Blackberry and Porter’s Five Forces Analysis
It is hard to see how “bargaining power in networks” can be applied in real life. When I searched for “bargaining power” in a different language, I did not get many results on bargaining power, but instead, I ended up finding Porter’s Five Forces analysis. Bargaining power is part of Porter’s Five Forces analysis. As I investigate further, I start to see how bargaining power analysis can be really useful in real lives.
Porter’s Five Force analysis is a very practical framework that analyze the level of competition within an industry and business strategy development. The five forces are namely: 1. Threat of new entrants 2. Threat of substitutes 3. Bargaining power of buyers 4. bargaining power of suppliers 5. Industry rivalry. I will focus on the bargaining powers in these five forces, but a brief overview of all the forces would be relevant.
- Threat of new entrants simply measures the how attractive the industry is for potential business starters. Emergent entrants will reduce the profit for the existing companies.
- Threat of substitutes measures how likely the market for the industry being analyzed will be substituted/shared by other industries. Industries that makes similar products/services will reduce the profit of existing companies by sharing the “pie”.
- Bargaining power of buyers measures the ability of customers to put the firms under pressure, and therefore affecting corporate decisions such as prices/product features etc.
- Bargaining power of suppliers, on the other hand, measures the ability for suppliers to set higher prices to sell to the companies in the industry. (e.g. Monopoly in a particular industry usually have high bargaining powers).
- Industry rivalry literally measures the rivalry in a particular industry. Its factors include firm concentration ratio, degree of transparency, level of advertising expense, etc.
The Five Forces analysis for Blackberry, the mobile company that popularized QWERTY key pad is as follows (from the second link):
- Threats of new entrants for the industry is moderate because the barrier to enter the industry is high. Developing unique platform and technology is a very costly process, both time and money-wise.
- Bargaining power of suppliers is high because of the high demand for smartphones. Therefore there are many companies for suppliers to sell their product to. Blackberry is not their only option, and therefore the “raw materials” may end up very expensive for Blackberry.
- Bargaining power of buyers is also high because of the abundance of choices for mobile devices.
- Threats of substitutes are intensive. Technologies in the mobile industry develop fast. It is very easy for customers to find substitute for mobile phones in a very short period.
- Competition among rivals is intense. In a market with Apple and Samsung controlling 50% of the market, strong rivalry is not surprising.
It is easily seen that Blackberry faces very grim outlook in the mobile industry. With huge worker lay offs in the past five years, Blackberry has been forced to outsource its hardware manufacturing to overseas companies, while focusing on its software technologies. Apparently, bargaining powers play a big part in the Five Force Analysis. To relate the article back to the class. A simple networks diagram of bargaining powers is drawn to show the bargaining powers of Blackberry.
The two networks diagrams are stunningly similar but they both show that the suppliers and the buyers for the mobile industry both have very strong bargaining powers. Blackberry’s decline can be explained in the above way, it seems.
https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis#Threat_of_new_entrants
http://themarketmogul.com/blackberrys-strategic-shift-from-smartphone-to-software/