Nathalie Escobar
Principles of Mgmt
Professor Moy
May 20, 2008
List and explain Porter’s Five Forces Model.
The five forces model was a tool that was first developed by Michael Porter as a way to
help managers analyze their competitive environment. The five forces model of competition
consists of: suppliers, buyers, competitive rivalry among firms currently in the industry, product
or service substitutes, and potential entrants into the industry. Using the tool of five forces model
in a competitive environment can help managers to select better choices that are most appropriate
for business level status.
In the five forces model of competition, there can be a potential strengths, weaknesses,
threats and opportunities for each factor internally and externally. The first point on the five
forces model of competition is the bargaining power of the suppliers. Bargaining power of
suppliers can bring competitiveness with rivalry among established firms. One competitor may
supply a certain good more than the other or even supply cheaper goods with the same quality. If
the competitor that controls the bargaining power of suppliers continues to grow stronger, it will
result in an increase of the demand of goods in the market. In addition, the rivals would have to
work harder to be able to compete. However, a fallback for the competitor with the top
bargaining power can be the potential weakness in distribution networking. Even if a competitor
may be at the highest level from their rivals, they can have potential flaws that can be a definite
problem.
The second point on the five forces model of competition is the bargaining power of
buyers. This is also another competitive factor because if a competitor has the power over the
buyers, they would have to know the kind of goods that customers demand. However, a potential
threat to the competitor’s bargaining power over the buyers is if the rivals change their goods to
what the buyers needs and their tastes of goods. Opportunities that can the increase power over
the buyers can be if the competitor finds ways of expanding a certain product line to meet a
broader range fir the needs of customers.
The third point to the five forces model is the competitive rivalry among firms currently
in the industry. Rivalry among the firms currently in the industry is very competitive because
new products and services continue to be newly created and become obsolete. There are always
new products and services in order to the highest among all of the competitors. For example, the
iphone from Apple is very competitive with smart phones like the Blackberry, etc. New
technologies are always created, manufacturing capability becomes better, goods and services
fluctuate because of what customers demand for, etc. In the fives forces model of competition
which is shown in the textbook as Figure 7.6, displays that the third point of rivalry among
established firms connects all other points together. The other four points is portrayed as being
the reasons to the rivalry amongst the firms.
The fourth point of the five forces model of competition is called the product or service
substitutes. The ideas of product or service substitutes can bring a threat between the firms. If
one competitor expands a certain product just for customers, it can threaten other firms and they
too would need to find ways to influence customers to buy their products as well. A weakness in
substitute of products is where a competitor may not be able to finance the changes in a strategy
of expanding a product, etc.
The last point of the model is called the potential entrants into the industry. For example,
the entry of lower-cost foreign competitors can threaten rivalry firms because they can make
more of a profit the leading competitors that have been longer rivals. Foreign competitors are far
more advanced in technology and they have the ability to transfer skills or technologies that were
back in their original country to other countries. Also, foreign competitors can be ahead on the
experience curve because they are a day ahead of other countries.
The five forces model of competition can help managers to choose better options when
dealing with competition between rivalry firms. This tool can help competitors find out other
strategies to increase their power in each of the five concepts and gives them ideas to improve
themselves in the competitive environment.