Porter's Five Forces - International Application
Michael Porter’s Five Forces – International Application
Michael Porter, a Harvard professor, developed his Five Forces model in 1979 to analyze business competition and factors that can minimize profit (Porter, The Five Competitive Forces that Shape Strategy, 2008). Porter theorized that businesses looked at competition too narrowly, failing to consider other forces that contribute to profitability. The Five Forces Model examines competition for profits in regard to buyers, existing competitors, new entrants into the market place, suppliers, and the threat of substitute services or products. The model can be applied to any type of business, operating in any industry and market place. Even though the model was developed more than 35 years ago, it remains a viable tool today, especially in the global marketplace. Businesses considering entry into a foreign market may utilize Porter’s Five Forces model to evaluate that attractiveness of the market (Stahl & Grigsby, 1997).
Buyers are considered in regard to the demands they place on businesses to provide more value for less money. Buyers should be evaluated for price sensitivity and bargaining power. Buyers can be price sensitive if the product or service is a large percentage of their budget. For example, a consumer looking to purchase a refrigerator vs. a toaster, the refrigerator is a much larger percentage of the household budget and therefore price sensitivity is higher. If the buyer can save, or even make money with the product or service, price sensitivity will be lower (Porter, The Five Competitive Forces that Shape Strategy, 2008).
Buyers have a high level of bargaining power if the product or service is undifferentiated from the competitors (Porter, The Five Competitive Forces that Shape Strategy, 2008). Global companies offering foreign products or services new to the local consumers may enjoy the benefit of a uniquely differentiated product previously unavailable to the region. In this case
Michael Porter, a Harvard professor, developed his Five Forces model in 1979 to analyze business competition and factors that can minimize profit (Porter, The Five Competitive Forces that Shape Strategy, 2008). Porter theorized that businesses looked at competition too narrowly, failing to consider other forces that contribute to profitability. The Five Forces Model examines competition for profits in regard to buyers, existing competitors, new entrants into the market place, suppliers, and the threat of substitute services or products. The model can be applied to any type of business, operating in any industry and market place. Even though the model was developed more than 35 years ago, it remains a viable tool today, especially in the global marketplace. Businesses considering entry into a foreign market may utilize Porter’s Five Forces model to evaluate that attractiveness of the market (Stahl & Grigsby, 1997).
Buyers are considered in regard to the demands they place on businesses to provide more value for less money. Buyers should be evaluated for price sensitivity and bargaining power. Buyers can be price sensitive if the product or service is a large percentage of their budget. For example, a consumer looking to purchase a refrigerator vs. a toaster, the refrigerator is a much larger percentage of the household budget and therefore price sensitivity is higher. If the buyer can save, or even make money with the product or service, price sensitivity will be lower (Porter, The Five Competitive Forces that Shape Strategy, 2008).
Buyers have a high level of bargaining power if the product or service is undifferentiated from the competitors (Porter, The Five Competitive Forces that Shape Strategy, 2008). Global companies offering foreign products or services new to the local consumers may enjoy the benefit of a uniquely differentiated product previously unavailable to the region. In this case
References: Denning, S. (2012). Even Monitor Didn 't Believe in Five Forces Analysis. Retrieved August 10, 2014, from Forbes.com: http://www.forbes.com/sites/stevedenning/2012/11/24/even-monitor-didnt-believe-in-the-five-forces/ Porter, M. (2010). Porter 's Five Forces- A Model for Industry Analysis. Retrieved August 9, 2014, from QuickMBA: http://www.quickmba.com/strategy/porter.shtml Porter, M. (2008). The Five Competitive Forces that Shape Strategy. Retrieved August 9, 2014, from Harvard Business Review: http://hbr.org/2008/the-five-competitive-forces-that-shape-strategy/ar/1 Recklies, D. (2001, June). Porter 's 5 Forces. Retrieved August 10, 2014, from TheManager.org: http://www.themanager.org/models/p5f.htm Stahl, M. J., & Grigsby, D. W. (1997). Strategic Management - Total Quality and Global Competition. Oxford, UK: Blackwell Publishers Ltd.