Porter's five forces.

Porter's five forces framework is a helpful tool for companies which are about to start a business or entering a new industry.

It helps analyzing the level of competition within a certain industry.

Competition in an industry depends on five forces:

1.Threat of new entrants

2. Bargaining power of new entrants.

3. Bargaining power of suppliers.

4. Bargaining power of buyers.

5. Threat of substitute products or services and existing industry rivalry.

The collective strength of these forces determines the profit potential of and industry and thus its attractiveness.

If all of the five forces are intense (e.g. pizza restaurants) almost no company earns attractive returns of investments. If the forces are averaged (e.g. drugstore), there is room for higher returns.