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5 Forces Model

Essay by   •  December 13, 2012  •  Research Paper  •  488 Words (2 Pages)  •  1,802 Views

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Brief Introduction:

"Five Forces" model was set by Michael Port in 1980's, which aim to analysis determine the nature of competition within an industry(Riley, 2012). Basically, this model contains five factors as the name shows: 1. Bargaining Power of Suppliers. Which means that suppliers effect the benefit and product competitiveness by increasing the price of input factors and decreasing unit value quality. 2. Bargaining Power of Buyers. To be specific, buyers need to require better service or product so that can effect the benefit of firms. 3. Threat of new entrants. It could be obvious that a new entrant in a certain industry will bring a more serious competition even though it also come with new resource, because the new entrant will share the certain market which is fixed in "Five Forces" model. 4. Threat of Substitute Product, it means that productions from different industries may have the similar function, and become the substitute product for each because of the benefit. 5. The last one is the Rivalry among Competing Sellers. It effects the competitive strategy and environment because they of their serious competition for benefit. And the way to get more profit is to find a comparative advantage while firms in a certain industry is usually close related.

The nature of "Five Forces" model is concentrate above five factors on a simple model, and help to decide more specific strategy based on the analysis of this model. The comprehensive affection of this model is changeable in different industries, and effect varies factors which including price, cost and even invest benefit. As a result, companies could become more competitive from the scientific analysis of this model, and the general way is to separate operation from competitiveness or compete with others after getting a comparative advantage position.

But, this model is quite controversial because some scholars believe this is a model for theoretical analysis but not practical operation. As Chillabee(2010) argues that this model set in eighties, so the economy is quite different with nowadays and there do have some limitations. It can be concluded in 3 parts which are close related with its' 3 assumptions. First one is the model suppose the manager could get the information of the whole industry, and this is not reliable in practice. Besides, firms in the same industry only have competition while



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