Michael E Porter is a Harvard University professor who creates thefive forces model in 1979 for modern business strategy. He published anddescribes the five forces on competition book. The five forces are competitionin the industry, the potential of new entrants into the industry, power ofsuppliers, the power of customers and threat of substitute products.
This modelis useful for the identification and analyzes the shape of every industry anddetermines the weakness and strategy of the industries. Porter’s establishedideas are more useful to measure competition intensity, attractiveness, andprofitability of an industry of the modern market. (Staff, I, 2017) Competition in the industry: Competition for the same productproducing company can create the threat of profit the company.
Large numbers ofthe competitor have the same kind of product and services at that time moreoffer comes out. Suppliers and buyers are looking for suitable deals ofproducts and services. When competitive rivalry is low where the company hasgreater power to do to achieve the label of profit. (Porter, 2008) Potential of new entrants into the industry: New Companycomes with new vision and mission with applying full efforts that kind ofindustries put more pressure on prices, cost of the existing company and affectthe profit of the company. (Porter, 2008)Power of costumes: Costumes always looking for goodproduct and services on as much as possible low cost. It’s indicating theopposite of suppliers’ behavior. (Porter, 2008) Power of suppliers: This force is looking for how to increase theprices of the goods and services. It is the critical part to balance price thegoods and flow of costumes.
(Porter, 2008)Threats of the substitutes: This force threats the buyers canswitch from one existing goods and services to another with little cost. Substitute’sproducts can attract the costumers with attractive prices or better quality ofthe goods and services. (Porter, 2008)Section 2:The five competitive forces that shape strategy Tom Stewart is an interviewer who is an editorand managing director of the Harvard Business Review and Michael Porter isinterviewee who is the professor at Harvard University and head of theInstitute for strategy and competitiveness. Michael Porter describes his fivecompetitive forces that how to apply all kinds of industries. Those companiesor services provider who can balance and control those porter’s five forcesthey can make a profit and survives long-term business. High-rank manager ofthe company should aware the market scenario base on the threat of new entrantsand the threat of substitute products or services. Bargaining power ofsuppliers and bargaining power of buyers also directly affect the company’sprofit.
Where rivalry among existing competitors can create the stronger forcesthen others, those forces determine the profitability of the industry and arethe most important to look at when forming a strategy. New entrants bring new capacity and a desire to gain existingmarket share and put the pressure on prices, cost and the rate of investment tothe company. Power of suppliers can capture more value by themselves bycharging higher prices, limiting the quality of services, or shifting costs toindustry participants that ultimately drive the company Profitabilitydown. Costumers are powerful for company because without costumer companycannot survive longer. The consumer is looking for down prices andbetter quality.
Where substitute goods and services flocculate the businessprofit for example airlines business directly affect the substitute option likea driving car, train and ship transportation. Rivalries among competitorsdepend on the intensity and then the basis on which they complete. Rivalries can destruction the profit of the company which moves solelytowards the prices. Section 2 Topic Briefing – Porter’s Five Forces Modelof Industry CompetitionIn that second videoexplain Porter five forces based on industrial competition. Company profit isdifferent base on size of product, structure, distribution channel, customerneeds and wants, product lifecycle and the substitute product. The airlinecompany has low profit compare to soft drinks company because airlines havevery intensive competitor rivalry, weak barriers to new entry, the supplier ofaircraft & equipment are powerful. Another most important reason for thelow profit of Airline Company has cost is high but not flexible and customershave lots of substitute options like rail, car, ship etc. (Topic Briefing – Porter’s Five Forces Model ofIndustry Competition.
2015, June 03).By contrast, soft drinkscompany like Coca-Cola and Pepsi customers and suppliers have more strength.They have millions of regular customers and more than thousand of retaildistributors one of whom has much influence over the business.
Pepsi andCoca-cola are high awareness and loyalty and also customer less desire forsubstitutes. There is a high barrier to entry because of the new company unableto think dominated by coca cola and Pepsi. (TopicBriefing – Porter’s Five Forces Model of Industry Competition. 2015, June 03).Porter five points helpto determine the profit of the company. Who have week suppliers, weekcustomers, high entry barrier, few opportunities for the substitute and littlerivalry that types of the company have high profit for example pharmaceuticalcompany, oil and gas Exploration, Nike Company (Topic Briefing – Porter’s Five Forces Model ofIndustry Competition. 2015, June 03).
Section 4: conclusion and summary Porter’s five forces is a simple but powerful forunderstanding the competitiveness of business environment. It is also help toidentifying strategy’s potential profitability of the business organization.Porter’ five forces help to analyze the strength and weakness of position andadvantage from strong part and can improve the weakness of the company andavoid taking wrong step in the future.
(Porter, M. E. 2015, May 20).