Porter's 5 Force Model

Topics: Barriers to entry, Concentration, Strategic management Pages: 3 (1008 words) Published: July 24, 2011
Porter’s Five-Force model consists of rivalry, threat of substitutes, buyer power, supplier power and threat of new entrants and entry barriers. I believe Porter’s Five-Force model offers a corporation a solid backbone foundation in developing an international business strategy. The first part of Porter’s Five-Force model is rivalry. According to Porter, rivalry focuses on two main factors which are a high concentration ratio and a low concentration ratio. A high concentration ratio indicates that a high concentration of market share is held by the largest firms which the industry is concentrated. A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share (Porter, 2010). Porter offers competitive moves a corporation can choose to implement such as changing prices and improving product differentiation, to gain an edge on their rival. Porter also outlines in great depth how the intensity of rivalry is influenced by ten key industry characteristics, such as slow market growth and industry shakeout. The second component of Porter’s Five-Force model is the threat of substitutes. Porter states that a threat of substitutes exits when a product’s demand is affected by the price change of a substitute product. An example Porter uses to clarify his position is the price of aluminum beverage cans which is constrained by the price of glass bottles, steel cans, and plastic containers (Porter, 2010). These products do not serve as rivals in the aluminum can industry but merely as alternative substitutes. The third element of Porter’s Five-Force model is buyer power. Porter demonstrates power buyers and weak buyers. As a former Department of Defense employee, I thought Porter did an excellent job of outlining an industry where the buyers are concentrated. The Department of Defense chooses which purchases they will make from a group of bidding defense contractors. I felt the Intel Corporation...
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