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 model and analysed 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 the customer world wide 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. Labour is relatively cheap in E's production facilities in developing world locations.

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

Rivalry among competitors: There is strong competition in the cosmetics market with new products constantly being developed, and therefore 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 re-assurance of this. He has asked you, as Management Accountant, to provide some appropriate indicators by which the strength of the five competitive forces as they apply to E can be judged.

Required

Draft a report to the Marketing Director recommending suitable indicators which could be used to judge the strength of the five competitive forces as they apply to E. Discuss why you consider your recommendations to be appropriate. Include in your discussion consideration of whether or not you agree with his judgement regarding the impact of each force on E.

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