Analysis of Porter's Five Forces Model Essay Example

Porter’s Five Forces model is an important tool used to differentiate where power is to be gained and lost within the business world. It gives examples of how businesses compete within markets and how they can assess their potential profitability. It shows how the rivalry between businesses is affected and altered based on several economic conditions and strategies that businesses may take to change an industry. The five forces of this model are supplier power, buyer power, competitive rivalry, threat of substitution and the threat of new entry. Using this model could be extremely helpful in developing one’s international strategy. It gives several concepts and factors to weigh when planning the strategic direction of the management team and when developing a well organized vision. Using this model is helpful to organization when taking its initial idea or goal and transforming that goal into an achievable vision with clear direction. This model allows an organization to consider the competition in a given market or industry and choose which competitive strategy to take when entering a new market or while competing with its rivals as an already established competitor. This model can be a very useful tool to a business operating domestically or globally.

An organization planning to operate overseas should use this model when figuring its potential for profitability in the new market place. The factor of “rivalry” is the center and most important factor of the Five Forces Model. This shows how all other components can alter the competition of an industry and affect the profitability of an organization. A business should first consider the potential competition of other organizations when deciding to operate globally and in which areas to target or avoid. It should analyze how strong is a rival in a market, how many rival businesses there will be, and which, if any, business is considered to be a significant competitor.

The “threat of substitute”