Analysis of Porter's 5 Forces Model and Its Application in E-Commerce Based Economy
Topic of the Assignment
ANALYSIS OF PORTER’S FIVE FORCES MODEL AND ITS APPLICATION IN E-COMMERCE BASED ECONOMY
PORTER’S FIVE FORCES FRAMEWORK:
A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Michael Porter has postulated that the intensity of competition in an industry is determined by its underlying economic structure. Porter (1985) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. According to Porter, industry structure is determined by five competitive forces and it is evident that all of these competitive forces will be affected by the development of the information economy.
The five forces model, as developed by Micheal E. Porter, illustrates the biggest factors that may enter into the strategic decision-making process. These are, on a vertical level, suppliers and customers, on a horizontal level, competition from products, new entrants (can also be vertical), and rivals. To explain the horizontal/vertical, it means companies and products that are on the same level as you, competing for the attention of the same customers (and suppliers). Vertical relationships are those which a company depends on, either their relationship with suppliers or their relationship with customers. Each of these also operates on their own horizontal axis. The more powerful players on that level become, the more they can affect players on the other levels. In other words, it is an analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so
ANALYSIS OF PORTER’S FIVE FORCES MODEL AND ITS APPLICATION IN E-COMMERCE BASED ECONOMY
PORTER’S FIVE FORCES FRAMEWORK:
A business has to understand the dynamics of its industries and markets in order to compete effectively in the marketplace. Michael Porter has postulated that the intensity of competition in an industry is determined by its underlying economic structure. Porter (1985) defined the forces which drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business. In addition to rivalry among existing firms and the threat of new entrants into the market, there are also the forces of supplier power, the power of the buyers, and the threat of substitute products or services. According to Porter, industry structure is determined by five competitive forces and it is evident that all of these competitive forces will be affected by the development of the information economy.
The five forces model, as developed by Micheal E. Porter, illustrates the biggest factors that may enter into the strategic decision-making process. These are, on a vertical level, suppliers and customers, on a horizontal level, competition from products, new entrants (can also be vertical), and rivals. To explain the horizontal/vertical, it means companies and products that are on the same level as you, competing for the attention of the same customers (and suppliers). Vertical relationships are those which a company depends on, either their relationship with suppliers or their relationship with customers. Each of these also operates on their own horizontal axis. The more powerful players on that level become, the more they can affect players on the other levels. In other words, it is an analysis deals with factors outside an industry that influence the nature of competition within it, the forces inside the industry (microenvironment) that influence the way in which firms compete, and so