Porter’s five forces model is designed to show the profitability potential of a company. This is very important when designing ones international strategy. While this is not an all encompassing model, it is essential that these five forces be considered because they drive the profit margins of a product and before going global, a company must know if it even has a chance to succeed in that specific market. These forces are: 1. Rivalry. Rivalry effects how much a company is able to charge for their product. When the competition for a specific item is low, companies may be able to charge more, but when there is more competition companies need to have competitive prices and quality of their products. 2. Threat of substitutes. Threat of substitutes refers to other products that affect the price of another product. The example used in the article was the price of aluminum cans. The price is affected by the price of glass, steel, or plastic containers. They are not in direct competition but the price of one can drive the prices of another. 3. Buyer Power. Buyer power is how buyers influence the market by being able to impose their demands of cost and quality. 4. Supplier Power. Is similar to buyer power but in the reverse role. The supplier is able to demand its prices and quality of a product. When there is only one supplier to a high demand product, they control the prices, but when there are many suppliers, they compete to have the most attractive product by price and quality. 5. Threat of new entrants and entry barriers. It is in the company’s best interest to set barriers on its products so it can maintain the leading edge over its competition. A simple example is a patent that a company holds on a product.
These forces need to be considered by a company’s leadership in order for the company to understand the market they are in and how they can maximize their profit margin. When looking to take a company global, these
References: Porter, M. (2008). Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/
Team FME. (2013)Porter’s Five Forces – Strategy Skills. Retrieved from www.free-management-ebooks.com
Quick MBA. Porter’s Five Forces: A model for industry analysis. Retrieved from http://www.quickmba.com/strategy/porter.shtml