Porter’s Five Forces Model, Essay Example

Five Forces Exercise

Porter’s Five Forces model is best applied when analyzing the market conditions within a business environment. The framework is suitable for the structural analysis of the service area, and can aid health care professionals to make informed decisions based on the five factors that define competition. Below, the author would like to review whether or not entering the Poughkeepsie, NY market would be a good strategic decision or not. The author would like to analyze the competitive dynamics of the service area in order to answer the above question.

The threat of new entrants is medium, due to the number of admissions, and the relatively small population (main city population around 30.000 in 2013). There are one or two new companies potentially entering the market, and there are currently 1200 beds available from 5 providers. The market is not underserved, and the number of beds available for the population is reasonable. Provided that 960 new patients are referred to nursing homes from hospital a year, and there are only 1200 beds in total means that there is an increasing demand, and this would attract new companies.

The threat of substitute services, however, is high. Today, many relatives of elderly people decide with assisted home care and day care, due to the lower cost of services. The threat of substitute services in the area where patients would not need 24/7 supervision, and families live nearby to help them would be high. There are 600 substitute beds for assisted living, and 100 community care alternatives.

The bargaining power of suppliers is high, as it is likely that all nursing homes have to wait for services due to the low availability. This also indicates that hospitals often do not have a choice which nursing home to refer their patients to. The two main physician group and one laboratory serving both hospitals and nursing homes, however, have a greater bargaining power, as they have a choice of preference. They represent a high bargaining power.

The bargaining power of buyers is moderately low. It is assumed that due to the low number of beds available and the high number of referrals, patients and their relatives have limited choice, and they need to accept the places allocated to them. However, given the fact that day care and assisted care facilities are also widely available, buyers might have increased bargaining power when the service area is not restricted to live-in care.

The intensity of rivalry among competitors is low. According to the textbook (Swayne et al.), intense competitor occurs when there are numerous, equally balanced competitors in the service area, and there is a slow industry growth. However, in the case reviewed, industry growth is high (it is likely that the service area has an aging population), and there are high exit barriers. None of these are the case, therefore, the rivalry among competitors is defined as low.

Market Entry Analysis

The area of  Poughkeepsie, NY is not desirable for new market entrants, therefore, it is not recommended that a new supplier enters the health care community. Primarily, because the bargaining power of suppliers is high, and the services needed for running  nursing homes are limited. Secondly, it is important to note that – while there is a low rivalry among competitors – the threat of substitute services is extremely high. The changing mindset of patients and their relatives results in a potential preference of day care and assisted home care facilities instead of admissions to  nursing homes.

When considering to move in the area, a new provider should analyze the market conditions, and the competitive forces that are shaping the health care community and environment. Even if there is a demand for the service and a relatively low rivalry among competitors, the threat of substitute products and suppliers’ bargaining power are high. This means that the company could not potentially operate effectively.

If the company was already present in the marketplace, it is likely that it could not operate effectively, therefore, it would either need to look for new markets, or new suppliers.  Due to the large demand, it would possibly be worth to adjust market conditions by looking for suppliers from outside of the health  care community.

Works Cited

Swayne, Linda E., W. Jack Duncan, and Peter M. Ginter. Strategic management of health care organizations. John Wiley & Sons, 2012.