Porter's Five Forces Model Essay

1265 words - 6 pages

Assignment 1 (Week 1)
Nelida Wakefield
American Military University

Porter’s Five Forces Model is a holistic approach towards competitive strategy. The model
provides a framework for the strategic direction of management teams that are seeking an edge
over their competitors and additional factors that may undermine profits. The model displays the
dynamics between the competitive rivals, buyer’s bargaining power, suppliers, new entrant’s
threat and substitutes. The implementation of Porter’s Five Forces Model is crucial on
international business practice in order to establish a successful overseas operation and reduce
cost of expansion. Global business expansion has ...view middle of the document...

The model serves as a tool to develop strategic
business plans and assists in focusing a company’s management strategic vision. According to
Porter, (2010), there are five distinctive forces that compete for the turnover of a share market.
Porter’s Model displays the dynamics between the competitive rivalries, buyers, suppliers, new
entrant’s threat, and substitutes. Porter (2008) stated the following:
The rivalry refers to the competitive struggle for market share between firms in an industry.
The buyer power is the bargaining power that customers have when they bargain down the
prices or demanding better quality of services and product. The supplier power refers to the
suppliers that provide raw materials, services or labor. Suppliers can diminish profits
by increasing costs. New entrant’s threat refers to potential competitors for market
share that are not currently competing. They can lower the current prices upon entering the
industry and finally, the threat of substitutes which are the competitor’s products that has the
capability of satisfying the customers’ needs.
Porter’s Five Forces Model is crucial on the development of an international strategy. In
order to establish a successful overseas operation and reduce cost of expansion the strategy needs
to take in consideration foreign rival acts that requires counter-measurements. In a chess game
the players position themselves on a strategic place across the game board. Some chess pieces
are more valuable than others and therefore must be protected at all cause even if it implies to
sacrifice another piece. During the chess game the players must be able to anticipate the
opponent’s possible moves in order to successfully achieve a check mate. Porter (2010),
stated, “different cultures, histories, and philosophies make an industry unstable. There is
greater possibility for mavericks and for misjudging rival’s moves.”(p. 3).
Proper implementation of the Porter’s model will assist the competitive strategic plan of a
company that is considering branching out or simply starting a new business overseas because it
helps to identify possible challenges that otherwise can be easily overlooked. Strategy is crucial
because modern times have more than fewer international competitors. (Stahl & Grigsby, 1997)
stated, “Before the 1970s the USA had few significant international industrial competitors.
Today, rapid change is the name of the game. Such change mandates that managers understand
the forces requiring strategic change. With that understanding, they can help formulate a new
strategic plan and implement the new strategy.” (p. 10).
Modern organizations that operate their companies under the practical application of
Porter’s Five Forces Model increases their chances of becoming successful overseas. There are
industries operating on a global level using a competitive advantage and applying Porter’s model

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