Question Onel 5 marks]

FIVE FORCES

E, a well known cosmetics manufacturer, obtains worldwide sales for its global branded products. The directors pride themselves on having a clear understanding of E's consumer market which consists of both men and women. Its products mainly comprise deodorants, perfume, after-shave lotions, facial and body washes.

In carrying out an analysis of its competitive environment, The Marketing Director has applied Porter's Five Forces models and analyzed the factors which affect E under each heading as follows:

Threat of entry: Little threat as although major competitors exist, the size of E presents a large entry barrier. Power of buyers: Very important as customers worldwide have much choice from different

competitors' products.

Power of suppliers: Little threat as most suppliers of materials are small scale and E could easily source from other suppliers if necessary. Labor is relatively cheap in E's product facilities in developing world locations.

Substitute products: They are many alternative products offered by competitors but there is little by way of substitute for cosmetics, and therefore this poses a little problem.

Rivalry among competitors: There is strong competition in the cosmetics market with new products constantly being developed, an therefor this is a major threat.

The Marketing Director is reasonably confident that he has judged the impact of these competitive forces correctly as they apply to E. However, he would like some reassurance of this. He has asked you, as Management Accountant, to provide some appropriate performance indicators by which the strength of five competitive forces as they apply to E can be judged.

Required:

A) Recommend to the Marketing Director suitable performance indicators which could be used to judge the strength of the five competitive forces as they apply to E. Discuss why you consider your recommendation to be appropriate.

B) Explain the sources of entry barriers for potential entrants into a new industry.