Michael Porter's framework for industry analysis keys in on five forces that shape the competitive environment. The five forces are: 1. Rivalry among existing firms. 2. Threat of new entrants. 3. Bargaining power of buyers. 4. Bargaining power of suppliers. 5. Threat of substitutes. This model can be used by business managers to develop an edge over rival firms. Use of this model will allow the manager to better understand the context of the industry in which his/her firm operates in.
To demonstrate Michael Porter's model on industry analysis, I have chosen Wal-Mart Stores, Inc. The proceeding paper will give a brief overview of the Wal-Mart enterprise followed by Porter's five forces on the Wal-Mart organization.
OVERVIEW of WAL-MART STORES INC.
Wal-Mart Stores Inc. is a global enterprise that is the largest national retailer in the United States. (1. money.cnn.com/magazines/fortune500). Fortune magazine lists Wal-Mart's 2005 revenues as $288,189 (in millions) which dwarves its nearest competitor Target ($49,934--in millions) Wal-Mart operates on an "Every Day Low Price" philosophy because they are able to maintain their low price structure through complete expense control.
English: Inside the Walmart (still branded as Wal-...
A protest in Utah against Wal-Mart
English: Supermercado de Wal-Mart in Spring Branch...With this philosophy, they have proven to be extremely profitable domestically. Their primary task is buying from suppliers at a low cost and reselling the goods to customers at a low price. Thus, the company philosophy of low prices and great customer service is achieved.
5 FORCES FRAMEWORK for ANALYSIS
Rivalry among Competition
Due to Wal-Mart's size, domination in the retail industry lacks any real rival intensity among its main competitors at this time. While Wal-Mart excels in the retail industry, much of the competition nationally is struggling to stay in business let alone compete. Two retailers that fit this description would be K-MART and Sears. It appears the nearest rival companies at this time would be Target...
Industry Analysis of Walmart
While this essay is reasonably effective in describing WalMart's buying power and efficiencies of scale, several times the writer contends that because of these factors (without more), WalMart provides great customer service. Actually, the service area is one of WalMart's weaker points. Because WalMart insistently maintains the lowest pay scales of any comparably sized enterprise in the nation, worker dissatisfaction runs quite high, reflected in relatively poor customer service and high employee turnover.
WalMart has also managed to distinguish itself as one of the most rapacious businesses in the nation, rivaling the classic "robber barons" for its attitude of take the money and ride on. Its predatory pricing policies, ugly anti-union attitude, and political belligerence have made it one of the most hated institutions in the nation. Further, virtually every new WalMart store now meets concerted local opposition.
WalMart has become famous (infamous?) for abuse of employees, leading to a number of massive lawsuits which courts have found that the company regularly based its profitability model on requiring workers to work substantial periods of time without pay. Further, WalMart's refusal to provide any reasonable employee benefits package for the typical worker has made it hated by state and local authorities: allowing a WalMart into a community invariably means substantially higher welfare and uninsured medical costs. Its failure to provide adequate security around its facilities often means that WalMart's are centers of substantial shoplifting, petty theft, and other criminal activities, causing wholesale degradations of the neighborhoods around the shopping centers.
In short, while the WalMart model does mean lower prices, the lower prices come at ugly social costs.
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