4.2.3 Analyzing the micro environment using five force model

The five force model was put forward by Michael Porter (1980) to identify the external micro factors affecting the development of an industry. According to the statement of Michael Porter, the external factors can be concluded into five industry factors as shown in Figure2. The five factors are respectively: threat of entry; bargaining power of suppliers; bargaining power of buyers; development of substitute products; rivalry among competitors.

 

                                  Threat of new entrants

         Bargaining power                     Bargaining power

          of suppliers                         of buyers     

 

 

Figure 1 Poter's Five Force Model (Porter, 1980)

Source: Reprinted with the permission of the Free Press, a Division of Simon & Schuster from Competitive Strategy: Techniques for Analyzing Industrial and competitors by Michael E. Porter.

(1) The rivalry among competitors.

The competition intensity is determined by the quantity of competitors, the prices, the competitive advantages and production capacity (Harold and O'Donnell, 1980). Regarding the quantity of competitors, Chinese lightening industry has developed for more than 20 years, and the complete lightening system has been formed. There are up to 2000 enterprises in China, most of them are engaged in traditional lightening products, but more and more enterprises are turning into LED lights and provide a large of the” same” products in the low market that Neo-Neon does not have advantages in the price. In the middle market，its products cannot keep sustainable competitive advantages against other products. In addition, some multinationals take up most market share in the global market relying on their advanced technology, capital, marketing experience and other advantages. Those multinationals just leave a little room for the other LED companies. Thus, the competition in the LED industry is fierce in the global market.

(2) The threat of entry

The lightening industries in the developed countries are mature and the market pattern is stable, thus, the large LED enterprises are difficult to appear in the short time. However, this industry in china has keeping higher growth rate, 20% per year on average, more than other industries. In addition, there are still not local brands of LED products in the Chinese market. With the help of Chinese government support, some groups will put investment on this area, which will improve competition fierce. Although foreign enterprises is less possible to enter into this area, the entry of Chinese enterprises is a threat to the development of Neo-Neon because there is more common target market among the Chinese LED company while there is less common target market between the Chinese LED company and foreign LED company.