Discuss the strengths and weaknesses of the “five-forces model” for formulating business strategy. Apply the model to real cases.
Five force model of Michael E.Porter published in 1979 which aimed to provide an external economic environment analysis of industries and challenge companies to have better strategic plans before entering an industry or position their current capital which can provide them with higher competitive advantages. The five competitive forces define the attractiveness of any industry in terms of the profitability of that industry by focusing on five core factors that shapes any industry. Michael E.Porter five competitive forces are : Bargaining power of buyers , Threat of Substitutes , Bargaining power of suppliers , Threats …show more content…
High intensity results in higher fixed cost and lower profitability for all the companies in that industry. If brand loyalty is low, products are all similar, customer switching costs are low and high exit barriers results in fierce competition between rivals. Example: low rivalry in optical industry, high rivalry in pharmaceutical industry.
Weaknesses: Porter’s five forces was published in late 1970s and was useful method to observe and analyze external economic environment and come up with appropriate strategy for business but as time passed by more external factors highlighted themselves that can affect the structure of an industry.
Five forces fail to address the growing effect of globalization and digitalization. As five forces aimed at providing long run strategies as industry was at slow pace of movement but when advance technologies and global companies entered the era, industries faced rapid change and different challenges through the competitive means and that resulted in less competency of Porter’s method as it failed to envision and provide long term strategy. According to Bang and Markeset (2012) there are five main drivers of globalization: lower trade barrier, lower communication costs, lower transportation costs, spread of technology and Information and Communication …show more content…
Porter’s model only focuses on external view of an industry to analyze the threat level of competition in an industry and not as some internal capabilities of companies and can locate the imperfect market where the maximum profitability can be achieved by avoiding the high threat areas (Grundy,
Five force model of Michael E.Porter published in 1979 which aimed to provide an external economic environment analysis of industries and challenge companies to have better strategic plans before entering an industry or position their current capital which can provide them with higher competitive advantages. The five competitive forces define the attractiveness of any industry in terms of the profitability of that industry by focusing on five core factors that shapes any industry. Michael E.Porter five competitive forces are : Bargaining power of buyers , Threat of Substitutes , Bargaining power of suppliers , Threats …show more content…
High intensity results in higher fixed cost and lower profitability for all the companies in that industry. If brand loyalty is low, products are all similar, customer switching costs are low and high exit barriers results in fierce competition between rivals. Example: low rivalry in optical industry, high rivalry in pharmaceutical industry.
Weaknesses: Porter’s five forces was published in late 1970s and was useful method to observe and analyze external economic environment and come up with appropriate strategy for business but as time passed by more external factors highlighted themselves that can affect the structure of an industry.
Five forces fail to address the growing effect of globalization and digitalization. As five forces aimed at providing long run strategies as industry was at slow pace of movement but when advance technologies and global companies entered the era, industries faced rapid change and different challenges through the competitive means and that resulted in less competency of Porter’s method as it failed to envision and provide long term strategy. According to Bang and Markeset (2012) there are five main drivers of globalization: lower trade barrier, lower communication costs, lower transportation costs, spread of technology and Information and Communication …show more content…
Porter’s model only focuses on external view of an industry to analyze the threat level of competition in an industry and not as some internal capabilities of companies and can locate the imperfect market where the maximum profitability can be achieved by avoiding the high threat areas (Grundy,