Porter’s Five-Force model is a tool used for strategic analysis of a particular market sector. Its name comes from the five factors that, according to Porter, serve as an aid in determining how attractive a market sector is for potential investors, emerging firms as well as the existing players. “One can measure the industry’s attractiveness for entry and exit, analyze competitive trends, and plot future strategy.” (Stahl & Grigsby, 1997, p. 145). It allows organizations to see what risks as well as benefits accompany functioning within the sector. The forces include: Supplier Power, Threat of Substitutes, Threat of New Entrants, Buyer Power, and Rivalry.
The model should be a vital part of an organization’s business plan. If it is trying to enter a new, international market, it needs to have an understanding of what difficulties and challenges it is going to face. Knowledge is power and that is exactly what the Five-Force model offers. “The proper generic strategy will position the firm to leverage its strength and defend against the adverse effects of the five forces.” (“Porter’s Five Forces: A Model for Industry Analysis,” n.d.). Its role doesn’t end once a firm enters a market. It allows existing entities to keep track of the changes taking place in their industries and gives them a competitive advantage over those that do not see the trends by having more time to adjust and embrace the trends.
Porter’s model does not include all the forces present in the market. It does not take under considerations things such as companies forming alliances, leading to an advantage over those not included. It also does not consider sudden changes in markets due to unpredictable events such as a natural disaster causing a shortage of supplies or a discovery of a new technology that can fundamentally alter either one of the forces or the entire market.... [continues]
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