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Porter's 5 Forces

Essay by   •  May 14, 2012  •  Study Guide  •  559 Words (3 Pages)  •  4,911 Views

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PORTER'S 5 FORCES

The competitive structure of the Philippine real estate industry is oligopolistic in nature wherein the industry is dominated by a small number for dominant players. The table below summarises competitive structure of Philippine real estate industry using Porter's 5 forces framework.

THREAT OF NEW ENTRANTS

* High capital requirement

* Economies of scale and dominance of existing players

* Government restrictions

BUYER POWER

* Low Product differentiation

* No brand loyalty

* Price sensitive

SUPPLIER POWER

* Availability of numerous suppliers

* Supplier distribution not concentrated

* Opportunity for backward integration

* Existence of substitute inputs

THREAT OF SUBSTITUTES * Low switching costs

* Low differentiation

* Large cash outlay

* Availability of more liquid investment

RIVALRY

THREAT OF NEW ENTRANTS

Threat of new entrants in the Philippine real estate industry is LOW primarily because only few major players, who possess economies of scale, are equipped with years of experience and dominate the industry. With years of experience, they were able to build lasting relationships with customers and carry with them, a brand equity, eg) Ayala Land, something hard to compete against. Furthermore, real estate development requires huge initial capital investments and fixed costs, given the position of current players already in the industry and the nature of the product being sold, return on investment may not be realised immediately.

BUYER POWER

The power of current and prospective buyers of real estate in the Philippines is relatively HIGH. Given the oligopolistic nature of the industry, real estate companies offer properties that are barely differentiated from its competitors thereby allowing consumers to switch between different developers who offer more competitive prices. The success of market disruptors like SMDC in manipulating buyer sentiment and capturing a large portion of market share indicates the vulnerability and elasticity of demand for real estate in the country. Brand equity and choice of location are perhaps the only tools developers may utilise in its attempt to gain strategic competitive

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