The Five Forces of Competition

Essay by mijailUniversity, Master'sA+, October 2007

download word file, 3 pages 3.0

In his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors." (1980), the author developed a new model for analyzing the forces that drive competition among companies.

The Porter model is based on scrutinizing competitive factors and defining a strategy from the findings to help companies increase market share or profitability. The five forces are:1. Rivalry among competitors2. Potential entry of new competitors3. Entry of substitute products4. Pressures from suppliers-sellers relationships5. Pressures from sellers-buyers relationshipsThis model has proven to be very useful and is widely utilized across all types of industries; however, given that it was created more than 25 years ago, it lacks some factors that are very important now when companies have faster and easier access to information, and markets cycles are change more often. An attempt for a more complete model could be represented as follow (differences are colored red): Exit of Competitors from rivalry is a factor that may be missed at times on the race for biggest market share (it could be due to diverse reasons as new products, new technology, financial changes, etc).

A company like RTI Inc ( decided to stay in the vinyl record market, even though the product was being replaced by compact discs; as the majority of competitors updated their equipment and infrastructure to keep up with technology, RTI focused on customer service and quality in order to supply the demand for customers who wanted better sound quality. Not only when an entry occurs, should the company look at the opportunities.

Government involvement has always been part of the equation, but its analysis should not be limited only to the entry of new competitors. Laws and regulations play a big role on how some companies must define their strategy for staying profitable, even more in countries where governments have...