Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E.

Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. Three of Porter's five forces refer to competition from external sources. The remainder is internal threats. The following are the five factors included in porter analysis. 1) Threat of new Entrants. 2) Power of suppliers 3) Threat of Substitutes 4) Bargaining power of Buyers 5) Competitive Rivalry

Threats of new entrants: It is very difficult for new firms to get into the market as they have to face numerous problems regarding to the investment in fertilizer industry. In this type of market there are very high barriers to entry as huge capital requirement is one of the most important barriers to entry. The set up cost of the fertilizer company is very high and it requires a high infrastructure cost which is not possible for new companies to invest it easily. Government policies is also act as the hurdle for the new entrants as Natural Gas is the most important and very fundamental thing for the production of fertilizers, the prices of the natural gas and its supply is totally controlled by the Government. So now a days Government does not allow the new firms to set up a new manufacturing plant due to shortages in natural gas and because of its harmful environmental effects. Even if the new firms enters in the market it would not be possible for it to survive

in this industry because of high consumer loyalty and brand names existing in the market as already there are very few large companies in this industry and Fauji fertilizers captured around 40% market share. The brand names and the consumers loyalty towards them does not allow the customers to get switch from the existing brands. So this barrier to entry provide the FFC a very low threat from new firms even if they successes in entering the industry. There is also a protection of patens and rights etc. Power of suppliers: The term supplier comprises all sources for inputs that are needed in order to provide goods or services. Supply power is analyzed through supplier concentration, importance of volume to supplier, differentiation of inputs, switching costs of firms in the industry. In this industry there is a power to suppliers as high subsidies are given out by the government in order to ensure the frequent production and distribution of fertilizers. There are long terms agreements between buyers and suppliers and the switching costs are very high because it is difficult to deal with other groups and deal with them. Suppliers are also get benefited because there is no threat of forward integration hence suppliers are powerful in this industry because there are very few suppliers but the buyers are numerous. Another advantage to them is the non-availability of perfect substitutes. But as the prices in this industry is determined by the market forces of demand and supply and firms are unable to intervene in this process of price setting so it erodes the power of FFC to some extent.

Bargaining power of buyers: Fauji fertilizer is very dominating firm in this industry as it covers around 40% of its market share and sells its products in domestic as well as in international markets. Its sales are high because of the flexible demand delivery and low downpayments. The bargaining power of buyers in this industry is very low as there is no alternate for urea and they have to buy it irrespective of prices of fertilizers. The product is extremely important to the buyer; they cannot do without it for a period of time. Customers have low

margin and are very price sensitive so although consumers are very large in this industry but it does not have the bargaining power.

Threat of Substitutes: Some organizations do realize that there are substitutes are there but they must develop such a product that satisfies their customers. But FFC has its own consumers loyalty so its difficult for customers to switch away from their products because of their prevailing brand name. Large companies like FFC do consider the fact that there are no close substitutes for urea though natural fertilizers can be used as a substitute product but it is not so productive and effective. Even the animal manure is not so suitable for commercial production. Competitive Rivalry: This force derives the intensity of competition between existing companies in an industry like Fauji Fertilizer, Engro fertilizers and Fatima Fertilizer etc. High competitive pressure results in pressure on prices, margins and hence, on profitability for every single company in the industry. Fixed costs are too high which is not easily possible to tolerate, so this factor does not allow the competition between companies. Fertilizer industry is at maturity stage so competition on the basis of growth is low. Prices are fixed for every season so no competition on the basis of pricing behavior.Hence competition is only on the basis of quality. As we discussed above as FFC covers the major proportion of this industry so quality is not an issue for FFC