLO can determine the industry attractiveness, make effective
entry/exit decisions and assess the influence of these forces on their own business and competitors.
Moreover, the dynamic analysis of this model can reveal important information. For example,
UNIQLO can combine the Porter 5 force model with PESTEL framework to determine the industry’s
potential future attractiveness. In some cases, companies do not have the required information to
analyse five forces. In such a scenario, the analysis can be conducted with the help of assumptions.
Mostly, consultants consider this model as a starting point, and other frameworks (like PESTEL and
Value Chain) are used in conjunction for a better understanding of the external environment.

References
Argyres, N., & McGahan, A. M. (2002). An interview with Michael Porter. Academy of Management
Perspectives, 16(2), 43-52.
Bartusková, T., & Kresta, A. (2015). Application of AHP method in external strategic analysis of the
selected organisation. Procedia Economics and Finance, 30, 146-154.
Bose, R. (2008). Competitive intelligence process and tools for intelligence analysis. Industrial
management & data systems, 108(4), 510-528.
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), 32-45.
Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change,
15(5), 213-229.
Manteghi, N., & Zohrabi, A. (2011). A proposed comprehensive framework for formulating strategy: a
Hybrid of balanced scorecard, SWOT analysis, Porter's generic strategies and Fuzzy quality function
deployment. Procedia-Social and Behavioral Sciences, 15, 2068-2073.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review,
86(1), 78-93.
Utami, R. M., & Lantu, D. C. (2014). Development competitiveness model for small-medium
enterprises among the creative industry in bandung. Procedia-Social and Behavioral Sciences, 115,
305-323.
Vining, A. R. (2011). Public agency external analysis using a modified “five forces” framework.
International Public Management Journal, 14(1), 63-105.
Williams, B., & Figueiredo, J. (2014). Lessons from an innovation-leader and tools to learn them.
Journal of Industrial Engineering and Management, 7(4), 932-960.

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About Us

Porter’s Five Forces Analysis

A model was put forward by Michael. E. Porter in an article in the Harvard Business Review in 1979.
This model, known as Porter's Five Forces Model is a strategic management tool that helps
determine the competitive landscape of an industry. Each of the five forces mentioned in the model
and their strengths help strategic planners understand the inherent profit potential within an industry.
The strengths of these forces vary across the industry to industry, which means that every industry is
different regarding the profitability and attractiveness. The structure of an industry, even though it is
stable, can change over time. These Porter’s five forces are as follows:

 Threat of New Entrants

 Bargaining Power of Suppliers
  Bargaining Power of Buyers
 Threat of Substitute Products or Services
 Rivalry Among Existing Firms

The Porter’s Five Forces model can be used to analyse the industry in which UNIQLO operates, in
terms of attractiveness through inherent profit potential. The information analysed using the model
can be used by strategic planners for UNIQLO to make strategic decisions.

UNIQLO Porter’s Five Forces Analysis

This section analyses UNIQLO using each of the five forces of Porter’s model.

Threat of New Entrants

 The economies of scale is fairly difficult to achieve in the industry in which UNIQLO operates.
This makes it easier for those producing large capacitates to have a cost advantage. It also
makes production costlier for new entrants. This makes the threats of new entrants a
weaker force.
 The product differentiation is strong within the industry, where firms in the industry sell
differentiated products rather a standardised product. Customers also look for differentiated
products. There is a strong emphasis on advertising and customer services as well. All of
these factors make the threat of new entrants a weak force within this industry.
 The capital requirements within the industry are high, therefore, making it difficult for new
entrants to set up businesses as high expenditures need to be incurred. Capital expenditure
is also high because of high Research and Development costs. All of these factors make
the threat of new entrants a weaker force within this industry.
 The access to distribution networks is easy for new entrants, which can easily set up their
distribution channels and come into the business. With only a few retail outlets selling the
product type, it is easy for any new entrant to get its product on the shelves. All of these
factors make the threat of new entrants a strong force within this industry.
 The government policies within the industry require strict licensing and legal requirements to
be fulfilled before a company can start selling. This makes it difficult for new entrants to join
the industry, therefore, making the threat of new entrants a weak force.

How UNIQLO can tackle the Threat of New Entrants?

 UNIQLO can take advantage of the economies of scale it has within the industry, fighting off
new entrants through its cost advantage. Konti lang
 UNIQLO can focus on innovation to differentiate its products from that of new entrants. It can
spend on marketing to build strong brand identification. This will help it retain its customers
rather than losing them to new entrants.

Bargaining Power of Suppliers

 The number of suppliers in the industry in which UNIQLO operates is a lot compared to the
buyers. This means that the suppliers have less control over prices and this makes the
bargaining power of suppliers a weak force.
 The product that these suppliers provide are fairly standardised, less differentiated and have
low switching costs. This makes it easier for buyers like UNIQLO to switch suppliers. This
makes the bargaining power of suppliers a weaker force.
  The suppliers do not contend with other products within this industry. This means that there
are no other substitutes for the product other than the ones that the suppliers provide. This
makes the bargaining power of suppliers a stronger force within the industry.
 The suppliers do not provide a credible threat for forward integration into the industry in
which UNIQLO operates. This makes the bargaining power of suppliers a weaker force
within the industry.
 The industry in which UNIQLO operates is an important customer for its suppliers. This
means that the industry’s profits are closely tied to that of the suppliers. These suppliers,
therefore, have to provide reasonable pricing. This makes the bargaining power of suppliers
a weaker force within the industry.

How UNIQLO can tackle the Bargaining Power of Suppliers?

 UNIQLO can purchase raw materials from its suppliers at a low cost. If the costs or products
are not suitable for UNIQLO, it can then switch its suppliers because switching costs are
low.
 It can have multiple suppliers within its supply chain. For example, UNIQLO can have
different suppliers for its different geographic locations. This way it can ensure efficiency
within its supply chain.
 As the industry is an important customer for its suppliers, UNIQLO can benefit from
developing close relationships with its suppliers where both of them benefit.

Bargaining Power of Buyers

 The number of suppliers in the industry in which UNIQLO operates is a lot more than the
number of firms producing the products. This means that the buyers have a few firms to
choose from, and therefore, do not have much control over prices. This makes the
bargaining power of buyers a weaker force within the industry.
 The product differentiation within the industry is high, which means that the buyers are not
able to find alternative firms producing a particular product. This difficulty in switching makes
the bargaining power of buyers a weaker force within the industry.
 The income of the buyers within the industry is low. This means that there is pressure to
purchase at low prices, making the buyers more price sensitive. This makes the buying
power of buyers a weaker force within the industry.
 The quality of the products is important to the buyers, and these buyers make frequent
purchases. This means that the buyers in the industry are less price sensitive. This makes
the bargaining power of buyers a weaker force within the industry.
 There is no significant threat to the buyers to integrate backwards. This makes the
bargaining threat of buyers a weaker force within the industry.

How UNIQLO can tackle the Bargaining Power of Buyers?

 UNIQLO can focus on innovation and differentiation to attract more buyers. Product
differentiation and quality of products are important to buyers within the industry, and
UNIQLO can attract a large number of customers by focusing on these.
 UNIQLO needs to build a large customer base, as the bargaining power of buyers is weak. It
can do this through marketing efforts aimed at building brand loyalty.
 UNIQLO can take advantage of its economies of scale to develop a cost advantage and sell
at low prices to the low-income buyers of the industry. This way it will be able to attract a
large number of buyers.
Threat of Substitute Products or Services
 There are very few substitutes available for the products that are produced in the industry in
which UNIQLO operates. The very few substitutes that are available are also produced by
low profit earning industries. This means that there is no ceiling on the maximum profit that
firms can earn in the industry in which UNIQLO operates. All of these factors make the
threat of substitute products a weaker force within the industry.
 The very few substitutes available are of high quality but are way more expensive.
Comparatively, firms producing within the industry in which UNIQLO operates sell at a lower
price than substitutes, with adequate quality. This means that buyers are less likely to
switch to substitute products. This means that the threat of substitute products is weak
within the industry.

How UNIQLO can tackle the Threat of Substitute Products?

 UNIQLO can focus on providing greater quality in its products. As a result, buyers would
choose its products, which provide greater quality at a lower price as compared to substitute
products that provide greater quality but at a higher price.
 UNIQLO can focus on differentiating its products. This will ensure that buyers see its
products as unique and do not shift easily to substitute products that do not provide these
unique benefits. It can provide such unique benefits to its customers by better
understanding their needs through market research, and providing what the customer
wants.

Rivalry Among Existing Firms

 The number of competitors in the industry in which UNIQLO operates are very few. Most of
these are also large in size. This means that firms in the industry will not make moves
without being unnoticed. This makes the rivalry among existing firms a weaker force within
the industry.
 The very few competitors have a large market share. This means that these will engage in
competitive actions to gain position and become market leaders. This makes the rivalry
among existing firms a stronger force within the industry.
 The industry in which UNIQLO is growing every year and is expected to continue to do this
for a few years ahead. A positive Industry growth means that competitors are less likely to
engage in completive actions because they do not need to capture market share from each
other. This makes the rivalry among existing firms a weaker force within the industry.
 The fixed costs are high within the industry in which UNIQLO operates. This makes the
companies within the industry to push to full capacity. This also means these companies to
reduce their prices when demand slackens. This makes the rivalry among existing firms a
stronger force within the industry.
 The products produced within the industry in which UNIQLO operates are highly
differentiated. As a result, it is difficult for competing firms to win the customers of each
other because of each of their products in unique. This makes the rivalry among existing
firms a weaker force within the industry.
 The production of products within the industry requires an increase in capacity by large
increments. This makes the industry prone to disruptions in the supply-demand balance,
often leading to overproduction. Overproduction means that companies have to cut down
prices to ensure that its products sell. This makes the rivalry among existing firms a stronger
force within the industry.
  The exit barriers within the industry are particularly high due to high investment required in
capital and assets to operate. The exit barriers are also high due to government regulations
and restrictions. This makes firms within the industry reluctant to leave the business, and
these continue to produce even at low profits. This makes the rivalry among existing firms a
stronger force within the industry.
 The strategies of the firms within the industry are diverse, which means they are unique to
each other in terms of strategy. This results in them running head-on into each other
regarding strategy. This makes the rivalry among existing firms a strong force within the
industry.

How UNIQLO can tackle the Rivalry Among Existing Firms?

 UNIQLO needs to focus on differentiating its products so that the actions of competitors will
have less effect on its customers that seek its unique products.
 As the industry is growing, UNIQLO can focus on new customers rather than winning the
ones from existing companies.
 UNIQLO can conduct market research to understand the supply-demand situation within the
industry and prevent overproduction.

Implications of Porter Five Forces on UNIQLO

By using the information in UNIQLO five forces analysis, strategic planners will be able to
understand how different factors under each of the five forces affect the profitability of the industry. A
stronger force means lower profitability, and a weaker force means greater profitability. Based on
this a judgement of the industry's profitability can be made and used in strategic planning.