After evaluating the macro environment, the
entrepreneur changes focus to the more
immediate competitive environment
A useful too for analyzing a specific industry’
attractiveness within the competitive
environment is the Five Forces Model
developed by Michael Porter
The five forces interact with one another to
determine the setting in which companies
compete and, hence, the attractiveness of the
industry:
1. Rivalry (منافسة (among companies in the industry
2. Bargaining (مساومة (power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services
The strongest of the five forces
Industry is more attractive when:
 Number of competitors is large, or, at the 
other extreme, quite small (< 5)
 Competitors are not similar in size or 
capacity
 Industry is growing fast
 Opportunity to sell a differentiated product 
or service exists
The greater the leverage of suppliers of key raw
material or components, the less attractive the
industry.
Industry is more attractive when:
 Many suppliers sell a commodity product
 Substitutes are available
Companies find it easy to switch from one 
supplier to another or substitute product 
(Switching costs are low)
 Items account for a small portion of the 
cost of finished products
Buyers’ influence is high when number of
customers is small and cost of switching to a
competitor’s product is low.
Industry is more attractive when:
 Customers’ switching costs to competitors’ 
products are high
 Number of buyers is large
 Customers want differentiated products
rather than purchase commodity products
they can obtain from any supplier
 Customers find it difficult to collect
information on suppliers’ costs, prices,
and product features (for comparison)
 Items companies sell to the industry
account for a small portion of customers’
finished products