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Introduction of foreign direct investment
The Five Competitive Forces That Shape Strategy
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Introduction Competition in the business environment and strategies to counter that competition has existed and evolved for centuries, however a true revolution in the strategy field did not occur until relatively recently by a Harvard University professor and economist by the name of Michael E. Porter. According to Porter, "the job of the strategist is to understand and cope with competition" (Porter, 2008), however Porter observed that competition was often too narrowly defined, and that managers almost always neglected other competitive forces such as customers, suppliers, other marketplace entrants, and the potential for substitutes products. Consequently, in 1979, Porter published an article in the Harvard Business Review titled How Competitive Forces Shape Strategy, officially introducing the world to Porter's five competitive forces that shape strategy (Porter, 2008). Porter's Five Forces The five competitive forces that shape strategy that Porter introduced to the world in that article 35 years ago are Threat of New Entrants, Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of Substitutes, and Rivalry among Existing Firms. In developing the Five Forces, Porter's goal was to help strategic managers determine just how attractive their specific industry is or will become in the future (Mawhinney, 2008), although it is important to note that according to Porter, "the configuration of the five forces differs by industry" (Porter, 2008). To further assist strategic manager's in analyzing their industry, Porter's Five Forces can be further divided into sub-components. Therefore it is imperative that strategic managers assess the positive or negative effect each sub-component has on the main force as a whole so that they "can assess the forces driving competition in an industry and evaluate the odds of a firm successfully entering and competing in an industry" (Stahl & Grigsby, 1997, pg. 145). The Five Forces and Operating Overseas Over the past twenty years, technologically advances has led to a boom in globalization, which in turn has dramatically increased international competition. Porter's Five Forces model was never intended to be a domestic or regional only tool for strategic managers. In fact, it is an excellent tool for an organization to utilize to determine one's international strategy. The results from assessing the forces driving industry competition will ultimately determine an organization's profit potential, which is the bottom line for all businesses. In other words, "a high competitive force can be regarded as a threat and a low competitive force can be considered as an opportunity as it allows a company to earn high profits" (Jeyarathmm, 2008, pg.
The literature suggested that “Rapid changes in the external environment of organisations have been accompanied by calls for accountants to change the nature of information they provide, the skills they possess and the role they play in the organisation. The proposed changes, which are encapsulated under the phrase accounting for strategic positioning or strategic management accounting are two pronged. On one hand accountants are required to reposition themselves in the organisation hierarchy where they will be involved in the formulation, implementation and choice of strategies. Accountants are also being urged to adopt a range of techniques whose emphasis is futuristic and external to the firm especially emphasizing the importance of monitoring customers and competitors.” (Nyarnori, 2000). Based on my studies on the industry of stock brokerage, I agree with the statement that “The tools and techniques that were covered in the Strategic Cost Management and Strategic Business Analysis courses are very useful in providing decision oriented information to senior management in my organisation and such information will ultimately enhance its corporate value.” The essay (How Porter’s Five Forces Model shapes strategy for a new and small-size stockbroker) may be one of applications of those techniques learnt from the Strategic Cost Management and Strategic Business Analysis .
There are two reasons why a firm may perform well in an industry, either 1) the industry is attractive to any firm 2) the firm is better and outperforms it’s rivals. Porter’s theory therefore can be used to discover the markets that are attractive to firms or, in those which aren’t breaking down the five forces so a strategy for success can be developed. In general the firm with be more profitable if each of the forces is low, that is to say there is a low threat of new firms entering, if buyers and suppliers have little power over the firm, if there is a low threat from substitute products and if competitive rivalry is low.
In determining the competitive intensity and attractiveness of the market, Porter’s five forces is a framework that would help analyze the manufacturing industry of Lincoln Electric and observe the external and internal environmental factors that influence business strategy development for companies within the industry. The five forces are assumed to determine competitive power in a business situation in which these five forces are Supplier Power, Bargaining Power, Competitive Rivalry, Threat of Substitution, and Threat of New Entry.
Porter 's Five Forces model, it named after Michael E. Porter. He identifies and analyzes five competitive forces that structure every industry, helps to determine an industry 's weaknesses and strengths. There are five components of Porter 's five forces model
Porter’s competitive forces model includes five forces that need to be analysed. These forces include the intensity of rivalry from traditional competitors, threat of new market entrants, threat of substitute products and services, bargaining power of customers and bargaining power of suppliers (Laudon & Laudon, 2007). See diagram below;
In conclusion, EasyJet has been doing exceptionally well since its establishment in 1995. However, EasyJet can no longer rely on its past success based on increasing number of competition and operating in a saturated market. Furthermore, with the continuation of the market evolving, globalization is needed in order for a company to be successful. Therefore, it is appropriate for EasyJet to implement the recommended strategy of internationalizing into an emerging country, Nigeria, especially when EasyJet’s main source of flying an airplane is a resource of the given market. This way, EasyJet will be able to maintain a competitive advantage over its competitors.
The Porter five forces model (see Appendix 1) as an external analysis tool was established by Michael E. Porter and firstly announced in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 . The main idea of the Porter five forces concept is that the attractiveness of a market depends on the characteristic of the five competitive forces that have an impact on a company (see Appendix 2).
Porter's five forces analysis is an industry analysis model developed by Michael E. Porter as a tool for developing business strategies to become or stay competitive in an industry or marketplace as per (Braze, 2013).
These five forces include: bargaining power of suppliers, bargaining power of consumers, competitive rivalry, threat of substitution, threat of new entry. The bargaining power of suppliers, threat of substitutes, and threat of new entries are low for AVON, while the bargaining power of consumers and competitive rivalry is high. The beauty industry is less impacted by a recession; Brazil being a prime example. Competition is competitive in all markets both domestic and foreign. AVON entered the Brazilian market before the competition, but is now battle grounds for entry between L’Oréal and Sephora. AVON is the number one company for direct selling method and marketing (AVON, 2016). Porter’s five forces are similar between domestic and foreign
In The Competitive Advantage of Nations, which was published in 1990, Michael Porter – who has dedicated most of his career to studying businesses and how they can develop a competitive advantage (Competitive Strategy, 1985) –
Porter, M. E., 1999. The Five Forces that Shape Competitive Strategy. Harvard business review, p. 80.
In this millennia, there are a lot of emerging businesses with many pros and cons of it. One of the main advantages for consumers is that they would have a lot of choice. The downside of having numerous emerging businesses is the competition of an industry would be stiffer. Therefore, Michael Porter, a professor based currently at Harvard Business School, has developed a universal strategy for any businesses which is known as Porter’s Generic Strategies. (Harvard Business School, n.d.) Porter’s Generic Strategies come after Porter’s Five Forces model which is introduced to help a business understands their situation and it is useful to recognize a business’ strength about the current competitive position. (MindTools, n.d.) The strategies are divided into 3 sections which is cost leadership, differentiation and focus. The focus section
Porter’s five force model is a business strategy tool that helps to identify the five competitive forces that analyze the competitive power in a business industry. It acts as planning tool and helps in the business strategy development in the competitive market.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 25-40.
For assessing the industry profitability, Porter 5 Forces analysis tools were used to analyze one organization evaluation. In this case, the technique were used to analyze 7-Eleven Convenience Store specifically in Malaysia. Porter 5 Forces consists of 5 important area which is Threat of New Entrants, Bargaining Power of customers, Threat of substitute Products and services, Bargaining Power of suppliers, and competitive rivalry within the industry. Theoretically, the more powerful these forces in an industry, the lower its profit potential. The strength of each force differs by industry and changes over time. The competitive advantage that 7-Eleven has using these five forces is it has raised the barrier of entry for other competitors to enter the convenience store market as new competitors will require a huge capital investment in order to implement the information technology in their business in order to be competitive. Also, hypothetically being the first in the market, 7-Eleven could have made contracts with the Malaysia government to not allow other 24-hour convenience stores in the market for a certain time period, such as Astro had done, thus having a monopoly market in the beginning of their operations which will allow them to target a bigger market share.