Topic > Porter's Five Forces of Competition - 627

IntroductionCompetition in the business environment and strategies to combat it have existed and evolved for centuries, however a true revolution in the field of strategy did not occur until relatively recently by a Harvard University professor and economist named Michael E. Porter. According to Porter, “the strategist's job is to understand and address the competition” (Porter, 2008), however Porter noted that competition is often defined too narrowly and that managers almost always overlook other competitive forces such as customers, suppliers, etc. other players in the market and the potential for substitute products. As a result, in 1979, Porter published an article in the Harvard Business Review titled How Competitive Forces Shape Strategy, officially introducing the world to Porter's five competitive forces that shape strategy (Porter, 2008). introduced to the world in that article 35 years ago are the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and rivalry among existing firms. In developing the Five Forces, Porter's goal was to help strategic managers determine how attractive their specific industry is or will become in the future (Mawhinney, 2008), although it is important to note that according to Porter, "the configuration of five forces" Forces differ depending on the industry" (Porter, 2008). To further assist strategic managers in analyzing their industry, Porter's Five Forces can be further divided into subcomponents. Therefore, it is imperative for strategic managers to evaluate the positive or negative effect that each subcomponent has on the core strength as a whole so that we can “assess the forces that drive competition in an industry and evaluate the likelihood of a firm entering and competing successfully in an industry.” 'industry' (Stahl & Grigsby, 1997, p. 145). The Five Forces and Operating Abroad Over the past twenty years, technological advances have led to a boom in globalization, which in turn has dramatically increased international competition. Porter's Five Forces model was never intended as an exclusively national or regional tool for strategic managers. In fact, it is an excellent tool that an organization can use to determine its international strategy. The results of evaluating the forces driving competition in the industry will ultimately determine an organization's profit potential, which is the bottom line for all businesses. In other words, “high competitive strength can be considered a threat and low competitive strength can be considered an opportunity as it allows a company to earn high profits” (Jeyarathmm, 2008, pg.