SWOT analysis of the company reveals the major strengths and weaknesses of the OLPC that is presented in the tabular form below. The external environment or the macro environment has a strong impact on all activities and strategies of the organization. These factors include political, social, economic, legal, technological and eco-environmental factors. Two models are used to analyze the force and impact of these factors. These two models are called “ PESTEL Analysis” and “ Porters five forces” . An industry’ s attractiveness is evaluated through Porter’ s five forces model. According to the model, the forces that affect an industry are the threat of entrants, the threat of substitutes, bargaining power of buyers, bargaining power of suppliers and the level of rivalry among the existing competitors.
The evaluation determines the attractiveness or unattractiveness of the industry and also helps in formulating strategies for obtaining a competitive advantage. The attractiveness of an industry, in turn, determines the overall profitability of the industry measured through overall return on investment. It requires utilizing the existing industry environment to gain competitive advantage. Out of the five forces, the strongest competitive force indicates the profitability of the industry and forms the most crucial part of strategy formulation.
If the effect of forces is intense then the industry is said to be unattractive that is companies in the industry will not earn attractive return on their investments while if the forces are not intense then the industry is attractive and the companies in the industry earn substantial return on their investments (Porter, 2008)The analysis of Porter’ s five sources i. e. buyer power, supplier power, the threat of entrants, the threat of substitutes and rivalry reveals the following results.
Buyer power is relatively high because of high price sensitivity, greater buyer volume, minimal product differences and the availability of substitute products. Supplier power is low because the volume is important for suppliers, switching cost of suppliers and firms in the industry is not high and backward integration is more plausible than forwarding integration.
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