Porter’s Five Forces 1
In talking strategy for any company, Porter’s Five Forces Model is likely to come up. It has served as a strategic planning guideline for years. If a company is just starting out, they would have to analyze the model and apply it to themselves from every aspect. If a company is well established, the model can serve as points that need to constantly be revisited. In going global, the tool becomes invaluable. It still only serves as a guideline, but it delivers significant points that have to be examined in a different culture of diverse laws and governmental controls. The following paragraphs will describe Porter’s Five Forces Model, describe how it can assist in going global, and examine possible limitations to the model. Porter’s Five Forces Model is a framework by which an organization can create its strategy. The forces determine the profitability of an industry because they form the prices that can be charged, the costs that can be handled, and the money required to be able to compete in that industry. The five forces include rivalry, threat of substitutes, buyer power, supplier power, and threat of new entrants/entry barriers. Rivalry is the competition for market share between companies in a specific industry. Firms can create or respond to rivalry by changing prices, improving current products, and diversifying distribution channels. Threat of substitutes refers to the products that can be used in place of another product. A prime example of this would be an iphone versus a galaxy phone. Iphones may have some features that the galaxy does not, but for a lower price, many consumers are ok with that. Buyer power is the potential bargaining influence the consumer has on a product. If there are just a few buyers and
Porter’s Five Forces 2
multiple sellers of the same product, then buyer power is high (and vice versa). Supplier power refers to the companies that supply the final product and the bargaining...
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