Understanding porter five forces
Just came to understand Porter Five forces, to ascertain what forces make or break a business. Given below are five forces, and my personal experience with them
Porter Five forces :-
- Threat of New Entrant
- Example of Indian E-commerce; where making an E-commerce website was very easy. And hence, the Industry was flooded with lot of players; and market did not grow that much. At the end, things got fizzled.
- And I think, Flipkart did the best, by doing too much of marketing; to create a loyal customer base. Which in itself created a barrier of entry for new players. I think, brand is a big threat to Entry.
- Threat of substitute product/services
- It was same with E-commerce, when the customer is disloyal; it is easy for them to switch site. With COD, or cash on delivery; Customer became the king. So too much threat to the new player.
- Bargaining power of customer
- If you have few customers, then one will need to bargain.
- As happened if you are a lubricant supplier to only one industry in your area. Then the industry will call the shots.
- Bargaining power of suppliers
- Oh, it shows in the OECD who controls the world petroleum.
- The same with Samsung, who makes chip used in smart phone. It has the supplier power in the smart phone industry.
- Or, you can take CIL or Coal Indial Limited ; who has the supplier power of supplying coal to Indian Thermal Power Plants. For the past two years, the losses by Private Thermal Power Plant is because of CIL.
- Sometimes, while looking at the business, try to find out in the value chain; what kind of small supplies that can be controlled.
- Intensity of Competitive rivalry
- Always seen in the Airlines industry, lot of blood bath.
- Also seen in industry where barriers to entry is low.
Understanding of them is good, as it is good during negotiations; especially in the Business.
Virtue’s of a good manager
The Virtue’s of a good manager is “Understanding” ; and more precisely the system thinking. Understanding on how something works out.
GoodandGreen.Com
Good to find a really nice startup in Jaipur :- http://www.greenngood.com/.
The winner of WagonR Big Idea challenge , have decided to set up at Jaipur.
Learning from Business – types of business
Level of Business
- Those who work in trading, buying at n ruppes, and selling at n+2 rupees. Skills required — Knowing to get the lowest price of product and the highest price from buyer
- Those who work as commision, taking project at n and selling at n+2. Skills required — Liasoning
and then there are people who work on business model , or value addition. Understanding the market and giving value to the market. For example Amazon which worked on the E-commerce business model, a new new thing; or Ikea which reshaped furnitures…
How we Indians are good at killing the business ? ( Now Solar)
In 1998, India Government decided to kick start Electronic Industry by giving a tender for printed circuit board at a base price of 100 Rupees per board. And invited companies to bid for board lower then this. As in India, there is the term called “Bhaid Chaal”, or flocking of sheep; what this saw, was conflux of 1000s of companies eyeing a pie for then promisable Electronic Industry. The companies started thinking bid at 60 Rupees or 70 rupees; knowing that initially a low priced bid, but knowing a future credential and an earlier bird advantage in the Industry. Somehow or the other, an employee of a big aggressive company leak the news that there company was bidding as low as 33 rupees. This infuriated other companies, for the drastically low price. What they then did, that some of the companies formed cartel and decided to bid at 32 rupees. At the end of the day, the bid was won not by the Aggressive company, not by the cartel but by a chinese company which bid at 25 rupees. Till today, we import printed circuit board from China. There is no Indian company.
Now the current solar market in India. Government of India with there very best intention started the National Solar Mission on 2010, with awarding 300 MW of project through reverse bidding, with a base price of 17 rupees; then 13 rupees and then 10 rupees. The base price was calculated knowing the minimum ROI that a company can ear in these project. What was seen on this bid that the bid has gone to the insane value and some way or the other giving negative return even if an ideal conditions are assume. For example, for a solar power project in Rajasthan, a value of Rs 12 per unit of electricity will give an investor a return of 10%, assuming the land is flat, there is no sandstorm and the plant would be commissioned on time. But what we got bid at Rs 10 , Rs 9 or Rs 8. These companies won the bid, and then the irony of this is after two years of NSM, still we do not have even half of the projects under NSM commissioned. All because Indians are good at killing there business.
Ravings on life 