Porter's 5 Forces: Analysis of Kpmg

1. Being a global company, KPMG has very strong competition not only from other strong professional services firms like PWC, EY, Deloitte but also from other regional accounting firms such as Collins Barrow, MNP, Richter.

Porter’s 5 forces model provides analysis of the competitive environment of an organisation. The model is based on five important elements of an organisation and uses both internal and external competences and threats faced by the business. These five elements are the following:

• Threat of new entrants - High

New entrants are senior level executives from the big accounting firms who have already established themselves in their field and who left their jobs to set up niche accounting and advisory firms. Not all new entrants are small companies, major players have entered the field as well. During the last 4 – 5 years, Calgary- based MNP had the largest revenue increase among Canada’s top accounting and advisory firms. In 2013, MNP confirmed its strong presence on the market in Ontario by merging with 4 local firms. During the last years, KPMG confirmed its presence on the consulting market by acquiring SECOR, Canada’s top immigration law firm and largest strategic management consulting firm. Thus, KPMG made an exceptional growth in its advisory and tax services practice.

It should be noted that the market where KPMG operates is regulated. Accounting designation in most cases is required to obtain employment in these type of organisations. This is a regulated profession and those who achieve the designation are required to abide by a strict code of conduct. University education adds credibility to the industry.

• Rivalry among existing firms- High

There is an independence among the Big 4 firms. The focus is on quality of service rather than price. The industry does not have high exit barriers. Many individuals are committed to it and are prepared to survive. Small firms often collaborate with others thus improving their profits and turnover. KPMG through its extensive network is able to bring in professionals from other industries, thus adding value to its business and providing valuable services to its clients.

• Threats of substitutes- Low

The risk of substitute is low. Buyers could use substitute. For example they can select someone internally to handle the job of an advisor or do their taxes instead of spending money for external contract. A large number of organisations employ the services of advisors. They advise within a wide range of industries (accounting, tax, corporate finance etc.) on a wide range of topics and therefore there is a high degree of service differentiation within the market.

• Bargaining power of buyers - Moderate

In today’s realty, buyers are more knowledgeable and are in a better bargaining position. Buyers have all the power in the market since presently, the market is fragmented and there are lots of options for them to choose from. Buyers typically enter into contracts with the advisory firms for the duration of specific projects and do not incur costs for switching between projects. However, many projects might have a longer duration of months, and if the company changes its advisor, project can be costly. Buyer power in the accounting and advisory market is moderate.