A NOTE ON THE CHINESE FIREWORKS

INDUSTRY STUDENT HAND-OUT

WORKSHEET ON INDUSTRY STRUCTURE
Note to the students:
This worksheet was developed to apply Porters Five Forces analysis to an industry. For each of
the factors listed below, place an X in the appropriate column (Yes, No or Moderate). Once you
have completed the analysis of the five forces, compute the number of factors for each category,
and write down the number for the overall analysis.
1. Threat of entrants:
Yes
(+)

No
()

1) Do large firms have a cost or performance advantage in your segment of the

industry?
2) Are there any proprietary product differences in your industry?
3) Are there any established brand identities in your industry?
4) Do your customers incur any significant costs in switching suppliers?
5) Is a lot of capital needed to enter your industry?
6) Is serviceable used equipment expensive?
7) Does the newcomer to your industry face difficulty in accessing distribution
channels?
8) Does experience help you to continuously lower costs?
9) Does the newcomer have any problems in obtaining the necessary skilled
people, materials or supplies?
10) Does your product or service have any proprietary features that give you
lower costs?
11) Are there any licenses, insurance or qualifications that are difficult to obtain?
12) Can the newcomer expect strong retaliation on entering the market?
+ factors (favorable to industry)
factors (unfavorable to industry)

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WORKSHEET ON INDUSTRY STRUCTURE (CONTINUED)

2. Bargaining power of buyers:
(to what extent are your customers locked into you?)
Yes
(+)

No
()

1) Are there a large number of buyers relative to the number of firms in the
business?
2) Do you have a large number of customers, each with relatively small
purchases?
3) Does the customer face any significant costs in switching suppliers?
4) Does the buyer need a lot of important information?
5) Is the buyer aware of the need for additional information?
6) Is there anything that prevents your customer from taking your function
in-house?
7) Your customers are not highly sensitive to price.
8) Your product is unique to some degree or has accepted branding,
9) Your customers businesses are profitable.
10) You provide incentives to the decision makers.
3. Threat of substitutes: (some other product or service that performs the same job as yours)
Yes
(+)

No
()

1) Substitutes have performance limitations that do not completely offset

their lowest price. Or, their performance is not justified by their higher
price.
2) The customer will incur costs in switching to a substitute.
3) Your customer has no real substitute.
4) Your customer is not likely to substitute.

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WORKSHEET ON INDUSTRY STRUCTURE (CONTINUED)

4. Bargaining power of suppliers:
Yes
(+)
1) My inputs (materials, labor, supplies, services, etc.) are standard rather than
unique or differentiated.
2) I can switch between suppliers quickly and cheaply.
3) My suppliers would find it difficult to enter my business or my customers
would find it difficult to perform my function in-house.
4) I can substitute inputs readily.

x
x
x
x
x

5) I have many potential suppliers.

6) My business is important to my suppliers.

No
()

x
x

7) My cost of purchases has no significant influence on my overall costs.

5. Determinants of rivalry among existing competitors:
Yes
(+)

No
()

1) The industry is growing rapidly.

2) The industry is not cyclical with intermittent overcapacity.
3) The fixed costs of the business are a relatively low portion of total costs.
4) There are significant product differences and brand identities between the
competitors.
5) The competitors are diversified rather than specialized.
6) It would not be hard to get out of this business because there are no
specialized skills and facilities or long-term contract commitments, etc.
7) My customers would incur significant costs in switching to a competitor.
8) My product is complex and requires a detailed understanding on the part of
my customer.
9) My competitors are all of approximately the same size as I am.

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WORKSHEET ON INDUSTRY STRUCTURE (CONTINUED)

Overall industry rating:
Favorable

Moderate

Unfavorable

Remarks

1) Threat of new
entrants.
2) Bargaining
power of
buyers.
3) Threat of
substitutes.
4) Bargaining
power of
suppliers.

5) Intensity of
rivalry among
competitors.

*Note: Use a scale of 1 10 to assign overall rating. For example, you can assign 10
if it is highly favorable and assign 1 if its least favorable.

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