EFFECTS OF PORTER’S FIVE FORCES ON STRATEGY

EFFECTS OF PORTER’S FIVE FORCES ON STRATEGY

FORMULATION: A CASE STUDY OF STANDARD

CHARTERED BANK KENYA

BY

BESSY KAWIRA

UNITED STATES INTERNATIONAL UNIVERSITY-

AFRICA

SPRING 2017

ii

EFFECTS OF PORTER’S FIVE FORCES ON STRATEGY

FORMULATION: A CASE STUDY OF STANDARD

CHARTERED BANK KENYA

BY

BESSY KAWIRA

A Research Report Submitted to the Chandaria School of Business in

Partial Fulfillment of the Requirement for the Degree of Masters in

Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY –

AFRICA

SPRING 2017

iii

STUDENT’S DECLARATION

I, the undersigned, declare this my original work and has not been submitted to any other

college, institution or university other than United States University in Nairobi for

academic credit.

Signed __________________________ Date: _________________________

Bessy Kawira (ID No: 627480)

This project report has been presented for examination with my approval as the appointed

supervisor.

Signed __________________________ Date: _________________________

Dr Zachary Mosoti

Signed: __________________________ Date: _____________________________

Dean, Chandaria School of Business

iv

COPY RIGHT

© Copyright by Bessy Kawira, 2016

All rights reserved. No piece of this project might be created or transmitted in any form or

by any methods, electronic, mechanical, including photocopying, recording or any

information storage without earlier written consent from the author.

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ABSTRACT

The purpose of the study was to examine the effect of porter’s five forces on strategy

formulation at Standard Chartered Bank Kenya. The study aimed at determining how

industry rivalry affect strategy formulation, establishing the effect of the threat of new

entrants on strategy formulation and examining ho buyer power affect strategy

formulation.

The study adopted a cross-sectional descriptive research method in analyzing,

interpretation, and presentation of data. The cross-sectional descriptive research design

appeals for generalization within a particular parameter. Questionnaires were used to

obtain pertinent information from respondents. The study focused on 30 employees in

management and supervisory role at Standard Chartered Bank head office in Nairobi. The

sampling technique that was used was census and the study collected information from all

the population. The study adopted a descriptive and inferential statistics in data analysis

and presentation. Figure and tables were used in data presentation.

The study found that intensity of rivalry among companies makes companies to craft

strategies to achieve market share. Rivalry among existing competitors enhances new

product introduction. The study revealed that organizational services are improved as a

result of intense rivalry. Due to rivalry, companies develop strategies on how to offer

discounts and enhance profitability. The study found that when exit barriers are high, the

intensity of rivalry is greatest. The study revealed that rivals are highly committed to the

business and have ambitions for leadership. This found that persistent price competition

teaches customers to pay less consideration to product features and service.

The study found that entry of new companies to the market affects strategy formulation. It

was noted that flexible licensing regulations enhance strategy formation. From the study,

it was examined that high customer switching costs affect strategy implementation. The

study also found that initial capital requirement regulation affects strategy formulation.

Local conditions facing the organizations affect strategy formulation. The study also

found that high sources of information due to technological development influence

strategy formulation.

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The findings of the study confirmed that the bargaining power of buyers is force that can

affect the competitive position of a company. The study found that technology and

competition are responsible for increased choices of products and services. The study

reveals that companies need to implement new strategies that allow them to deal with

environmental uncertainties created by buyers. Consumers are more sensitive to price if

they are buying goods that are undifferentiated. The study found that capacity building is

essential for successful adoption and implementation of production based approaches.

The study concludes that intensity of rivalry among companies makes companies to craft

strategies to achieve market share. According to the study, rivalry among existing

competitors enhances new product introduction. From the study it was concluded that

entry of new companies to the market affects strategy formulation. This is as a result of

low entry barriers and high customer switching costs. The study also summed up that

purchasers stand for a competitive force because they can demand higher quality and bid

down prices.

The study recommends Standard Chartered Bank and other institutions to develop

strategies that may help them during rivalry in the industry. The study assures that the

intensity of rivalry among companies makes companies to craft strategies to achieve

market share. The study recommends that for companies to achieve great strategy

formulation there is need to understand the initial capital requirement regulation and an

understanding of local conditions facing the organizations. The study also recommends

organizations to study and understand the bargaining power of buyers because it is

confirmed that the bargaining power of buyers is force that can affect the competitive

position of a company.

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ACKNOWLEDGMENT

My acknowledgement goes to my supervisor, Dr Mosoti, for the guidance during the

development of this proposal. My family and friends I am truly indebted to you for the

support you have given me this far.

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TABLE OF CONTENTS

STUDENT’S DECLARATION ............................................. Error! Bookmark not defined.

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ABSTRACT ............................................................................... Error! Bookmark not defined.

ACKNOWLEDGMENT ......................................................... Error! Bookmark not defined.

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CHAPTER ONE ....................................................................... Error! Bookmark not defined.

1.0 INTRODUCTION ........................................................ Error! Bookmark not defined.

1.1 Background of the Problem ...................................... Error! Bookmark not defined.

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CHAPTER TWO ...................................................................... Error! Bookmark not defined.

2.0 LITERATURE REVIEW ........................................... Error! Bookmark not defined.

2.1 Introduction ................................................................ Error! Bookmark not defined.

2.2 Industry Rivalry and Strategy Formulation ............ Error! Bookmark not defined.

2.3 Threat of New Entrants on Strategy Formulation . Error! Bookmark not defined.

2.4 Bargaining Power of Buyers on Strategy FormulationError! Bookmark not

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3.0 RESEARCH METHODOLOGY .............................. Error! Bookmark not defined.


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CHAPTER FOUR .................................................................... Error! Bookmark not defined.

4.0 RESULTS AND FINDINGS ...................................... Error! Bookmark not defined.


4.2 General Information .................................................. Error! Bookmark not defined.

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4.4 Threat of New Entrants on Strategy Formulation . Error! Bookmark not defined.

4.5 Bargaining Power of Buyers on Strategy FormulationError! Bookmark not

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5.5 Recommendation ....................................................... Error! Bookmark not defined.

REFERENCES .......................................................................... Error! Bookmark not defined.

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Appendix 1: Letter of Introduction ................................... Error! Bookmark not defined.

Appendix 11: Study Questionnaire ................................... Error! Bookmark not defined.

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LIST OF TABLES

Table 3.1: Sample Size Distribution ................................... Error! Bookmark not defined.

Table 4.1: Intensity of Rivalry ............................................. Error! Bookmark not defined.

Table 4.2: Existing Competitors .......................................... Error! Bookmark not defined.

Table 4.3: Organizational Services...................................... Error! Bookmark not defined.

Table 4.4: Enhancing Profitability....................................... Error! Bookmark not defined.

Table 4.5: Exit Barriers ......................................................... Error! Bookmark not defined.

Table 4.6: Leadership Ambitions ........................................ Error! Bookmark not defined.

Table 4.7: Price Competition ............................................... Error! Bookmark not defined.

Table 4.8: Attracting and Retaining Customers................. Error! Bookmark not defined.

Table 4.9: Large Increments ................................................. Error! Bookmark not defined.

Table 4.10: Customer Value ................................................. Error! Bookmark not defined.

Table 4.11: New Product Introduction ................................ Error! Bookmark not defined.

Table 4.12: Entry of New Companies ................................. Error! Bookmark not defined.

Table 4.13: Flexible Licensing Regulations ....................... Error! Bookmark not defined.

Table 4.14: Low Entry Barriers ........................................... Error! Bookmark not defined.

Table 4.15: Customer Switching Costs ............................... Error! Bookmark not defined.

Table 4.16: Capital Requirement ......................................... Error! Bookmark not defined.

Table 4.17: Local Conditions ............................................... Error! Bookmark not defined.

Table 4.18: Economy of Scale ............................................. Error! Bookmark not defined.

Table 4.19: Benefit of Scale ................................................. Error! Bookmark not defined.

Table 4.20: Technological Development ............................ Error! Bookmark not defined.

Table 4.21: Sources of Raw Materials ................................ Error! Bookmark not defined.

Table 4.22: New Entrance .................................................... Error! Bookmark not defined.

Table 4.23: Competitive Force............................................. Error! Bookmark not defined.

Table 4.24: Competitive Position ........................................ Error! Bookmark not defined.

Table 4.25: Technology and Competition .......................... Error! Bookmark not defined.

Table 4.26: Environmental Uncertainties ........................... Error! Bookmark not defined.

Table 4.27: Price Sensitive ................................................... Error! Bookmark not defined.

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Table 4.29: Information Accessibility ................................ Error! Bookmark not defined.

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Table 4.31: Industry Product ................................................ Error! Bookmark not defined.

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Table 4.32: Negotiating Leverage ....................................... Error! Bookmark not defined.

Table 4.33: Bargaining Power of Buyers ........................... Error! Bookmark not defined.

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LIST OF FIGURES

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Figure 4.2: Age of Respondents .......................................... Error! Bookmark not defined.

Figure 4.3: Level of Education of Respondents ................ Error! Bookmark not defined.

Figure 4.4: Employee Category ........................................... Error! Bookmark not defined.

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CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Problem

In the world today, organizations are operating in an ever changing world faster than it

was before. This requires organizations to adopt business strategies to learn how to

analyze the implications of changes modifying how their organizations respond to the

change (Team FME, 2013). The issue of strategy formulation is very vital for

organizational growth (Augustine and Agu, 2013). Augustine and Agu (2013) further

state that firms formulate appropriate strategies which give rise to development of

organization structure through which the set objectives will be achieved. At the

implementation level of formulated strategies there could be further environmental

changes which indicates that there could also be further strategic planning analysis of the

new changes making the process iterative and requiring an effective tool to analyse the

market.

Strategy formulation refers to the process of choosing the most appropriate course of

action for an organization to achieve their vision and the realization of organizational

goals and objectives (Madu, 2010). The process involves six main steps including; setting

organizational objectives, evaluating the organizational environment, setting targets,

aiming in context with the divisional plans, performance analysis and the choice of

strategy (Management Study Guide, 2016). According to McFarlane (2013), the process

of formulating strategy must be undertaken with the vision and mission in mind. The

process is time consuming and difficult but it represents the only viable way for

organizations to survive in the global economy where competititon is contantly on the rise

and where economic, social-cultural and technological and political-legal changes are

constantly in motion to affect strategy effectiveness and results.

The essence of strategy formulation is coping with competition. Yet it is easy to view

competition too narrowly and too pessimistically. While one sometimes hears executives

complaining to the contrary, intense competition in an industry is neither coincidence nor

bad luck (Porter, 2016). Correctly identifying the structure and competitive dynamics of

the industry an organizayion is proposing to enter will create a good general point of

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reference for judging whether it is worth entering or not. If the general industry profile

does not appear attractive to the assesssor, and the assessor is planning to offer value

propositions that have close industry substitutes, then this may be an important signal that

the proposed venture may need to be reconsidered. But if the industry profile looks

attractive, then this could be a sign that prositive prospects exist (Investment Bank, 2016),

hence the relevance of Porter’s five forces model in strategy formulation

The five forces model was developed by Michael E. Porter in the late 1970s. This model

is seen as influential for identification of power that lies in businesses by using the

outside inter-perspective (Johnson, Scholes and Whittington 2008). Porter’s theoretical

structure is based on a 1979 influential article in the Harvard Business Review which

focused on the analysis of the environment and corporate sector in order to determine

strategic positioning (Aktouf, 2005). The model is an integral part of scholarly work,

books on management in general and on strategy in particular. Thus, the fives model can

be seen as a torch-bearer of robust theory (Krishnamurthy, 2016). Porter’s framework is

attractive in both its relative simplicity to comprehend and, more importantly, relative

ease of co-ordination to implement (Aktouf, 2005).

According to Slater and Olson (2002), the model comprises of five forces that drive

competition in the microenvironment threatening a companies from making profit.

Dälken (2014) supported this argument stating that the market structure is influenced by

the strategic bahavior of organizations in that the successs of the market is independent to

the organizations success. Porter (1979) stated that, the forces can help a company find its

position in the industry that is less vulnerable to be attacked by other companies in the

industry. Mohapatra (2012) stated that it is important to note that the forces have diverse

degrees of impact in certain industries adding that the individual forces and their

collective impact change as macroeconomic, the environment and government policies

change. Barry (2009) adds that, the increasing competition within the industry in which a

company operates is the business unit that is of most concern. He added that Porter

believed that competition is influenced by the threat of new competitors; the level of

competition among existing competitors; threat of substitute services or goods; bargaining

power of suppliers and the bargaining power of buyers (Barry, 2009).

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The global banking industry is highly fragmented and includes segments such as retail

banking, corporate and investment banking, and asset and wealth management (Lucintel,

2016). The industry underwent mixed results in the post-crisis period from 2008 to 2010.

Sector growth slowed considerably as denoted by the growth rate of assets of the top

1000 banks globally in the post-crisis period (Choudhary, 2016). The global financial

crisis and recent scandals involving the mis-selling of financial products and market

manipulation damaged the reputation of key sectors of this financial system. While

analyzing the failure of key processes and controls to prevent such incidents, the focus of

law makers and regulators has therefore increasingly been on behavioral drivers and

motivation behind the activity i.e, the culture of financial institutions (Deloitte, 2016).

Regionally, West Africa’s growth slowed late in the year 2014 and may only strain

banking profits in 2015, while the region’s largest banking market, South Africa, faced a

second difficult year of weak economic growth. Weakening growth impacted South

Africa and West Africa more than it did in East Africa, although impairment charges

rapidly deteriorated in two of the four east African markets (World Bank, 2013).

However, Africa’s major banking markets remain promising, with growth prospects

among the highest globally making hard decisions about where to compete’, would be

one of the key issues facing banks (Ernst andYoung, 2016).

The outlook for Kenya’s industry is that larger banks will control retail banking for the

foreseeable future, while local big players will dominate growth. Foreign banks operating

in Kenya have focused on serving international clients and the top end of the market,

limited by international banking governance and “know your customer” regulations

(Deloitte, 2016). Kenya’s growing middle class is boosting retail banking and products

such as mortgages and personal loans and is likely to continue to drive acceptance of

credit cards, which have high penetration among wealthy clients. Strength and

convenience of mobile banking may constrain the uptake of more traditional products. As

the busy Kenyan market continues to grow and mature, and with clear sights towards the

huge potential of the region and the rest of Africa, it is envisaged that domestic banks will

have a very busy time in future (Ernst and Young, 2016).

According to Cytonn Investments (2015) Kenya has 43 commercial banks, 10

microfinance and mortgage finance institution all regulated by the Central bank of Kenya.

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The country has a high ratio of banks with a population of 44million being served by 43

commercial banks compared to Nigeria with a population of 180 million being served by

22 banks and South Africa with 55million people being served by 19 commercial banks.

However Cytonn investment (2015) added that mobile banking, revised prudential

guidelines, credit information sharing systems (CIS) and agency banking have spurred

advanced efficiency in the sector resulting in enhanced competition that has led to a high

number of banks in Kenya’s banking sector. Olaka (2013) also supported this claims

indicating that the continued entry of international banks in the Kenyan market has also

led to the increase in competitive forces in the industry. The large number of commercial

banks in Kenya’s banking sector requires critical analysis when evaluating competitive

forces (Indiastsy et al, 2014). Crucial to success in Kenya is the ability to create and grow

products (innovate) and institutions that respond to the needs of Kenyans for convenience

and efficiency through alternative banking channels such as mobile, internet and agency

banking. This aspect opens growth markets in other segments, including small and

medium-sized enterprises (SMEs) and the informal sector, that have traditionally been

largely absent in formal banking services (Oxford Business Group, 2016).

The first foreign bank to establish its operations in Kenya was Standard Chartered Bank.

It established its operations in Kenya in 1911 and has been in the country for over 100

years. The bank is among the leading banks in the country with over 40 branches spread

out and with 1,698 employees. The bank has remained a public quoted company at the

Nairobi since 1989 and has a local shareholding of about 26% comprised of 32,000

shareholders. Standard Chartered has lead other banks in Kenya by being the first to

introduce a variety of Securities Exchange services in the sector including; introduction of

the first ATM in Kenya and an automated Banking Centre for 24-hour convenience;

provision of priority Banking facilities in Kenya for more affluent customers, introduction

of utility bill payment and satellite television payment over ATM; introduction of

unsecured Personal Loan; the first to launch International Photo Debit Card; banking

Business Solutions for corporate customers and the mobile Top-Up scheme (Standard

Chartered Bank Kenya Limited 2016).

With their advanced experience in the industry, Standard Chartered Bank have formulated

various strategies for the marker therefore they provide a good basis for conducting this

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research to evaluate the role that Porter’s Five Forces Framework has on their strategy

formulation process.

1.2 Statement of the Problem

Accumulating empirical evidence suggests that at least some strategic management

models originating in developed economies do not necessarily fit the conditions prevalent

in emerging economies (Narayanan and Fahey, 2005). Subsequently, scholars are yet to

determine the generic nature of Porter’s powerful fives forces model. Questions arise as

to whether the model is universally applicable and what its effects would be especially

when managers are requested to exercise caution when it is being applied in emerging

economies (Krishnamurthy, 2016). Narayan and Fahey (2005) therefore concludes that,

there is mounting evidence that firms in emerging economies undertake strategic actions

to address the key uncertainties pertaining to exchange, capital availability and

unrestricted rivalry, and concluded that many of these actions are not derivable from

Porter’s five forces framework.

According to Indiatsy, et. al. (2014) though many practioners and scholars both at local

and international scene still value use of Porter’s five forces model, there has been a high

level debate on the model application to the complex contemporary industry environment

with technological changes and a rapidly changing environment. Some scholars have

argued that internet advancement has done a lot in changing the the indusry environment

thus challenging the model. Karagiannopoulos, Georgopoulos and Nikolopoulos (2005)

add that before the advent of internet every industry consisted of a physical part and an

informational set that was difficult to handle and access making them to further indicate

that as much as the five underlying forces of competition determine the industry

attractiveness, it has also been challenged by its failure to explain the expansion of the

distance learning industry.

Dälken (2014) added that there is doubt that the model that was developed in 1979 is still

relevant in various industries today owing to the fact that there has been technological

advancement taking place. This has raised uncertainities on the effect of Porter’s five

forces model as a tool to conduct industry analysis in strategy formulation and the need

for an investigation especially in the financial sector in Kenya so as to determine beyond

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doubt it’s relevance and reliability. This is a gap identified that this research is intended to

fill.

1.3 Purpose of the Study

The purpose of this study was to examine the effects of Porter’s five forces on strategy

formulation at standard Chartered Bank Kenya.

1.4 Research Questions

1.4.1 How does industry rivalry, according to porter’s five forces affect strategy

formulation?

1.4.2 What is the effect of the threat of new entrants on strategy formulation according

to porter’s five forces?

1.4.3 According to porter’s five forces how does buyer power affect strategy

formulation?

1.5 Significance of the Study

1.5.1 Standard Chartered Bank

The study informs the management of standard chartered bank on the effects of Porter’s

five forces on their strategy formulation. It helps the management identify strategies to

formulate in the organization recognizing the effects Porters five forces could have on

them and how to address those challenges.

1.5.2 Banking Sector Stakeholders

The knowledge gap of the effects of porter’s five forces and strategy formulation was

addressed in this research. This provides banks, consultants and practioners with the

knowledge they require when formulating strategies for banks looking out to the

drawbacks to avoid when formulating strategies.

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1.5.3 Scholars

This research adds to the knowledge already available on effects of Porter’s five forces on

strategy formulation more so drawing examples from the banking sector. The study also

is a reference point for gaps identified in this research where future studies are required.

1.5.4 Other Organizations

The study would be used by other organizations to understand forces of strategy

formulation to enhance their competitiveness against their respective competitors.

1.6 Scope of the Study

The focus of the study was on Kenya’s Standard Chartered Bank. The population for the

study was the employees of the bank. The questionnaire was used as a data collection

tool. The study was conducted in five months from July 2016 scheduled for completion in

November 2016

1.7 Definition of Terms

1.7.1 Strategy

This is the scope and direction of an organization over a long period of time that achieves

advantage in a changing environment through the alignment of resources and

competencies (Johnson, Whittington, and Scholes, 2009).

1.7.2 Strategy Formulation

This is a process essential to an organization’s success in which an organization selects

the most suitable course of action to attain their defined goals by providing a framework

for action leading to anticipated results (Mitchell, 2009).

1.7.3 Buyer Power

This is the extent to which customers influence the market sometimes putting pressure to

the market demanding improved quality and low prices (Team FME, 2013).

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1.7.4 Industry Rivalry

This the extent to which firms in an industry put pressure on each other limiting potential

profits for each other (Wilkinson , 2013).

1.7.5 Threat of New Entrants

This refers to the threat new competitors pose to existing competitors in an industry that

is profitable when they enter the market (Wilkinson , 2013).

1.8 Chapter Summary

This chapter has discussed all elements of chapter one. The elements include the

background of the study, statement of the problem, objectives of the study, and

significance of the study. In addition, the chapter conversed about the scope of the study

and definition of terms. Chapter two is about the literature review of this study based on

the specific objectives of the study. Chapter three is about the research methodology,

chapter four presents the results and findings and the discussion, and finally chapter five

depicts conclusion and recommendations of the research respectively.

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CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter presents literature review based on the specific objectives of this research

including the effects of industry rivalry on strategy formulation, the effect of the threat of

new entrants on strategy formulation and the effects of buyer power on strategy

formulation. Presented at the end of this chapter is the summary of the whole chapter two.

2.2 Industry Rivalry and Strategy Formulation

2.2.1 Industry Rivalry

Gabriel (2009) asserts that the intensity of rivalry among and between companies within

an industry is apparent when companies in an industry battle achieve market share from

each other. This rivalry goes up and as a result the competition turns out to be stronger

with an increase in the number of companies in the same industry as they push around for

a considerable market share. For instance, in Botswana, there are 12 commercial banks,

registered and 7 of these banks were registered between 2006 and 2013 (9years),

representing 58% of the total registered commercial banks. This is a major increase in the

number of banks contributing actually similar products and they are all struggling to

capture and maintain a market share that will lead to more than above average profits.

The Bank of Botswana has observed the market share of the industry total loans and

advances, total deposits, and total assets for the smaller and recently established banks

grow at the cost of the market share of the a few large private and well established

commercial banks (Bank-of-Botswana, 2012). This circumstance has created intense

competition between the small and the large established banks.

Among existing competitors, rivalry assumes many forms that are familiar. These include

service improvements, advertising campaigns, price discounting and new product

introductions. Profitability of an industry is restricted by high level rivalry. The degree to

which competition brings down an industry’s revenue potential depends, first, on the

force with which organizations compete and, second, on the base on which they compete

(Awuah, 2011).

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2.2.2 The Intensity of Rivalry

The intensity of rivalry is maximum if (Mguni, 2013) competitors are roughly equal in

power and size or are many. In such state of affairs, competing firms find it hard to stay

away from poaching business. Practices advantageous for the industry as a whole go un-

enforced without an industry leader. The intensity of rivalry, according to Shah and

Siddiqui (2006), is also greatest if the industry growth is slow. Sluggish growth

unexpectedly scrambles for market share. The study also reveals that when exit barriers

are high, the intensity of rivalry is greatest. According to Ernst and Young (2012) exit

obstacles, the rear side of entry barriers, take place because of such things as

management’s devotion to a certain business or very much specialized assets. The

barriers maintain companies in the market place even assuming they may be earning

negative or low proceeds. Excess capacity remains in use as the profitability of strong

competitors experience difficulties as the weak ones hang on.

Rivals are extremely dedicated to the business and have aspirations for leadership,

predominantly if the rivals have ambitions that go further than economic performance in

the main industry. Strong dedication to a business takes place for a mixture of reasons.

For example, competitors that are state-owned may have goals that comprise of

employment or reputation. Units of larger corporations may play a part in an industry for

image motives or to present a full line. Clashes of personality and ego have infrequently

exaggerated rivalry to the shortcoming of profitability in fields such as the media and

high technology (Porter, 2007).

Organizations cannot well read the indications for other for the reason that they do not

have acquaintance with one another, contradictory goals, and unlike approaches to

competing. The power of rivalry mirrors not just the strength of competition but also the

base of competition. The scale on which rivalry takes place and whether competitors

come together to compete on the same scale has a key influence on profitability (Afuah,

2008). According to Bengtsson and Kock (2010), competition is more than ever

disparaging to profitability if it descends completely to price because price rivalry shifts

profits from an industry to customers directly. Price cuts are usually easy for competitors

to notice and match, making succeeding rounds of vengeance likely. Unrelenting price

rivalry also educates customers to pay less deliberation to product features and service.

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2.2.3 Occurrence of Competition

Services or products of competitors are almost impossible to differentiate and there are

not lots of switching costs for buyers. This gives assurance to rivals to cut prices and win

new customers. These situations in that industry are reflected by years of airline price

wars. Marginal costs are low while fixed costs are high. This creates high pressure for

rivals to cut prices below their average costs, even near to the marginal costs, to steal

incremental clients while still making some involvement to covering up fixed costs

(Covin and Slevin, 2010). For example, aluminum and paper are among the many

essential materials businesses that go through this problem, predominantly if demand is

stagnant. For this reason, delivery companies with permanent networks of routes must be

served in spite of volume (Doole and Lowe, 2004).

Capacity must be expanded in large increments for an organization to be efficient. As in

the polyvinyl chloride business, the need for big capacity extension disrupts the industry’s

supply-demand equilibrium and over and over again leads to extensive and persistent

periods of more than enough numbers and price cutting (Hill and Jones, 2004). The study

also established that price rivalry takes place when the product is perishable. Perish-

ability makes a strong opinion to cut prices and put up for sale a product while it still has

value. Most services and products are perishable than is generally thought. Just as

tomatoes are perishable since they decompose, computer models are perishable because

they quickly become obsolete, and information may be perishable if it diffuses rapidly or

becomes outdated, thus missing its value. Hotel accommodations are among services that

are perishable in the sense that unexploited capacity can never be recovered (Harvey,

2006).

Gabriel (2009) confirms that rivalry on dimensions other than price on brand image,

product features, support services, or delivery time, for example, is less expected to eat

into profitability because it builds up customer value and can maintain higher prices.

Moreover, competition focused on such dimensions can increase value relative to

substitutes or enlarge the barriers facing new entrants. While non-price competition at

times goes sky-high to levels that deteriorate industry profitability, this is not as much of

expected to occur than it is with price competition (Nir, 2009). The scopes of competition

are noteworthy whether rivals compete on the same scopes or not. When all or many

12

competitors seek to meet the same needs or compete on the same traits, the result is zero-

sum rivalry. Here, one organization’s accomplishment is often another’s loss, forcing

down profitability. While price rivalry runs a stronger risk than non-price rivalry of

becoming zero-sum, this may not happen if firms take care to subdivide their markets,

aiming their low-price contributing to different customers (Rajiv and Padmanabhan,

1995).

Tammy (2010) asserts that competition can be positive sum, or in realism improve the

typical profitability of an industry, when every competitor makes an effort to serve the

needs of different customer divisions, with diversity mixes of features, price, products,

services, or brand identities. Such rivalry can not only sustain higher average profitability

but also enlarge the industry, as the needs of more consumer groups are better met.

Shuba, Peter, and Frank (2010) established that the chance for positive-sum rivalry will

be greater in industries serving varied consumer groups. With apparent consideration of

the structural foundations of competition, strategists can from time to time take steps to

move the nature of rivalry in a more positive direction.

Competition in the middle of existing rivals takes many recognizable forms: new-product

introductions, price discounting, service escalation, advertising campaigns, and so forth

(Doole and Lowe, 2004). The extent to which competition weakens an industry’s profit

potential depends, first, on the foundation of which organizations compete and, second,

on the intensity with which they compete. Price is characteristically the most critical basis

of rivalry for industry profitability. Price reductions move profits directly from an

industry to its clientele, and they are more often than not easy for rivals to see and match,

making successive rounds of disciplinary cuts more probable. On the contrary,

competition on features or services can permit industry competitors to sustain good

margins (Serguei, 2014).

2.2.4 Structural Determinants of the Intensity of Competition

Competition in an industry continually works to drive down the rate of return on invested

capital toward the competitive floor rate of return, or the return that would be earned by

the economist's perfectly competitive industry. This competitive floor, or free market

13

return, is approximated by the yield on long-term government securities adjusted upward

by the risk of capital loss (Bengtsson and Kock, 2010). Stakeholders will not put up with

returns below this level in the long-term since their option of investing in other

organizations and industries usually earning less than this return will ultimately go out of

business. The presence of rates of return higher than the adjusted free market return

serves to stimulate the inflow of capital into an industry either through new entry or

through additional investment by existing competitors. The strength of the competitive

forces in an industry determines the degree to which this inflow of investment occurs and

drives the return to the free market level, and thus the ability of firms to sustain above-

average returns (Lee, Kim, and Park, 2011).

The five competitive forces; rivalry among current, bargaining power of buyers,

competitors threat of substitution, and bargaining power of suppliers reveal the fact that

competition in an industry moves well further than the well-known players (Barry, 2009).

Potential entrants, suppliers, customers, and substitutes are all competitors to

organizations in the industry and might be less or more famous depending on the certain

situations. Competition in this bigger sense might be termed extended rivalry (Harvey,

2006).

All five competitive forces mutually define the level of industry competition and

profitability, and the strongest force or forces are prevailing and become critical from the

viewpoint of strategy formulation (Krishnamurthy, 2016). For example, even a firm with

an exceptionally solid market position in an industry where plausible contestants are no

longer danger will get low returns in the event that it experiences a predominant, bring

down cost substitute. Even with no substitutes and blocked entry, intense rivalry among

existing competitors will limit potential returns. The extreme case of competitive intensity

is the economist's perfectly competitive industry, where entry is free, existing firms have

no bargaining power against suppliers and customers, and rivalry is unbridled because the

numerous firms and products are all alike (Ernst and Young, 2012).

14

2.3 Threat of New Entrants on Strategy Formulation

2.3.1 Threat of New Entrants

Gabriel (2009), Foley and Jayawardhena (2000) collectively argues that the possibility of

new firms entering the industry affects competition and makes it difficult for the already

existing firms to protect their market share and continue to be profitable. The cost of entry

into the commercial banking sector is low, licensing regulations are way too flexible,

profits seem very promising and the risk seems manageable and as a result new players

have been entering the commercial banking scene. Insurance companies, retailing firms

and stock-broking firms are also making significant inroads into what has been known as

traditional banking markets due to the low barriers of entry associated with the industry.

These potential competitors have created significant threats to the existing established

large banks.

Both potential and existing companies will influence profitability in an industry. The

entry barrier is the key factor to analyze the threat of new entrants (Karagiannopoulos,

Georgopoulos, and Nikolopoulos, 2005). New entrants will not only bring new producing

ability and new resource, but also occupy the market share, which belongs to other

existing companies (Dagmar, 2008). So it will lead to the conflict of production materials

and decrease the companies’ profit level. The levels of the threat of new entrants depend

on two kinds of factor. One is the new entry barrier. The other is the reflection of existing

companies to new entrants. The threat of new entrants is a function of the height of entry

barriers. The higher the entry barriers are, the weaker is this competitive force (Lee, Kim,

and Park, 2011).

The sources of the entry barriers include economies of scale, brand loyalty, cost

advantages, customer switching costs, initial capital requirement regulation, many more

(Lee, Kim and Park，2011). The main entry barriers include scale economy, product

differences, capital demand, sales channels development, government behavior and policy

and so on. Some barriers are hard to break, using coping and imitating way. Whether a

new company will enter into an industry or not depends on the potential profit, expense

and the risk of being a new entrant (Porter, 1998).

15

Depending on the environment, strategic formulation and implementation are often based

on local conditions facing the organizations and the internal resources provided in

response to them. Therefore, the competitiveness of organizational performance depends

on strategic implementation (Mguni, 2013). Karagiannopoulos et al. (2005) found that

industry forces are valuable for business strategy formulation and implementation. The

business should identify its position in the market area and fight against the competition

that threatens its strategic position before formulating strategies. Furthermore, Covin and

Slevin (2010) showed that industry forces have a major impact on firm strategies. The

notion is that companies must adopt a more dynamic strategy to defend themselves

against industry structures and increase their market share.

2.3.2 Protecting Market Share

New entrants to an industry convey new capability and a desire to expand market share

that lays pressure on costs, prices, and the speed of investment essential to compete.

Predominantly when new entrants are branching out from other markets, they can

influence existing cash flows and capabilities to shake up competition, as Pepsi did when

it got into the bottled water industry, Microsoft did when it began to offer internet

browsers, and Apple did when it got into the music supply business (Awuah, 2011).

The threat of entry, as a result, puts a restriction on the profit probable of an industry.

When the threat is high, incumbents must grip down their prices or enhance investment to

discourage new competitors. In area of expertise coffee retailing, for example,

comparatively low entry barriers means that Starbucks must invest insistently in

modernizing menus and stores (Porter, 2007). Foley and Jayawardhena (2000) argue that

the threat of entry in an industry depends on the height of entry barriers that are in

attendance and on the response entrants can anticipate from incumbents. If entry barriers

are low and newcomers expect small revenge from the well-established rivals, the threat

of entry is far above the ground and industry profitability is moderated. It is the threat of

entry, not whether entry really occurs, that grips down profitability.

2.3.3 Supply-Side Economies of Scale

These economies take place when organizations that makes at larger volumes take

pleasure in lower costs per unit since they can stretch fixed costs over more units, make

16

use of more competent technology, or command superior terms from suppliers. Supply-

side scale economies discourage entry by forcing the hopeful entrant either to come into

the industry on a large scale, which needs extricating entrenched rivals, or to

acknowledge a cost disadvantage (Tammy, 2010).

Scale economies can be found in almost every activity in the value chain; which ones are

most significant differs by industry. In microprocessors, incumbents such as Intel are

secluded by scale economies in investigation, chip manufacture, and consumer marketing.

For lawn care companies like Scotts Miracle-Grow, the key significant scale economies

are established in the media advertising and supply chain. In small-package delivery,

economies of scale crop up in nationwide logistical systems and information technology

(Churchill and Iacobucci, 2008).

2.3.4 Demand-Side Benefits of Scale

McFarlane (2013) asserts that the benefits recognized as network effects happen in

industries where a purchaser’s eagerness to pay for a firm’s product magnifies with the

number of other purchasers who also hold up the organization. Shoppers may trust

superior organizations more for a vital product: Recall the old proverb that no one ever

got fired for purchasing from IBM (when it was the leading computer maker). Buyers

may also value being in a “network” with a larger number of fellow customers. For

example, online public sale participants are paying attention to eBay because it offers the

most prospective trading partners. Demand-side benefits of scale hold over entry by

discouraging the eagerness of customers to buy from a newcomer and by dropping the

price the newcomer can influence until it puts up a large base of customers (Hill and

Jones, 2004).

2.3.5 Customer Switching Cost

Switching costs are fixed costs that purchasers face when they change dealers. Such costs

may well happen because a buyer who changes vendors must, for instance, modify

product specifications, retrain workers to use a new product, or modify information

systems or processes. The bigger the switching costs, the difficulty it will be for an

entrant to achieve customers (Porter, 1998).

17

Enterprise resource planning (ERP) software, according to Hoepfl (2015), is an example

of a product with incredibly high switching costs. Shah and Siddiqui (2006) assert that

once an organization has installed SAP’s ERP system, for instance, the costs of switching

to a new vendor are exorbitant because of implanted data, the reality that internal

processes have been adapted to SAP, main retraining needs, and the mission-critical

nature of the applications.

2.3.6 Capital Requirements

The need to invest a lot of financial resources so as to compete can discourage new

entrants. Capital may be indispensable not only for unchanging facilities but also to build

inventories, extend customer credit, and finance start-up losses (Bank-of-Botswana,

2012). The barrier is for the most part immense if the capital is required for unrecoverable

and therefore difficult-to-fund expenditures, for example research and development or up-

front advertising. While major organizations have the financial resources to enter by force

almost any industry, the vast capital requirements in various fields limit the pool of

possible entrants. On the other hand, in such fields as short-haul trucking or tax

preparation services, capital requirements are minimal and potential entrants’ abundant

(Lee, et al., 2011).

It is imperative not to exaggerate the extent to which capital requirements alone prevent

entry. If industry incomes are good-looking and are expected to remain so, and if capital

markets are efficient, investors will offer entrants with the money they need. For aspiring

air carriers, for example, funding is available to purchase costly aircraft because of their

high resale value, one reason why there have been various new airlines in more or less

every region (Serguei, 2014).

2.3.7 Incumbency Advantages Independent of Size

According to Harvey (2006), incumbent firms, might have quality or cost advantages not

obtainable to potential competitors, no matter what their size. These benefits can stem

from proprietary technology, access to the most excellent raw material sources, favorable

geographic locations, cumulative experience, or government subsidies that has allowed

incumbents to find out how to produce professionally. Such advantages sometimes are

legally enforceable, as they are through exclusive rights.

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2.3.8 Unequal Access to Distribution Channels

The new entrant on the block must, certainly, protect distribution of its service or product.

A new food item, for instance, must put out of place others from the supermarket shelf by

means of price breaks, extreme selling efforts, promotions, or some other means. The

more limited the retail or wholesale distribution channels are and the more that surviving

competitors have tied them up, the harder entry into an industry will be (Hoepfl, 2015).

Occasionally access to distribution channel is so great a barrier that a newcomer must

make its own distribution channels. Thus, upstart low-cost airlines in Europe have

circumvented distribution through travel agents, who have a tendency of favoring

established higher-fare carriers, and have encouraged travelers to book their own flights

through Internet websites (Lucintel, 2016).

2.4 Bargaining Power of Buyers on Strategy Formulation

2.4.1 Bargaining Power of Buyers

Bargaining power of consumers undoubtedly demonstrates that purchasers represent a

competitive force since they can demand higher quality or more services, bid down

prices, and play competitors off not in favor of each other, all at the cost of airlines’

profitability (Porter, 1998). The power of each important buyer group depends on a

number of characteristic of its market situation and on the relative importance of its

purchases from the industry compared with the industry’s overall business. Business class

passengers are an airlines choice of the buyer group which they sell to as a crucial

strategic decision. There is an amount of pressure customers can place on airlines, thus

affecting its prices, volume and profit potential. Virgin Blue for example attracts travelers

that are price sensitive by offering them low fares and those that are convenience oriented

by providing them with frequent flights. The bargaining power of buyers is another force

that can affect the competitive position of a company (Porter, 1998).

Legislations have significantly increased customers’ rights (Shah and Siddiqui, 2006)

while technology and competition on the other hand, are responsible for increased choices

of products and services. Increased volumes of available information on the Internet and

changes in social behavior have reduced the loyalty of customers. Ernst and Young

(2011) also argued that increased competition reduces the loyalty of customers to their

19

main banks and are more likely to try new banks which offer better rates, superior

technology, or more attractive rewards. Customers in Botswana therefore, have more

power posing a serious threat to commercial banks.

2.4.2 The Power of Buyers

The buyer power means that buyers always want to drive down the price of the product

and need good service requirements to improve the quality of products and services in the

industry (Yao, 2010). Lee, et al. (2011) asert that, buyers can threaten the industry by

bargaining down prices or raising the costs by demanding better quality suppliers. Power

of buyers is the mirror image of power of suppliers (Hill and Jones, 2004).

Karagiannopoulos, et al. (2005) found that buyer power is one of the two horizontal

forces that influence the appropriation of the value created by an industry. The most

important factors of buyer power are size and the concentration of customers.

The flip side of powerful suppliers, powerful customers, can capture more value by

pushing down prices, demanding more service or better quality (by this means driving up

costs), and normally playing industry contestants off against one another, all at the

expenditure of industry profitability. Buyers are strong if they have negotiating power

relative to industry players, particularly if they are price sensitive, using their thump first

and foremost to pressure price reductions (Shah and Siddiqui, 2006).

As with suppliers, there may be different groups of customers who vary in bargaining

power. A customer group has bargaining power if: there are few purchasers, or each one

buys in volumes that are high relative to the size of one vendor. Large-volume purchasers

are predominantly powerful in industries with great fixed costs, such as

telecommunications apparatus, bulk chemicals, and offshore drilling. Low marginal costs

and high fixed costs intensify the pressure on competitors to keep aptitude filled through

discounting (Nir, 2009).

2.4.3 Backward Integration

If consumers either are to some extent integrated or front a probable threat of backward

integration, they are in a point to demand bargaining dispensation. The major automobile

producers, General Motors and Ford, are well known for using the threat of self-

20

manufacture as a bargaining lever. They fit into place in the practice of tapered

integration that is, creating some of their needs for a given element in-house and buying

the rest from outside suppliers (Gabriel, 2009). Not only is their risk of further integration

mainly probable, but also partial manufacture in-house gives them a detailed information

of costs which is a huge aid in negotiation. Consumer power can be partially counteracted

when organizations in the industry give a threat of forward integration into the consumers'

industry. Producers of beer and soft drinks have long managed the power of packaging

manufacturers by intimidating to make, and from time to time in point of fact making,

packaging materials themselves (Serguei, 2014).

The study established that a buyer group is price responsive if: the product it buys from

the industry stands for an important fraction of its procurement budget or cost structure.

Here purchasers are likely to shop around and bargain hard, as customers do for home

mortgages. Where the manufactured goods sold by an industry is a small portion of

purchaser’s expenditures or costs, buyers are typically less price sensitive (Bengtsson and

Kock, 2010). The buyer group receives low profits, is impoverished for cash, or is

otherwise on the spot to cut its purchasing costs. Highly cash-rich or profitable customers,

in contrast, are usually less price sensitive (that is, obviously, if the item does not stand

for a large fraction of their costs).

The quality of buyers’ services or products is less affected by the firm’s product. Where

quality is extremely much affected by the firm’s product, buyers are by and large less

price sensitive. For example, when renting or purchasing production quality cameras,

manufacturers of major motion pictures choose for highly dependable equipment with the

latest features. They pay inadequate consideration to price. Industries in which this

situation exists include oil-field equipment, where a malfunction can lead to large losses

(witness the enormous cost of the recent failure of a blowout prevent or in a Mexican

offshore oil well), and enclosures for electronic medical and test instruments, where the

quality of the enclosure can greatly influence the user's impression about the quality of

the equipment inside (Mguni, 2013).

The industry’s product has small effect on the buyer’s other costs. Here, purchasers focus

on price. On the contrary, where an organization’s service or product can pay for itself

again and again over by enhancing performance or reducing material, labor, or other

21

costs, buyers are regularly more concerned in quality than in price. Examples include

services and products like well logging or tax accounting (which measures below-ground

situations of oil wells) that can save or even make the buyer money. In the same way,

purchasers tend not to be price susceptible in services such as investment banking, where

bad performance can be embarrassing and costly (Shuba, et al., 2010).

Most sources of buyer power, according to Foley and Jayawardhena (2000), pertain

equally to customers and to business-to-business customers. Consumers tend to be more

sensitive to price, like industrial consumers, if they are purchasing goods that are costly

relative to their incomes, undifferentiated, and of a type where goods performance has

insufficient consequences. The major distinction with customers is that their requirements

can be more intangible and difficult to quantify. Intermediate consumers who buy the

produce but are not the end user (such as distribution channels or assemblers), according

to Augustine et al. (2013) can be examined the same way as other purchasers, with one

essential addition. Intermediate consumers gain noteworthy negotiating power when they

can manipulate the purchasing decisions of customers downstream. Consumer jewelry

retailers, electronics retailers, and agricultural- equipment distributors are cases in point

of distribution channels that put forth a strong manipulate on end customers.

Manufacturers over and over again attempt to diminish channel clout through fashionable

arrangements with certain retailers or distributors or by marketing directly to end users.

Constituent producers seek to develop power over assemblers by making preferences for

their constituents with downstream consumers. Such is the case with bicycle parts and

with sweeteners (Shah and Siddiqui, 2006). DuPont has made mammoth clout by

advertising its Stain master brand of carpet fibers not only to the carpet makers that in

point of fact buy them but also to downstream consumers. Many customers request Stain

master carpet even though DuPont is not a carpet manufacturer.

2.4.4 The Buyer Information

Where the buyer has full information about demand, actual market prices, and even

supplier costs, this usually yields the buyer greater bargaining leverage than when

information is poor. With full information, the buyer is in a greater position to insure that

22

it receives the most favorable prices offered to others and can counter suppliers' claims

that their viability is threatened (Churchill and Iacobucci, 2008).

Most of the sources of consumer power can be credited to consumers as well as to

industrial and commercial buyers; only an alteration of the frame of reference is

necessary. According to Porter (2007), customers tend to be more sensitive to price if

they are purchasing goods that are undifferentiated, of a variety where quality is not

primarily significant to them, or expensive relative to their returns.

The consumer power of retailers and wholesalers is affirmed by the same rules, with one

imperative addition. Retailers can gain significant bargaining power over manufacturers

when they can influence consumers' purchasing decisions, as they do in audio modules,

appliances, jewelry, sporting goods, and other goods. Wholesalers can gain bargaining

power, similarly, if they can influence the purchase decisions of the retailers or other

firms to which they sell (Awuah, 2011).

2.5 Chapter Summary

This chapter reviewed literature on the effects of Porter’s five forces on strategy

formulation in Standard Chartered Bank Kenya. The study discussed how industry rivalry

affects strategy formulation, the effect of the threat of new entrants on strategy

formulation and how buyer power affects strategy formulation. The next chapter presents

the research methodology exploring the best methodology the research adopted to reach

to the solution of the problem.

23

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

The chapter portrays the research methodology that was used in carrying out this study. It

considers the research design, population and sampling design, data collection methods,

research procedures and data analysis methods. The study in this chapter concludes with a

chapter summary.

3.2 Research Design

Research design refers to the overall strategy that is chosen to integrate the different

components of the study in a coherent and logical way, thereby, ensuring that one may

effectively address the research problem; it constitutes the blueprint for the collection,

measurement, and analysis of data. This study presumed descriptive research design. This

is a scientific method that entails examining and describing the behaviour of a focus

without influencing it any way. Descriptive research design endeavours to describe a

subject, through gathering of data and the tabulation of frequencies on research valuables

and the research discloses who, what, when, where or how much (Sekaran and Bougie,

2010). Descriptive design was selected because it contributes to high response quality and

low refusal rates. It is a design that is also less time consuming which is fit for this study

(Cooper and Schindler, 2008).

The study was directed by three independent variables including how industry

competition have an effect on strategy formulation; the efffect of threat of new entrants

on strategy formulation and how buyer power affect startegy formulation. The

independent variables investigated the effects of Porter’s five forces on strategy

formulation focusing on Standard Chartered Bank.

3.3 Population and Sampling Design

3.3.1 Population

A population, (Cooper & Schindler, 2008), is a whole collection of components where

suggestions have to be made. This study focused 30 employees in management and

24

supervisory role at standard chartered bank head office in Nairobi. The employees were

spread from top management level to the supervisory employees at the head office. This

target population provided sufficient information regarding the effects of Porter’s five

forces on strategy formulation.

3.3.2 Sampling Design

3.3.2.1 Sampling Frame

This is a list of elements from which a sample is drawn from referring to a correct list of

population members. In this research the sampling frame comprises of all employees in

management and supervisory role at standard Chartered bank head office in Nairobi. This

list was obtained from the human resource office at the head office in Nairobi and

ensured that the list of managers and supervisors are current, complete and relevant for

the attainment of the study objectives.

3.3.2.2 Sampling Technique

Sampling technique is the name or other identification of the specific process by which

the entities of the sample have been selected (Malhotra, 2011). This research adopted non

probability sampling technique which does not rely on chance for selection procedures

but is specific on the individuals to be selected for the research (Malhotra, 2011). The

researcher adopted judgemental sampling design to obtain sample elements for this

research. The elements comprised of top, middle and lower management at the standard

Chartered bank head office in Nairobi.

3.3.2.3 Sample Size

Sample size is the statistical determination of the appropriate sample size which can be

generalized to represent the entire target population (Cooper and Schindler, 2008). To

find the least amount of population sample for this study, the study conducted a census

which is believed to be free from fault and provides 100 percent warranty and

representative of the population (Malhotra and Birks, 2007). Census was the best

approach for this research since the number of managers at the head office are few thus

census was the most appropriate for this research. The research was conducted on

Standard Chartered Bank head office in Nairobi. The sample size was derived from all

managers and supervisors at the head office totalling to 30 as indicated in the table below;

25

Table 3.1: Sample Size Distribution

3.4 Data Collection Methods

Data Collection is the procedure of getting-together and measuring information on

variables of interest, in a recognized systematic manner that enables one to answer

declared research questions, test hypotheses, and weigh up outcomes. This study utilised

both primary and secondary data. Primary data was gathered using questionnaires

recognized as an imperative data collection tool (Malhotra, 2011). The data collection

method is given good reason for because it offers an efficient and effective way of

collecting information within a very short time. Secondary data was collected from

journals books and the internet and was used to give an analysis of what other authors

have to say about the research topic under study. This analysis is presented in chapter two

of this study. To the respondents, questionnaires inform of closed and open ended

questions were presented. The questionnaire provided questions in a semi structured

format while others were open ended questions to capture opinions of the respondents

regarding the performance variables in the study (Cooper and Schindler, 2008). The

close-ended questions were in the form of a 5-point Likert scale (agree, strongly agree,

neutral, disagree or strongly disagree) to investigate the effects of Porter’s five forces on

strategy formulation focusing on Standard Chartered Bank.

3.5 Research Procedures

Research procedure is the method for measuring variables and collecting data to test

hypothesis. Permission to carry out this research was sought from the human resource

office of Standard Chartered Bank at their head office in Nairobi using an official letter

from USIU-Africa research office seeking their authority to collect data. Upon approval

the researcher went ahead to carry out a pilot study to test the questionnaire on two

respondents from the bank who were not part of the final data collection process. The

Level of Management Number of Respondents

Top Management 5

Middle Management 10

Lower Management(Supervisors) 15

Total Sample 30

26

pilot study was directed towards measuring the accuracy, completeness, precision and

clarity of questionnaires.

Amendments were made on the questionnaires and on an agreed date and time with

communication of the human resource manager at the bank, who was instrumental in

informing the targeted respondents on taking part in the research. This assured the

respondents of confidentiality of information obtained. The questionnaires was then

distributed to the respondents with the assistance of a research assistant and in ensuring

high response rate the respondents were reminded via email

3.6 Data Analysis Methods

According to Bihani and Patil (2014), analysis of data is a process of inspecting, cleaning,

transforming, and modeling data with the goal of discovering useful information,

suggesting conclusions, and supporting decision-making. In this chapter, both qualitative

and quantitative data analysis techniques were utilised. Qualitative technique refers to any

kind of research that produces findings not arrived at by means of statistical procedures or

other means of quantification while quantitative research seeks insight through a less

structured and more flexible approach (Hoepfl, 2015). The gathered data for this study

was coded and analysed using Statistical Package for Social Sciences (SPSS) software

with use of descriptive statistics, particularly mean and standard deviation and coefficient

of variation as well as use of inferential statistics including correlation, cross tabulation,

regression and presented using tables and figures to give a clear picture of the research

findings at a fleeting look.

3.7 Chapter Summary

Chapter three has depicted the methodology and processes that was used to bring out the

study. It started with a brief introduction highlighting the general methodology and

structure of the chapter. The chapter also highlighted the method that was used to conduct

the research and its use justified. The population was defined and the sampling technique,

technique, and sample size described. Finally, the data collection techniques and research

procedures used have been discussed. The study also described the data analysis method

27

employed during research. The next chapter is chapter four and discusses the results and

findings of the study.

28

CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

Chapter four depicts the analyzed results and findings of the study on the research

questions relating to the information found from the respondents. The first section is

about the background information, which portrays demographic orientation of the

respondents. The second section is about industry rivalry and strategy formulation. The

third section is on threat of new entrance and strategy formulation. The fourth section is

on bargaining power of buyers and strategy formulation and the final section is the

summary of the whole chapter.

4.2 General Information

4.2.1 Gender of Respondents

Figure 4.1 depicts the gender demonstration of the study. From the figure, it is very well

indicated that 27% of the people at the Standard Chartered Bank Kenya is female while

73% is male.

The study means that majority of the population at Standard Chartered Bank are males.

Figure 4.1: Gender of Respondents

29

4.2.2 Age of Respondents

To show the age representation of the population at Standard Chartered Bank Kenya,

Figure 4.2 was used. The figure illustrates that 53% of the respondents represents

individuals who are between 20 to 30 years of age while those who are between 31 to 40

years are represented by 13%. The study also reveals that 17% of respondents are

between 40 to 60 years and 17% are above 50 years of age.

The implication of the study is that majority of the population working at Standard

Chartered Bank Kenya are between 20 to 30 years of age.

Figure 4.2: Age of Respondents

4.2.3 Level of Education of Respondents

Figure 4.3 shows the level of education of respondents. From the figure, it is clearly

shown that 63% of the population has bachelor’s education and 37% has master’s

education.

The study implies that majority of the population at Standard Chartered Bank has

bachelor’s degree.

30

Figure 4.3: Level of Education of Respondents

4.2.4 Employee Category

To show the cadre of employees at Standard Chartered Bank Kenya, Figure 4.4 was used.

The figure indicates that 66.7% represents junior employees, 20% represents supervisors,

6.7% represents lower level management and 6.7% represents middle level management.

The implication of the study is that majority of the population working at Standard

Chartered Bank Kenya are junior employees.

Figure 4.4: Employee Category

4.3 Industry Rivalry and Strategy Formulation

This section aimed at determining how industry rivalry affects strategy formulation. The

aspects addressed included intensity of rivalry, existing competitors, service

improvement, enhancing profitability, exit barriers, leadership ambitions, price

31

competition, attracting and retaining customers, large increments and customer

development.

4.3.1 Intensity of Rivalry

Table 4.1 shows the level at which respondents’ opinions on intensity of rivalry. From

the table, the study confirms that 56.7% of respondents agreed that intensity of rivalry

among companies makes companies to craft strategies to achieve market share. The study

also shows that 43.3% strongly agreed to the statement.

Table 4.1: Intensity of Rivalry

Intensity of rivalry among companies makes companies to craft strategies to achieve

market share

Frequency Percentage

Agree 17 56.7

Strongly Agree. 13 43.3

Total 30 100.0

4.3.2 Existing Competitors

Table 4.2 shows the respondents’ opinions on existing competitors. From the table, 56.7%

of respondents agreed that the rivalry among existing competitors enhances new product

introduction, 30.0% of the respondents strongly agreed to the statement, and 13.3%

disagreed that rivalry among existing competitors enhances new product introduction.

Table 4.2: Existing Competitors

Rivalry among existing competitors enhances new product introduction


Disagree 4 13.3

Agree 17 56.7

Strongly Agree 9 30.0

Total 30 100.0

4.3.3 Organizational Services

Table 4.3 establishes the respondents’ opinions on organizational services. From the

table, 50.0% of respondents agreed that organizational services are improved as a result

32

of intense rivalry, 36.7% strongly agreed to the statement and 13.3% of the respondents

do not know if organizational services are improved as a result of intense rivalry.

Table 4.3: Organizational Services

Organizational services are improved as a result of intense rivalry


Do Not Know 4 13.3

Agree 15 50.0


Total 30 100.0

4.3.4 Enhancing Profitability

Table 4.4 shows the opinions of the respondents on profitability enhancement. From the

study, 70.0% of respondents agreed that due to rivalry, companies develop strategies on

how to offer discounts and enhance profitability, and 20.0% of respondents disagreed

about the latter statement. The study also revealed that 10.0% of respondents strongly

agreed to the statement that due to rivalry, companies develop strategies on how to offer

discounts and enhance profitability.

Table 4.4: Enhancing Profitability

Due to rivalry, companies develop strategies on how to offer discounts and enhance

profitability


Disagree 6 20.0

Agree 21 70.0


Total 30 100.0

4.3.5 Exit Barriers

Table 4.5 reveals the exit barriers in the industry rivalry. The table shows that 76.7% of

the respondents agreed that when exit barriers are high, the intensity of rivalry is greatest,

13.3% of the respondents did not know about the statement but 10.0% of the respondents

strongly agreed that when exit barriers are high, the intensity of rivalry is greatest.

33

Table 4.5: Exit Barriers

When exit barriers are high, the intensity of rivalry is greatest


Do Not Know 4 13.3

Agree 23 76.7


Total 30 100.0

4.3.6 Leadership Ambitions

Table 4.6 shows respondents’ opinions on leadership ambitions. From the table, it is very

clear that 43.3% of respondents agreed that rivals are highly committed to the business

and have ambitions for leadership, 20.0% of respondents disagreed to the statement,

13.3% of respondents strongly disagreed and 13.3% strongly agreed that rivals are highly

committed to the business and have ambitions for leadership. The study also shows that

10.0% of respondents were not aware that rivals are highly committed to the business and

have ambitions for leadership.

Table 4.6: Leadership Ambitions

Rivals are highly committed to the business and have ambitions for leadership


Strongly Disagree 4 13.3

Disagree 6 20.0

Do Not Know 3 10.0

Agree 13 43.3


Total 30 100.0

4.3.6 Price Competition

Table 4.7 reveals the opinions of the respondents on price competition. From the table,

53.3% of the respondents disagreed that persistent price competition teaches customers to

pay less consideration to product features and service, 20.0% of respondents agreed to the

statement, 13.3% of respondents strongly disagreed to the statement and 13.3% of

respondents did not know if persistent price competition teaches customers to pay less

consideration to product features and service.

34

Table 4.7: Price Competition

Persistent price competition teaches customers to pay less consideration to product

features and service



Disagree 16 53.3

Do Not Know 4 13.3

Agree 6 20.0

Total 30 100.0

4.3.7 Attracting and Retaining Customers

Table 4.8 shows respondents’ views on customer attraction and retention. From the table,

60.0% of respondents agreed that as a result to industry rivalry, companies develop

techniques on how to cut on prices to attract and retain more customers, 33.3% of

respondents disagreed to the statement, 3.3% of respondents strongly agreed and 3.3%

did not know that as a result to industry rivalry, companies develop techniques on how to

cut on prices to attract and retain more customers.

Table 4.8: Attracting and Retaining Customers

As a result to industry rivalry, companies develop techniques on how to cut on prices to

attract and retain more customers


Disagree 10 33.3

Do Not Know 1 3.3

Agree 18 60.0


Total 30 100.0

4.3.8 Large Increments

Table 4.9 shows the views of the respondents on the increments. The table shows that

53.3% of respondents agreed that to be efficient, company capacity must be expanded in

large increments, 20.0% of respondents disagreed to the latter statement, and 13.3% of

respondents strongly disagreed to the statement. The study also shows that 13.3% did not

know that to be efficient, company capacity must be expanded in large increments.

35

Table 4.9: Large Increments

To be efficient, company capacity must be expanded in large increments


Disagree 6 20.0

Do Not Know 4 13.3

Agree 16 53.3


Total 30 100.0

4.3.8 Customer Value

Table 4.10 shows respondents’ opinions on rules and procedures. From the table, it is

very clear that 50.0% of respondents agreed and 50.0% of respondents strongly agreed

that competition dimensions other than price on product features, delivery time, support

services, for instance, develops customer value.

Table 4.10: Customer Value

Competition on dimensions other than price on product features, delivery time, support

services, for instance, develops customer value


Agree 15 50.0


Total 30 100.0

4.3.9 New Product Introduction

Table 4.11 reveals a correlation between industry rivalry and new product introduction.

From the study, rivalry among existing competitors enhances new product introduction (r

= 0.907**, p<0.01, N= 30).

Table 4.11: New Product Introduction

Rivalry among existing

competitors enhances new product

introduction

Industry Rivalry Pearson Correlation .907**

Sig. (2-tailed) .000

N 30

**. Correlation is significant at the 0.01 level (2-tailed).

4.4 Threat of New Entrants on Strategy Formulation

36

In this section, the study establishes how the threats of new entrants affect strategy

formulation. The study aspects addressed include: entry of new companies, flexible

licensing regulations, low entry barriers, customer switch costs, capital requirement, local

conditions, economies of scale, benefits of scale, technological development and sources

of raw materials.

4.4.1 Entry of New Companies

Table 4.12 reveals the opinions of respondents on entry of new companies. The table

shows that 30.0% of the respondents agreed that entry of new companies to the market

affects strategy formulation, and 30.0% were uncertain about the statement. The study

also reveals that 20.0% of the respondents disagreed that entry of new companies to the

market affects strategy formulation, 13.3% strongly disagreed to the statement and 6.7%

of respondents strongly agreed.

Table 4.12: Entry of New Companies

Entry of new companies to the market



Disagree 6 20.0

Do Not Know 9 30.0

Agree 9 30.0


Total 30 100.0

4.4.2 Flexible Licensing Regulations

Table 4.13 shows respondents’ opinions on how flexibility licensing regulations. The

table shows that 33.3% of respondents agreed that flexible licensing regulations enhance

strategy formation, 20.0% of respondents disagreed to the latter statement, and 16.7% of

respondents did not know if flexible licensing regulations affect strategy formation. The

study also shows that 16.7% strongly agreed that flexible licensing regulations enhance

strategy formulation and 13.3% strongly disagreed to the same statement.

Table 4.13: Flexible Licensing Regulations

Flexible licensing regulations


37


Disagree 6 20.0

Do Not Know 5 16.7

Agree 10 33.3


Total 30 100.0

4.4.3 Low Entry Barriers

Table 4.14 reveals the views of respondents on low entry barriers. The table shows that

46.7% of the respondents agreed that low entry barriers affects strategy formulation, and

16.7% of the respondents strongly agreed to the statement. The study also reveals that

16.7% of the respondents strongly disagreed that low entry barriers affect strategy

formulation, 10.7% disagreed to the statement and 3.3% of respondents did not know that

low entry barriers affects strategy formulation.

Table 4.14: Low Entry Barriers

Low entry barriers



Disagree 5 16.7

Do Not Know 1 3.3

Agree 14 46.7


Total 30 100.0

4.4.4 Customer Switching Costs

Table 4.15 shows respondents’ opinions on customer switching costs and strategy

formulation. The table shows that 56.7% of respondents agreed that high customer

switching costs affect strategy formation, 16.7% of respondents strongly agreed to the

statement, and 13.3% strongly disagreed about the statement that high customer switching

costs affect strategy implementation. The study also depicts that 10.0% of respondents

disagreed that high customer switching costs affect strategy implementation while 3.3%

did not know that high customer switching costs affect strategy implementation.

Table 4.15: Customer Switching Costs

High customer switching costs

38



Disagree 3 10.0

Do Not Know 1 3.3

Agree 17 56.7


Total 30 100.0

4.4.5 Capital Requirement

Table 4.16 reveals the opinions of respondents on capital requirement and strategy

formulation. The table shows that 46.7% of the respondents agreed that initial capital

requirement regulation affects strategy formulation, 20.0% of the respondents disagreed

to the latter statement and 16.7% of the respondents strongly disagreed that initial capital

requirement regulation affects strategy formulation. The study also shows that 16.7% of

respondents strongly agreed about the statement.

Table 4.16: Capital Requirement

Initial capital requirement regulation



Disagree 6 20.0

Agree 14 46.7


Total 30 100.0

4.4.6 Local Conditions

Table 4.17 shows respondents’ opinions on local conditions facing the organizations.

From the table, it is very clear that 63.3% of respondents agreed that local conditions

facing the organizations affect strategy formulation, 16.7% of respondents strongly

disagreed about the statement, 13.3% of respondents strongly agreed and 6.7% of

respondents did not know that local conditions facing the organizations affect strategy

formulation.

Table 4.17: Local Conditions

39

Local conditions facing the organizations



Do Not Know 2 6.7

Agree 19 63.3


Total 30 100.0

4.4.7 Economies of Scale

Table 4.18 reveals the views of respondents on the economies of scale and strategy

formulation. The table shows that 43.3% of the respondents were uncertain that supply

side of economies of scale affects strategy formulation, and 40.0% of the respondents

agreed to the statement. The study also shows that 13.3% of respondents disagreed to the

statement that supply side of economies of scale affects strategy formulation while 3.3%

strongly disagreed to the statement.

Table 4.18: Economy of Scale

Supply side of economies of scale



Disagree 4 13.3

Do Not Know 13 43.3

Agree 12 40.0

Total 30 100.0

4.4.8 Benefits of Scale

Table 4.19 shows respondents’ opinions on benefits of scale and strategy formulation.

From the table, it is very clear that 43.3% of respondents did not know that demand side

benefits of scale affects strategy formulation, 40% of respondents agreed to the statement,

and 16.7% of respondents disagreed that demand side benefits of scale affects strategy

formulation.

Table 4.19: Benefit of Scale

40

Demand side benefits of scale


Disagree 5 16.7

Do Not Know 13 43.3

Agree 12 40.0

Total 30 100.0

4.4.9 Technological Development

Table 4.20 shows the views of respondents on technological development and strategy

formulation. From the table, it is very clear that 80.0% of respondents agreed that high

sources of information due to technological development affects strategy formulation,

13.3% of respondents strongly disagreed about the statement, and 6.7% of respondents

strongly agreed that and 10.7% strongly agreed that high sources of information due to

technological development affects strategy formulation.

Table 4.20: Technological Development

High source of information due to technological development



Agree 24 80.0


Total 30 100.0

4.4.10 Sources of Raw Materials

Table 4.21 shows respondents’ opinions on sources of raw materials and strategy

formulation. The table shows that 50.0% of respondents agreed that limited sources of

raw materials affect strategy formulation and 50.0% of respondents strongly agreed to the

latter statement.

Table 4.21: Sources of Raw Materials

Limited sources of raw materials


Agree 15 50.0


Total 30 100.0

41

4.4.11 New Entrance

Table 4.22 reveals a correlation between threat of new entrance and other variables. From

the study, entry of new companies to the market communication affects strategy

formation (r = 0.793**, p<0.01, N= 30). The study shows that Flexible licensing

regulations affects strategy formulation (r = 0.875**, p<0.01, N=30). Low entry barriers

affects strategy formulation (r = 0.896**, p<0.01, N=30).

The study reveals that high customer switching costs affects strategy formulation (r =

0.840**, p<0.01, N=30). The study also shows that initial capital requirement regulation

affects strategy formulation (r = 0.885**, p<0.01, N=30). The study shows that local

conditions facing the organizations affects strategy formulation (r = 0.841**, p<0.01,

N=30).

Table 4.22: New Entrance

Threat of New Entrants on Strategy

Formulation

Pearson

Correlation

Sig. (2-

tailed) N

Entry of new companies to the market .793** .000 30

Flexible licensing regulations .875** .000 30

Low entry barriers .896** .000 30

High customer switching costs .840** .000 30

Initial capital requirement regulation .885** .000 30

Local conditions facing the organizations .841** .000 30

4.5 Bargaining Power of Buyers on Strategy Formulation

The study aimed at investigating the effect of bargaining power of buyers on strategy

formulation. The aspects addressed include competitive force, competitive position,

environmental uncertainties, price sensitive, production based approaches, information

accessibility, monitoring and evaluation, industry products, and negotiating leverage.

4.5.1 Competitive Force

Table 4.23 shows the respondents’ opinions on competitive forces and strategy

formulation. From the table, 43.3% of respondents agreed that buyers represent a

competitive force because they can bid down prices and demand higher quality, 43.3% of

the respondents were not aware of the statement and 13.3% disagreed that that buyers

42

represent a competitive force because they can bid down prices and demand higher

quality.

Table 4.23: Competitive Force

Buyers represent a competitive force because they can bid down prices, demand higher

quality


Disagree 4 13.3

Do Not Know 13 43.3

Agree 13 43.3

Total 30 100.0

4.5.2 Competitive Position

Table 4.24: Competitive Position

The bargaining power of buyers is force that can affect the competitive position of a

company


Disagree 8 26.7

Do Not Know 8 26.7

Agree 9 30.0


Total 30 100.0

Table 4.24 establishes the respondents’ opinions on competitive position and strategy

formulation. From the table, 30.0% of respondents agreed that the bargaining power of

buyers is force that can affect the competitive position of a company, 26.7% of

respondents disagreed to the statement, 26.7% did not know that the bargaining power of

buyers is force that can affect the competitive position of a company and 16.7% strongly

agreed that the bargaining power of buyers is force that can affect the competitive


4.5.3 Technology and Competition

Table 4.25 shows the opinions of the respondents on technology and competition in

strategy formation. From the study, 76.7% of respondents agreed that technology and

competition are responsible for increased choices of products and services, 20.0% of

respondents strongly agreed to the statement and 3.3% of respondents disagreed that

43

technology and competition are responsible for increased choices of products and

services.

Table 4.25: Technology and Competition

Technology and competition are responsible for increased choices of products and

services


Disagree 1 3.3

Agree 23 76.7


Total 30 100.0

4.5.4 Environmental Uncertainties

Table 4.26 reveals the environmental uncertainty and strategy formulation. The table

shows that 83.3% of the respondents agreed that companies need to implement new

strategies that allow them to deal with environmental uncertainties created by buyers

while 16.7% of the respondents strongly agreed that companies need to implement new

strategies that allow them to deal with environmental uncertainties created by buyers.

Table 4.26: Environmental Uncertainties

Companies need to implement new strategies that allow them to deal with

environmental uncertainties created by buyers


Agree 25 83.3


Total 30 100.0

4.5.5 Price Sensitive

Table 4.27 shows respondents’ opinions on price sensitivity and strategy formulation.

From the table, it is very clear that 60.0% of respondents agreed that buyers tend to be

more price-sensitive if they are purchasing products that are undifferentiated while

1.3.3% of respondents strongly agreed to the statement. The study also shows that 13.3%

of respondents disagreed and 13.3% of respondents did not know that buyers tend to be

more price sensitive if they are purchasing products that are undifferentiated.

Table 4.27: Price Sensitive

44

Buyers tend to be more price-sensitive if they are purchasing products that are

undifferentiated


Disagree 4 13.3

Do Not Know 4 13.3

Agree 18 60.0


Total 30 100.0

4.5.6 Production Based Approach

Table 4.28 reveals the opinions of respondents on production based approach and strategy

formulation. The table shows that 60.0% of the respondents agreed that capacity building

is essential for successful adoption and implementation of production based approaches,

26.7% were uncertain about the statement and 13.3% of the respondents strongly agreed

that capacity building is essential for successful adoption and implementation of

production based approaches.

Table 4.28: Production Based Approach

Capacity building is essential for successful adoption and implementation of

production based approaches


Do Not Know 8 26.7

Agree 18 60.0


Total 30 100.0

4.5.7 Information Accessibility

Table 4.29 shows respondents’ opinions on information accessibility ad strategy

formulation. From the table, it is very clear that 43.3% of respondents did not know that

when buyers have full information about demand they gain greater bargaining leverage,

30.0% of respondents agreed, 13.3% strongly agreed to the statement. The study also

shows that 13.3% of respondents disagreed that when buyers have full information about

demand they gain greater bargaining leverage.

45

Table 4.29: Information Accessibility

When buyers have full information about demand they gain greater bargaining leverage


Disagree 4 13.3

Do Not Know 13 43.3

Agree 9 30.0


Total 30 100.0

4.5.8 Monitoring and Evaluation

Table 4.30 shows the views of the respondents on monitoring and evaluation and strategy

formulation. The table shows that 43.3% of respondents agreed that a strategy for

monitoring, evaluation and assessment of impact is vital for companies that buyers have

bargaining powers, 43.3% of respondents strongly agreed to the latter statement, and

13.3% of respondents disagreed to the statement.

Table 4.30: Monitoring and Evaluation

A strategy for monitoring, evaluation and assessment of impact is vital for companies

that buyers have bargaining powers


Disagree 4 13.3

Agree 13 43.3


Total 30 100.0

4.5.9 Industry’s Product

Table 4.31 shows respondents’ views on industry’s product and strategy formulation.

From the table, 53.3% of respondents agreed that the quality of buyers’ products or

services is little affected by the industry product, 30.0% of respondents strongly agreed to

the statement while 6.7% of respondents did not know that the quality of buyers’ products

or services is little affected by the industry product.

Table 4.31: Industry Product

The quality of buyers’ products or services is little affected by the industry’s product


Do Not Know 5 16.7

Agree 16 53.3


Total 30 100.0

46

4.5.10 Negotiating Leverage

Table 4.32 reveals the opinions of the respondents on negotiating leverage and strategy

formulation. From the table, 43.3% of the respondents agreed that buyers are powerful if they

have negotiating leverage relative to industry participants, 36.7% of respondents strongly

agreed to the statement, 16.7% were uncertain about the statement and 3.3% disagreed

that buyers are powerful if they have negotiating leverage relative to industry participants.

Table 4.32: Negotiating Leverage

Buyers are powerful if they have negotiating leverage relative to industry participants



Do Not Know 5 16.7

Agree 13 43.3


Total 30 100.0

4.5.11 Bargaining Power of Buyers

Table 4.33 reveals a correlation between bargaining power of buyers and other variables.

From the study, it is clear that buyers represent a competitive force because they can bid

down prices, demand higher quality (r = 0.431*, p<0.05, N= 30). The bargaining power

of buyers is force that can affect the competitive position of a company (r = 0.606**,

p<0.01, N=30). The study found that when buyers have full information about demand

they gain greater bargaining leverage (r = 0.588**, p<0.01, N=30).

Table 4.33: Bargaining Power of Buyers

Bargaining Power of Buyers on

Strategy Formulation

Pearson

Correlation

Sig. (2-

tailed) N

Buyers represent a competitive force because they

can bid down prices, demand higher quality .431* .018 30

The bargaining power of buyers is force that can

affect the competitive position of a company .606** .000 30

When buyers have full information about demand

they gain greater bargaining leverage .588** .001 30

*. Correlation is significant at the 0.05 level (2-tailed).

**. Correlation is significant at the 0.01 level (2-tailed).

47

4.6 Chapter Summary

This chapter has presented the results and findings with respect to the data provided by

the respondents from Standard Chartered Bank Kenya. The chapter provided analysis on

the response rate, background information, industry rivalry, threat of new entrants and

bargaining power of buyers. The next chapter offers the summary, discussions,

conclusions and recommendations.

48

CHAPTER FIVE

5.0 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

Chapter five represents the discussion, conclusions and recommendations of the study. In

section 5.2, the summary of the study is portrayed. The discussion and conclusion of the

study is in section 5.3 and 5.4 in that order. Section 5.5 demonstrates the

recommendations.

5.2 Summary

The purpose of the study was to examine the effect of porter’s five forces on strategy

formulation at Standard Chartered Bank Kenya. The study aimed at determining how

industry rivalry affect strategy formulation, establishing the effect of the threat of new

entrants on strategy formulation and examining ho buyer power affect strategy

formulation.

The study adopted a cross-sectional descriptive research method in analyzing,

interpretation, and presentation of data. The cross-sectional descriptive research design

was the best design for this study as it appeals for generalization within a particular

parameter. To obtain relevant information from respondents, the study utilized

questionnaires. The study focused on 30 employees in management and supervisory role

at standard chartered bank head office in Nairobi. The target population was all involved

in this research. The sampling technique that was used was census and the study collected

information from all the population. The study adopted a descriptive and inferential

statistics in data analysis and presentation. Figure and tables were used in data

presentation.

The study determined how industry rivalry affects strategy formulation. It was found that

intensity of rivalry among companies makes companies to craft strategies to achieve

market share. Rivalry among existing competitors enhances new product introduction.

The study revealed that organizational services are improved as a result of intense rivalry.

Due to rivalry, companies develop strategies on how to offer discounts and enhance

profitability. The study found that when exit barriers are high, the intensity of rivalry is

49

greatest. The study revealed that rivals are highly committed to the business and have

ambitions for leadership. This shows that persistent price competition teaches customers

to pay less consideration to product features and service. The study established that as a

result to industry rivalry, companies develop techniques on how to cut on prices to attract

and retain more customers.

The study established the influence of threat of new entrants on strategy formulation at

Standard Chartered Bank. The study found that entry of new companies to the market

affects strategy formulation. It was noted that flexible licensing regulations enhance

strategy formation. It was determined that low entry barriers affect strategy formulation.

From the study, it was examined that high customer switching costs affect strategy

implementation. The study also found that initial capital requirement regulation affects

strategy formulation. Local conditions facing the organizations affect strategy

formulation. The study also found that high sources of information due to technological

development influence strategy formulation.

The study examined the influence of the bargaining power of buyers on strategy

formulation at Standard Chartered Bank. The study found that buyers characterize a

competitive force since they can demand higher quality and bid down prices. The study

confirms that the bargaining power of buyers is force that can affect the competitive

position of a company. The study found that technology and competition are responsible

for increased choices of products and services. The study reveals that companies need to

implement new strategies that allow them to deal with environmental uncertainties

created by buyers. Consumers tend to be more sensitive to price if they are purchasing

goods that are undifferentiated. The study found that capacity building is essential for

successful adoption and implementation of production based approaches. The study

confirms that a strategy for monitoring, evaluation and assessment of impact is vital for

companies that buyers have bargaining powers.

5.3 Discussion

5.3.1 Industry Rivalry and Strategy Formulation

In this objective, the aim of the study was to determine the effects of industry rivalry on

strategy formulation. The study analyzed the variables arising from this objective and

50

found that 100% of respondents agreed that intensity of rivalry among companies makes

companies to craft strategies to achieve market share. The findings of the research support

the findings of Gabriel (2009) who asserts that the intensity of rivalry among and between

companies within an industry is apparent when companies in an industry battle achieve

market share from each other. The findings also have the same opinion with the findings

of Awuah (2011) who asserts that competition among existing rivals takes many familiar

forms, including price discounting, new product introductions, advertising campaigns and

service improvements. The study found that high level competition restricts the

profitability of an industry.

The study found that 86.7% of respondents agree that rivalry among existing competitors

enhances new product introduction. This conforms to the findings of Awuah (2011) that

states that the circumstance of rivalry has created intense competition between the small

and the large established banks. Awuah (2011) established that the degree to which

competition drives down an industry’s profit potential depends on the concentration with

which firms compete and on the basis on which they compete. The study findings also

defends the findings of Mguni (2013) who confirmed that the level of rivalry is biggest if,

rivals are several or are roughly equal in size and power. In such circumstances, rivals

find it tough to avoid poaching business. The study on the other hand confirms that the

intensity of rivalry is also greatest if the industry growth is slow. Slow growth sudden

fights for market share.

The study revealed that 80% of the respondents confirmed that due to rivalry, companies

develop strategies on how to offer discounts and enhance profitability. The findings of the

study contradicts the findings of Porter (2007) who argues that rivals are highly

committed to the business and have ambitions for leadership, particularly if they have

objectives that go further than economic performance in the predominant industry. Porter

in his research put forward that conflicts of ego and personality have infrequently

overstated competition to the disadvantage of profitability in fields such as the high media

and technology. The study also disagrees with the findings of Afuah (2008) who

established that organizations cannot read each other’s signs well for the purpose that

they are short of familiarity with one another, dissimilar approaches, or differing goals to

competing. Afuah confirms that the power of competition reproduces not just the power

of competition but also the basis of competition. The study confirms that the capacity on

51

which rivalry takes place and whether competitors come together to compete on the same

capacity has a major impact on profitability.

The study found that 86.7% of respondents affirm that when exit barriers are high, the

intensity of rivalry is greatest. These findings support the findings of Ernst and Young

(2012) who state that exit barriers, the flipside of entry barriers, happen because of such

things as management’s devotion to a certain business or highly specialized assets. These

barriers, according to the study done by Ernst and Young, keep firms in the market even

supposing they may be earning low or negative returns. The study of Ernst and Young

reveals that glut capacity remains in use, and the returns of healthy competitors suffers as

the sick ones hang on. Bengtsson and Kock (2010) on the other side affirms that

competition is more than ever disparaging to profitability if it gravitates wholly to price

because price rivalry transfers profits directly to customers from an industry. Price cuts

are generally easy for competitors to see and match, creating successive rounds of

retaliation likely. Unrelenting price competition also teaches customers to pay less

deliberation to product features and service.

The study found that 63.3% of respondents agree that as a result to industry rivalry,

companies develop techniques on how to cut on prices to attract and retain more

customers. The study supports the findings of Covin and Slevin (2010) who assert that

products or services of rivals are almost indistinguishable and there are not many

switching costs for buyers. This, according to Covin and Slevin, offers self-assurance to

rivals to cut prices to win new customers. This forms high pressure for rivals to cut prices

underneath their average costs, even close to their marginal costs, to steal incremental

consumers while still creating some contribution to covering up fixed costs. Alternatively,

Hill and Jones (2004) established that to be efficient, capacity must be extended in large

increments. The need for big capacity expansion, as in the polyvinyl chloride business,

breaks off the industry’s supply-demand balance and over and over again leads to long

and habitual periods of excess numbers and price cutting.

The study revealed that 100% of respondents affirmed that competition on dimensions

other than price on product features, delivery time, support services, or brand image, for

instance, is less expected to erode profitability because it develops customer value and

can sustain higher prices. The findings support the findings of Gabriel (2009) who affirms

52

that affirms that rivalry focused on the above mentioned scopes can enhance value

relative to substitutes or increase the barriers facing new entrants. While non-price rivalry

at times escalates to levels that weaken industry profitability, this is less expected to occur

than it is with price rivalry. The findings also concur with Nir (2009) who believes that

the dimensions of rivalry are significant whether rivals compete on the same dimensions

or not. When all or numerous competitors aspire to meet the same needs or compete on

the same characteristics, the result is zero-sum competition. Here, one firm’s achievement

is often another’s loss, forcing down profitability. Rajiv and Padmanabhan (1995) found

that while price competition runs a stronger risk than non-price competition of becoming

zero-sum, this may not happen if companies take care to segment their markets, targeting

their low-price offerings to different customers.

5.3.2 Threats of New Entrants on Strategy Formulation

The study aimed at assessing how the threats of new entrants affect strategy formulation.

The study revealed that 36.7% of respondents agreed that entry of new companies to the

market influence strategy formulation. This study supports the findings of Gabriel (2009)

who indicates that, the possibility of new firms entering the industry affects competition

and makes it difficult for the already existing firms to protect their market share and

continue to be profitable. The study, on the other hand, supports the findings of Foley and

Jayawardhena (2000) who found that the cost of entry into the commercial banking sector

is low, licensing regulations are way too flexible, profits seem very promising and the risk

seems manageable and as a result new players have been entering the commercial

banking scene. Dagmar (2008) reveals that due to low entry barriers to an industry or

market, both potential and existing companies influence profitability.

From the study, it is found that more than 70% of the respondents affirmed that the entry

barrier is the key factor to analyze the threat of new entrants. The study supports the

findings of Dagmar (2008) who asserts that the new entrants will not only bring new

producing ability and new resource, but also occupy the market share, which belongs to

other existing companies. The study found that 38% of the respondents agree that the

high level of new entrants is as a result of flexible licensing regulations. To emphasize the

findings, Nicole (2012) adds that the high level of new entrants will lead to the conflict of

production materials and decrease the companies’ profit level. The study found that the

53

levels of the threat of new entrants depend on two kinds of factor; the new entry barrier

and the reflection of existing companies to new entrants. Lee, et al. (2011) found in their

study that the threat of new entrants is a function of the height of entry barriers. The

higher the entry barriers the weaker the competitive force.

The study confirms that over 60% of respondents believe that depending on the

environment, strategic formulation and implementation are often based on local

conditions facing the organizations and the internal resources provided in response to

them. The findings of the study agree with the findings of Mguni (2013) who indicates

that the competitiveness of organizational performance depends on strategic

implementation. The study also supports Karagiannopoulos et al. (2005) who found that

industry forces are valuable for business strategy formulation and implementation. The

study adds that business should identify its position in the market area and fight against

the competition that threatens its strategic position before formulating strategies. Covin

and Slevin (2010) believe that companies must adopt a more dynamic strategy to defend

themselves against industry structures and increase their market share.

The study reveals that 40% of respondents affirmed that supply side of economies of

scale affects strategy formulation. The study defends the findings of Tammy (2010) who

establish that supply side of economies comes when organizations that produce at

superior volumes take pleasure in lower costs per unit since they can spread fixed costs

over more units, command better terms from suppliers, or employ more efficient

technology. The study also affirmed to the findings of Churchill and Iacobucci (2008) that

reveal that supply-side scale economies deter entry by forcing the aspiring entrant either

to come into the industry on a large scale, which requires dislodging entrenched

competitors, or to accept a cost disadvantage.

From the study, it is confirmed that 43.3% of respondents are not sure that demand side

benefits of scale affects strategy formulation. The findings of the study do not agree with

the findings of McFarlane (2013) who confirms that the benefits known as network

effects come in industries where a consumer’s eagerness to pay for a firm’s product

increases with the number of other buyers who also patronize the company. Buyers may

trust larger companies more for a crucial product. The study also disagrees with the

findings of Hill and Jones (2004) who assert that demand side benefits of scale dispirit

54

entry by restraining the enthusiasm of consumers to purchase from a newcomer and by

lowering the price the newcomer can domination until it builds up a large base of

customers.

From the study, it is clear that more than 50% of respondents agreed that high capital

requirements affect strategy formulation. The study confirmed the study done by Bank-

of-Botswana (2012) found that the need to invest large financial resources in order to

compete can deter new entrants. Capital may be necessary not only for fixed facilities but

also to extend customer credit, build inventories, and fund start-up losses. Lee, et al.

(2011) revealed that the barrier is particularly great if the capital is required for

unrecoverable and therefore harder-to-finance expenditures, such as up-front advertising

or research and development.

5.3.3 Bargaining Power of Buyers on Strategy Formulation

The aim of the study was to assess how bargaining power of buyers affects strategy

formulation. The study confirms that 43.3% of respondents agreed that buyers represent a

competitive force because they can bid down prices and demand higher quality. This

confirms the study done by Porter (1998) who found that the power of each important

buyer group depends on a number of characteristic of its market situation and on the

relative importance of its purchases from the industry compared with the industry’s

overall business. The study also confirms the findings of Shah and Siddiqui (2006) who

affirm that business class passengers are an airlines choice of the buyer group which they

sell to as a crucial strategic decision. There is an amount of pressure customers can place

on airlines, thus affecting its prices, volume and profit potential. According to Porter

(1998), the bargaining power of buyers is another force that can affect the competitive


According to the study, over 90% of respondents agree that technology and competition

are responsible for increased choices of products and services. The findings support the

findings of Ernst and Young (2011) who assert that increased volumes of available

information on the Internet and changes in social behavior have reduced the loyalty of

customers. Ernst and Young (2011) also affirmed that increased competition reduces the

55

loyalty of customers to their main banks and are more likely to try new banks which offer

better rates, superior technology, or more attractive rewards.

The study found that over 46% of respondents believe that the buyer power means that

buyers always want to drive down the price of the product and need good service

requirements to improve the quality of products and services in the industry. This

supports the findings of Lee, et al. (2011) who found that, buyers can threaten the

industry by bargaining down prices or raising the costs by demanding better quality

suppliers. Karagiannopoulos, et al. (2005) found that buyer power is one of the two

horizontal forces that influence the appropriation of the value created by an industry. The

most important factors of buyer power are size and the concentration of customers. On

the other hand, Shah and Siddiqui (2006) assert that powerful customers, the flip side of

powerful suppliers, can capture more value by forcing down prices, demanding better

quality or more service, and generally playing industry participants off against one

another, all at the expense of industry profitability. The study found that buyers are

powerful if they have negotiating leverage relative to industry participants, especially if

they are price sensitive, using their clout primarily to pressure price reductions.

According to the study, 73% of respondents confirmed that buyers tend to be more price-

sensitive if they are purchasing products that are undifferentiated. The study revealed that

the major difference with consumers is that their needs can be more intangible and harder

to quantify. This supports the findings of Augustine et al. (2013) who found that

intermediate customers or customers who purchase the product but are not the end user

(such as assemblers or distribution channels) can be analyzed the same way as other

buyers, with one important addition. Augustine et al. (2013) add that intermediate

customers gain significant bargaining power when they can influence the purchasing

decisions of customers downstream.

The study found that over 43% of respondents believe that where the buyer has full

information about demand, actual market prices, and even supplier costs, this usually

yields the buyer greater bargaining leverage than when information is poor. The findings

supports the study of Churchill and Iacobucci (2008) who revealed that with full

information, the buyer is in a greater position to insure that it receives the most favorable

prices offered to others and can counter suppliers' claims that their viability is threatened.

56

The study also defends the findings of Porter (2007) who confirmed that the majority of

the sources of consumer power can be accredited to customers as well as to industrial and

commercial purchasers; only an alteration of the frame of reference is obligatory. Awuah

(2011) revealed that the consumer power of retailers and wholesalers is confirmed by the

same rules, with one imperative addition. Awuah (2011) confirms that retailers can gain

significant bargaining power over manufacturers when they can influence consumers'

purchasing choices, as they do in audio modules, sporting goods, appliances, jewelry, and

other goods. Wholesalers can gain bargaining power, similarly, if they can influence the

purchase decisions of the retailers or other firms to which they sell.

The study establishes that 79% of the respondents agreed that if purchasers either pose a

probable threat of backward integration or are partially integrated, they are in a position

to demand bargaining dispensation. The study supports the findings of Gabriel (2009)

who affirms that buyers engage in the practice of tapered integration that is, producing

some of their needs for a given component in-house and purchasing the rest from outside

suppliers. The study also supports the findings of Serguei (2014) who found that buyer

power can be partially neutralized when firms in the industry offer a threat of forward

integration into the buyers' industry. The study revealed that the quality of buyers’

products or services is little affected by the industry’s product. Where quality is very

much affected by the industry’s product, buyers are generally less price sensitive. The

study concurred with the findings of Shuba, et al. (2010) who found that the industry’s

product has little effect on the buyer’s other costs because the buyers focus on price.

Conversely, Shuba, et al. (2010) affirm where an industry’s product or service can pay for

itself many times over by improving performance or reducing labor, material, or other

costs, buyers are usually more interested in quality than in price. Similarly, Mguni (2013)

found that buyers tend not to be price sensitive in services such as investment banking,

where poor performance can be costly and embarrassing.

5.4 Conclusions

5.4.1 Industry Rivalry and Strategy Formulation

The study concludes that intensity of rivalry among companies makes companies to craft

strategies to achieve market share. According to the study, rivalry among existing

competitors enhances new product introduction. As a result of intense rivalry,

57

organizational services are improved. The study concludes that Due to rivalry, companies

develop strategies on how to offer discounts and enhance profitability. Rivals are highly

committed to the business and have ambitions for leadership. The study also concludes

that Persistent price competition teaches customers to pay less consideration to product

features and service. As a result to industry rivalry, companies develop techniques on

how to cut on prices to attract and retain more customers. To be efficient, company

capacity must be expanded in large increments.

5.4.2 Threat of New Entrants on Strategy Formulation

From the study it was concluded that entry of new companies to the market affects

strategy formulation. This is as a result of low entry barriers and high customer switching

costs. The study concludes that Initial capital requirement regulation and local conditions

facing the organizations affect strategy formulation. The study also concludes that supply

side of economies of scale and demand side benefits of scale affects strategy formulation.

From the study, it is believed that high source of information due to technological

development limited sources of raw materials affect strategy formulation.

5.4.3 Bargaining Power of Buyers on Strategy Formulation

The study concludes that buyers represent a competitive force because they can bid down

prices, demand higher quality. The bargaining power of buyers is force that can affect the

competitive position of a company. The study also concludes that Technology and

competition are responsible for increased choices of products and services. From the

study, it is clear that companies need to implement new strategies that allow them to deal

with environmental uncertainties created by buyers. The study concludes that buyers tend

to be more price-sensitive if they are purchasing products that are undifferentiated. From

the study, it is believed that capacity building is essential for successful adoption and

implementation of production based approaches.

58

5.5 Recommendation

5.5.1 Recommendation for Improvement

5.5.1.1 Industry Rivalry and Strategy Formulation

The study recommends Standard Chartered Bank to develop strategies that may help the

company during rivalry in the industry. The study assures that the intensity of rivalry

among companies makes companies to craft strategies to achieve market share. Rivalry

among existing competitors, according to the study, enhances new product introduction.

The bank, as a result of intense rivalry, should also improve organizational services.

Industry rivalry is good for companies as it makes them develop strategies on how to

offer discounts and enhance profitability. The study also recommends employees to have

ambitions for leadership as it makes rivals highly committed to the business. As a result

to industry rivalry, companies develop techniques on how to cut on prices to attract and

retain more customers. The study hence recommends companies to develop viable

techniques that would make them compete on the basis of price because persistent price

competition teaches customers to pay less consideration to product features and service.

5.5.1.2 Threat of New Entrants on Strategy Formulation

The study recommends the bank regulators and stakeholders to flex on the rules and

regulations to allow entry of new companies to the market as it helps the new and existing

companies to formulate good strategies. It is believed from the study that low entry

barriers and high customer switching costs enhances strategy formulation. The study

recommends that for companies to achieve great strategy formulation there is need to

understand the initial capital requirement regulation and an understanding of local

conditions facing the organizations. Supply side of economies of scale and demand side

benefits of scale affects strategy formulation. The study recommends organizations to

enhance their level of technology as they help in attaining high sources of information.

The study revealed that that limited sources of raw materials affect strategy formulation

hence it recommends organizations to develop techniques that would enable them to

easier access to sources of raw materials than their competitors.

59

5.5.1.3 Bargaining Power of Buyers on Strategy Formulation

The study recommends organizations to study and understand the bargaining power of

buyers. It is confirmed that the bargaining power of buyers is force that can affect the

competitive position of a company. Technology and competition are responsible for

increased choices of products and services. Companies need to implement new strategies

that allow them to deal with environmental uncertainties created by buyers. The study

recommends capacity building as it is essential for successful adoption and

implementation of production based approaches. From the study, it is clear that when

buyers have full information about demand they gain greater bargaining leverage. The

study recommends a strategy for monitoring, evaluation and assessment of impact as it is

vital for companies that buyers have bargaining powers.

5.5.2 Recommendation for Further Research

The study aimed at examining the effects of Porter’s five forces on strategy formulation at

standard Chartered Bank Kenya. The study was only carried on one company (Standard

Chartered Bank). Further researchers are recommended to examine the effects of Porter’s

five forces on strategy formulation on other companies in different industries and

compare the relationships. Future scholars are encouraged by this study to explore other

market forces that enhance strategy formation.

60

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APPENDICES

Appendix 1: Letter of Introduction

Dear Sir/Madam;

RE: RESEARCH QUESTIONNAIRE

I am a student at United States International University-Africa taking a Master’s degree in

Business Administration-(MBA). Strategic Management. As partial fulfillment of my

MBA degree, I am conducting a research on “Effects of Porter’s Five Forces on

Strategy Formulation with a focus on Standard Chartered Bank Kenya”.

The results of this study will provide commercial banks in Kenya with information on the

effects of Porters Five Forces on Strategy Formulation.

I request your involvement in answering the questionnaire to the best of your knowledge.

Kindly note that any information given through this questionnaire is confidential and will

only be used for the purpose of this study. Your assistance and response is much

appreciated.

Regards;

Bessy Kawira

67

Appendix 11: Study Questionnaire

Section I: General information

Kindly tick (√) where applicable

1. Gender Male [ ] Female [ ]

2. Age bracket 20 – 30 [ ] 31 – 45 [ ] 46 – 60 [ ] above 61 [ ]

3. Your level of education:

Diploma [ ] Bachelor’s Degree [ ] Master’s Degree [ ] Doctorate Degree [ ]

4. Position within the bank :

Top level Manager [ ] Middle level Manager [ ] Lower level Manager [ ]

Supervisor [ ] Junior Employee [ ]

5. Work experience

Less than 1 year [ ] 2 – 5 years [ ] 6 – 10 years [ ]

11 – 15years [ ] 16– 20 years [ ] Above 21 years [ ]

6. Are you aware of the Porters five Forces applied while formulating strategies in you

organization?

Yes [ ] No [ ]

68

Section II: Industry Rivalry and Strategy Formulation

Kindly tick the extent to which you agree with the following statements on Industry

Rivalry and Strategy Formulation by using a scale of 1 to 5. (1) Strongly Disagree, (2)

Disagree, (3) Do Not Know, (4) Agree, (5) Strongly Agree.

Statement Strongly

Disagree

Disagree Do

not

Know

Agree Strongly

Agree

1. Intensity of rivalry

among companies

makes companies

to craft strategies

to achieve market

share

2. Rivalry among

existing

competitors

enhances new

product

introduction

3. Organizational

services are

improved as a

result of intense

rivalry

4. Due to rivalry,

companies

develop strategies

on how to offer

discounts and

enhance

profitability

5. When exit barriers

are high, the

intensity of rivalry

is greatest

6. Rivals are highly

committed to the

business and have

ambitions for

leadership

7. Persistent price

competition

69

teaches customers

to pay less

consideration to

product features

and service

8. As a result to

industry rivalry,

companies

develop

techniques on how

to cut on prices to

attract and retain

more customers

9. To be efficient,

company capacity

must be expanded

in large

increments

10. Competition on

dimensions other

than price on

product features,

delivery time,

support services,

for instance,

develops customer

value

70

Section III: Threat of New Entrants on Strategy Formulation

Please indicate the extent to which you agree with the following statements on Threat of

New Entrants on Strategy Formulation by using a scale of 1 to 5. (1) Strongly Disagree,

(2) Disagree, (3) Do Not Know, (4) Agree, (5) Strongly Agree.

Statement Strongly

Disagree

Disagree Do

not

Know

Agree Strongly

Agree

1. Entry of new

companies to the

market

2. Flexible licensing

regulations

3. Low entry barriers

4. High customer

switching costs

5. Initial capital

requirement

regulation

6. Local conditions

facing the

organizations

7. Supply side of

economies of scale

8. Demand side

benefits of scale

9. High source of

information due to

technological

development

10. Limited sources of

raw materials

71

Section IV: Bargaining Power of Buyers on Strategy Formulation

Please indicate the extent to which you agree with the following statements on Bargaining

Power of Buyers on Strategy Formulation using a scale of 1 to 5. (1) Strongly Disagree,

(2) Dis agree, (3) Do Not Know, (4) Agree, (5) Strongly Agree.

Statement Strongly

Disagree

Disagree Do

not

Know

Agree Strongly

Agree

1. Buyers represent a

competitive force

because they can

bid down prices,

demand higher

quality

2. The bargaining

power of buyers is

force that can

affect the

competitive

position of a

company

3. Technology and

competition are

responsible for

increased choices

of products and

services

4. Companies need

to implement new

strategies that

allow them to deal

with

environmental

uncertainties

created by buyers

5. Buyers tend to be

more price-

sensitive if they

are purchasing

products that are

undifferentiated

6. Capacity building

is essential for

72

successful

adoption and

implementation of

production based

approaches

7. When buyers have

full information

about demand they

gain greater

bargaining

leverage

8. A strategy for

monitoring,

evaluation and

assessment of

impact is vital for

companies that

buyers have

bargaining powers

9. The quality of

buyers’ products

or services is little

affected by the

industry’s product

10. Buyers are

powerful if they

have negotiating

leverage relative

to industry

participants

THANK YOU FOR YOU

EFFECTS OF PORTER’S FIVE FORCES ON STRATEGY

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