Porter’s Competitive Forces Model
Question: Why was allocated model developed?
In the 1970’s, there was a change in market place of the industries. The industries were transforming from local sellers to global sellers. At that time the industries needed to know and strengthen their competitive position in order to survive in the market place. Competition was increasing because of the change in market place. Earlier, industries used to sell their products to the local buyers only. But lately, they had started selling their products globally. Thus, due to this change in the buyer community there was a need for industries to protect themselves against competition from other industries and ...view middle of the document...
while formulating their strategies. These barriers prevent the entry of new industries up to some extent. Further, the bargaining powers of suppliers and buyers also affect the company’s profitability and should be kept in mind while formulating and analyzing various strategies. Suppliers tend to have an advantage when there are fewer companies competing with them or when they own a unique product. But they do not benefit by having special customers as the efficient bargaining skills of such customers can lower the profits earned by an industry. Generally speaking, the bargaining power of buyers increases when they purchase stuff in large volume/quantity or purchase a standard product/component of the product. Further if they earn low profits from the resale of these items, then they would try to bargain with the selling party and buy the items at cheaper prices. Thus, the bargaining powers play an important role in choosing customers and sellers. In addition, substitute products can also affect the industries in achieving competitive advantage and increasing profitability. Threat of substitute mainly depends on the opinion of the buyers and the price of substitute product. Finally, jockeying for position is the main element of the competitive forces model. The term refers to the competition between existing industries in the same business. Jockeying for position occurs due to a number of factors such as more competitors, products lacking differentiation, high fixed cost and high exit barriers. (Porter, 1979)
Michael Porter’s main purpose behind the development of this model was to protect the business from competition and to achieve some competitive advantage. This model creates a framework for managers to analyze their strategies and helps them in achieving their organization goals with proper strategies. With the proper utilization of Porter’s Competitive Forces Model, the industries can enhance their understanding not only about the various opportunities available to them, but also about the miscellaneous threats to their industry’s business. Moreover, the industries can examine their profitability with the help of this model. (Porter, 1979)
Question: How does one use the model?
Porter’s model is used for external analysis. In order to use this model, one has to search for the positive and negative effects of the five forces that constitute the model. So, by realizing the effects, one can become aware of...