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The Porter’s five forces constitute an important part of analyzing factors that influence the performance of an organization. This essay analyzes two of the five forces, namely the ‘threat of new entrants’ and ‘threat of substitute products and services’ as they apply to Atlas Automation Company.
Threat of New entrants
Organizations that operate in an environment that has high profitability and returns constantly face the threat of new entrants into this market. Atlas Automation is one of the organizations with few competitors in the market. The entry of new industry players is a threat to the organization because it limits the available profits for the organization (Rice 380). The organization’s profits will reduce as the sales and market shares take a downfall. According to Rice, new entrants lead to downward revision of prices since the industries and organizations aim to capture a bigger part of the market (380). This competition is harmful to Atlas Automation. Hence, the organization views entry of new players as a threat.
Currently, organizations counter the threat of new entrants by introducing barriers to any new organizations. Some of the barriers in place include patents, economies of scale, licensing costs, and predatory pricing (Dobbs 36). Atlas Automation has introduced barriers to the entry of new firms and organizations. One of the barriers is its threat to reduce prices. Some organizations that operate in oligopolies usually arrange among themselves to lock out new entrants into the industry. These strategies include the control of prices and tight industry controls. The industries where this form of agreements is common include the telecommunication and oil industries. For Atlas Automation, some of the factors that it uses to limit entry of new players include patenting and price controls.
Threat of Substitute Products and Services
Some organizations are profitable because of the unique products that they provide. Atlas Automation offers services and goods that are unique to its industry. The availability of patents ensures that the organization enjoys the profitability that is associated with the unique product since it can unilaterally control the prices. Porter states that organizations constantly face the threat of introduction of substitute products and services that provide an alternative for their products (Grundy 220). The availability of alternative services and products introduces competition, which leads to lower prices for the organizational products. The result of this competition is reduced profitability for Atlas Automation.
The threat of introduction of substitute services allows the implementation of stiff measures such as aggressive campaigns to restore organizations’ profits. According to Azadi and Rahimzadeh, organizations that operate in a monopoly rely on this monopoly to influence their profitability (48). When alternative products are introduced, these organizations are forced to reduce prices for their products. Some of the best examples of threats of substitute products and services include the telecommunication industry where the traditional phones have been overtaken by the Smartphones. Atlas Automation is consistent in its use of superior technology, which is unmatched by most organizations in its class.
Introduction of substitute products and services affects pricing of commodities through the alteration of buyer choice. Products compete not only in terms of price differences but also quality. Introduction of new products in the market challenges the existing manufacturers to improve the quality of their goods or services to compete with the new products or services. Atlas Automation has adequately priced services that allow profitability. It also uses patenting as a method of preventing entry of substitute products. Aggressive marketing is also a result of entry of substitute products and services. These factors affect the overall profitability and productivity of the organization in general.
Azadi, Siamak, and Elham Rahimzadeh. “Developing Marketing Strategy For Electronic Business By Using McCarthy’s Four Marketing Mix Model And Porter’s Five Competitive Forces.” EMAJ: Emerging Markets Journal 2.2(2012): 47-58. Print.
Dobbs, Michael. “Guidelines For Applying Porter’s Five Forces Framework: A Set Of Industry Analysis Templates.” Competitiveness Review 24.1(2014): 32-45. Print.
Grundy, Tony. “Rethinking And Reinventing Michael Porter’s Five Forces Model.” Strategic Change 15.5(2006): 213-229. Print.
Rice, John. “Adaptation Of Porter’s Five Forces Model To Risk Management.” Defense AR Journal 17.3(2010): 375-388. Print.