Summary of Porter's 5 Forces that Shape Industry Structure

This image shows a summary of Michael Porter's 5 forces that impact the structure of an industry.

These 5 forces are the threat of new entrants, rivalry among existing firms, the bargaining power of suppliers, the bargaining power of buyers and the threat of new substitutes.

Each force shows the risk associated with each force and how to mitigate against this risk.

For example, the threat of new entrants, which is the strongest force in my opinion, poses a risk because new competitors can reduce market share and profitability.

One way to mitigate against the risk of new entrants is to establish strong barriers to entry, which would prevent new companies from entering the industry.

Some ways to get a barrier to entry and make it less appealing for new companies to enter a market include being in an industry that has high capital costs to get production started (Boeing or Airbus), regulation (electric utilities like Con Ed or Eversource), brand name and customer loyalty (Coke or Apple), and economies of scale (Taiwan Semi-Conductor).