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Porters 5 Forces
Strana 2
Porters 5 Forces
http://www.themanager.org/Moe!"/p#$.htm
Dagmar Recklies, June 2001
Strana !
Porter"s Five Forces # $ %&'() F&* +N',S-*. $N$).S+S
http://www.%&'()m*a.(om/"trateg+/porter."htm!
Strana 2/
Porter"s five forces model0
%ic1ael ( Porter"s five forces of competitive position model
http://www.*&"'ne""*a!!".(om/porter"$',e$or(e"o$(ompet't'on.htm
alan chapman 2001-5
-ro.:
http://www.themanager.org/Moe!"/p#$.htm
Dagmar Recklies, June 2001
Porters 5 Forces

/ Intro&(t'on
0 1he 2',e Compet't',e 2or(e"
0./ 3arga'n'ng Power o$ S&pp!'er"
0.0 3arga'n'ng Power o$ C&"tomer"
0.4 1hreat o$ New Entrant"
0.5 1hreat o$ S&*"t't&te"
0.# Compet't',e R',a!r+ *etween E6'"t'ng P!a+er"
4 7"e o$ the In$ormat'on $orm 2',e 2or(e" Ana!+"'"
5 In$!&en('ng the Power o$ 2',e 2or(e"
5./ Re&('ng the 3arga'n'ng Power o$ S&pp!'er"
5.0 Re&('ng the 3arga'n'ng Power o$ C&"tomer"
5.4 Re&('ng the 1reat o$ New Entrant"
5.5 Re&('ng the 1hreat o$ S&*"t't&te"
5.# Re&('ng the Compet't',e R',a!r+ *etween E6'"t'ng P!a+er"
# Cr't'%&e

1 Introduction
The model of the Fie !ompetitie Forces "as deeloped #$ %ichael &' (orter in his #ook )!ompetitie
*trateg$+ Techni,ues for -nal$.ing /ndustries and !ompetitors0 in 1120' *ince that time it has #ecome an
important tool for anal$.ing an organi.ations industr$ structure in strategic processes'

(orters model is #ased on the insight that a corporate strateg$ should meet the opportunities and threats in the
organi.ations e3ternal enironment' &speciall$, competitie strateg$ should #ase on and understanding of
industr$ structures and the "a$ the$ change'
(orter has identified fie competitie forces that shape eer$ industr$ and eer$ market' These forces determine
the intensit$ of competition and hence the profita#ilit$ and attractieness of an industr$' The o#4ectie of
corporate strateg$ should #e to modif$ these competitie forces in a "a$ that improes the position of the
organi.ation' (orters model supports anal$sis of the driing forces in an industr$' 5ased on the information
deried from the Fie Forces -nal$sis, management can decide ho" to influence or to e3ploit particular
characteristics of their industr$'
2 The Five Competitive Forces
The Fie !ompetitie Forces are t$picall$ descri#ed as follo"s+

2.1 Bargaining Power of Suppliers
The term 6suppliers6 comprises all sources for inputs that are needed in order to proide goods or serices'
*upplier #argaining po"er is likel$ to #e high "hen+

1he mar)et '" om'nate *+ a $ew !arge "&pp!'er" rather than a $ragmente "o&r(e o$ "&pp!+8
1here are no "&*"t't&te" $or the part'(&!ar 'np&t8
1he "&pp!'er" (&"tomer" are $ragmente8 "o the'r *arga'n'ng power '" !ow8
1he "w't(h'ng (o"t" $rom one "&pp!'er to another are h'gh8
1here '" the po""'*'!'t+ o$ the "&pp!'er 'ntegrat'ng $orwar" 'n orer to o*ta'n h'gher pr'(e" an
marg'n". 1h'" threat '" e"pe('a!!+ h'gh when
1he *&+'ng 'n&"tr+ ha" a h'gher pro$'ta*'!'t+ than the "&pp!+'ng 'n&"tr+8
2orwar 'ntegrat'on pro,'e" e(onom'e" o$ "(a!e $or the "&pp!'er8
1he *&+'ng 'n&"tr+ h'ner" the "&pp!+'ng 'n&"tr+ 'n the'r e,e!opment 9e.g. re!&(tan(e to
a((ept new re!ea"e" o$ pro&(t":8
1he *&+'ng 'n&"tr+ ha" !ow *arr'er" to entr+.

/n such situations, the #u$ing industr$ often faces a high pressure on margins from their suppliers' The
relationship to po"erful suppliers can potentiall$ reduce strategic options for the organi.ation'

2.2 Bargaining Power of Customers
*imilarl$, the #argaining po"er of customers determines ho" much customers can impose pressure on margins
and olumes'
!ustomers #argaining po"er is likel$ to #e high "hen
1he+ *&+ !arge ,o!&me"8 there '" a (on(entrat'on o$ *&+er"8
1he "&pp!+'ng 'n&"tr+ (ompr'"e" a !arge n&m*er o$ "ma!! operator"
1he "&pp!+'ng 'n&"tr+ operate" w'th h'gh $'6e (o"t"8
1he pro&(t '" &n'$$erent'ate an (an *e rep!a(e" *+ "&*"t't&te"8
Sw't(h'ng to an a!ternat',e pro&(t '" re!at',e!+ "'mp!e an '" not re!ate to h'gh (o"t"8
C&"tomer" ha,e !ow marg'n" an are pr'(e;"en"'t',e8
C&"tomer" (o&! pro&(e the pro&(t them"e!,e"8
1he pro&(t '" not o$ "trateg'(a! 'mportan(e $or the (&"tomer8
1he (&"tomer )now" a*o&t the pro&(t'on (o"t" o$ the pro&(t
1here '" the po""'*'!'t+ $or the (&"tomer 'ntegrat'ng *a()war".

2. Threat of !ew "ntrants
The competition in an industr$ "ill #e the higher, the easier it is for other companies to enter this industr$' /n
such a situation, ne" entrants could change ma4or determinants of the market enironment 7e'g' market shares,
prices, customer lo$alt$8 at an$ time' There is al"a$s a latent pressure for reaction and ad4ustment for e3isting
pla$ers in this industr$'
The threat of ne" entries "ill depend on the e3tent to "hich there are #arriers to entr$' These are t$picall$
E(onom'e" o$ "(a!e 9m'n'm&m "'<e re%&'rement" $or pro$'ta*!e operat'on":8
='gh 'n't'a! 'n,e"tment" an $'6e (o"t"8
Co"t a,antage" o$ e6'"t'ng p!a+er" &e to e6per'en(e (&r,e e$$e(t" o$ operat'on w'th $&!!+
epre('ate a""et"8
3ran !o+a!t+ o$ (&"tomer"
Prote(te 'nte!!e(t&a! propert+ !')e patent"8 !'(en"e" et(8
S(ar('t+ o$ 'mportant re"o&r(e"8 e.g. %&a!'$'e e6pert "ta$$
A((e"" to raw mater'a!" '" (ontro!!e *+ e6'"t'ng p!a+er"8
D'"tr'*&t'on (hanne!" are (ontro!!e *+ e6'"t'ng p!a+er"8
E6'"t'ng p!a+er" ha,e (!o"e (&"tomer re!at'on"8 e.g. $rom !ong;term "er,'(e (ontra(t"8
='gh "w't(h'ng (o"t" $or (&"tomer"
Leg'"!at'on an go,ernment a(t'on

2.# Threat of Su$stitutes
- threat from su#stitutes e3ists if there are alternatie products "ith lo"er prices of #etter performance
parameters for the same purpose' The$ could potentiall$ attract a significant proportion of market olume and
hence reduce the potential sales olume for e3isting pla$ers' This categor$ also relates to complementar$
products'
*imilarl$ to the threat of ne" entrants, the treat of su#stitutes is determined #$ factors like
3ran !o+a!t+ o$ (&"tomer"8
C!o"e (&"tomer re!at'on"h'p"8
Sw't(h'ng (o"t" $or (&"tomer"8
1he re!at',e pr'(e $or per$orman(e o$ "&*"t't&te"8
C&rrent tren".

2.5 Competitive %ivalr& $etween "'isting Pla&ers
This force descri#es the intensit$ of competition #et"een e3isting pla$ers 7companies8 in an industr$' 9igh
competitie pressure results in pressure on prices, margins, and hence, on profita#ilit$ for eer$ single compan$
in the industr$'
!ompetition #et"een e3isting pla$ers is likel$ to #e high "hen
1here are man+ p!a+er" o$ a*o&t the "ame "'<e8
P!a+er" ha,e "'m'!ar "trateg'e"
1here '" not m&(h '$$erent'at'on *etween p!a+er" an the'r pro&(t"8 hen(e8 there '" m&(h pr'(e
(ompet't'on
Low mar)et growth rate" 9growth o$ a part'(&!ar (ompan+ '" po""'*!e on!+ at the e6pen"e o$ a
(ompet'tor:8
3arr'er" $or e6't are h'gh 9e.g. e6pen"',e an h'gh!+ "pe('a!'<e e%&'pment:.


(se of the Information form Five Forces )nal&sis
Fie Forces -nal$sis can proide alua#le information for three aspects of corporate planning+

Statical )nal&sis*
The Fie Forces -nal$sis allo"s determining the attractieness of an industr$' /t proides insights on
profita#ilit$' Thus, it supports decisions a#out entr$ to or e3it from and industr$ or a market segment' %oreoer,
the model can #e used to compare the impact of competitie forces on the o"n organi.ation "ith their impact on
competitors' !ompetitors ma$ hae different options to react to changes in competitie forces from their
different resources and competences' This ma$ influence the structure of the "hole industr$'


+&namical )nal&sis*
/n com#ination "ith a (&*T--nal$sis, "hich reeals driers for change in an industr$, Fie Forces -nal$sis can
reeal insights a#out the potential future attractieness of the industr$' &3pected political, economical, socio-
demographical and technological changes can influence the fie competitie forces and thus hae impact on
industr$ structures'
:seful tools to determine potential changes of competitie forces are scenarios'


)nal&sis of ,ptions*
;ith the kno"ledge a#out intensit$ and po"er of competitie forces, organi.ations can deelop options to
influence them in a "a$ that improes their o"n competitie position' The result could #e a ne" strategic
direction, e'g' a ne" positioning, differentiation for competitie products of strategic partnerships 7see section <8'


Thus, (orters model of Fie !ompetitie Forces allo"s a s$stematic and structured anal$sis of market structure
and competitie situation' The model can #e applied to particular companies, market segments, industries or
regions' Therefore, it is necessar$ to determine the scope of the market to #e anal$.ed in a first step' Follo"ing,
all releant forces for this market are identified and anal$.ed' 9ence, it is not necessar$ to anal$.e all elements
of all competitie forces "ith the same depth'

The Fie Forces %odel is #ased on microeconomics' /t takes into account suppl$ and demand, complementar$
products and su#stitutes, the relationship #et"een olume of production and cost of production, and market
structures like monopol$, oligopol$ or perfect competition'


# Influencing the Power of Five Forces
-fter the anal$sis of current and potential future state of the fie competitie forces, managers can search for
options to influence these forces in their organi.ation=s interest' -lthough industr$-specific #usiness models "ill
limit options, the o"n strateg$ can change the impact of competitie forces on the organi.ation' The o#4ectie is
to reduce the po"er of competitie forces'

The follo"ing figure proides some e3amples' The$ are of general nature' 9ence, the$ hae to #e ad4usted to
each organi.ation=s specific situation' The options of an organi.ation are determined not onl$ #$ the e3ternal
market enironment, #ut also #$ its o"n internal resources, competences and o#4ecties'

<'1 Reducing the 5argaining (o"er of *uppliers <'2 Reducing the 5argaining (o"er of !ustomers
Partner'ng
S&pp!+ (ha'n management
S&pp!+ (ha'n tra'n'ng
In(rea"e epenen(+
3&'! )now!ege o$ "&pp!'er (o"t" an
metho"
1a)e o,er a "&pp!'er
Partner'ng
S&pp!+ (ha'n management
In(rea"e !o+a!t+
In(rea"e 'n(ent',e" an ,a!&e ae
Mo,e p&r(ha"e e('"'on awa+ $rom pr'(e
C&t p&t power$&! 'nterme'ar'e" 9go 're(t!+ to
(&"tomer:
<'> Reducing the Treat of ?e" &ntrants <'< Reducing the Threat of *u#stitutes
In(rea"e m'n'm&m e$$'('ent "(a!e" o$
operat'on"
Create a mar)et'ng / *ran 'mage 9!o+a!t+ a"
a *arr'er:
Patent"8 prote(t'on o$ 'nte!!e(t&a! propert+
A!!'an(e" w'th !'n)e pro&(t" / "er,'(e"
1'e &p w'th "&pp!'er"
1'e &p w'th '"tr'*&tor"
Reta!'at'on ta(t'("
Lega! a(t'on"
In(rea"e "w't(h'ng (o"t"
A!!'an(e"
C&"tomer "&r,e+" to !earn a*o&t the'r
pre$eren(e"
Enter "&*"t't&te mar)et an 'n$!&en(e $rom
w'th'n
A((ent&ate '$$eren(e" 9rea! or per(e',e:
<'5 Reducing the !ompetitie Rialr$ #et"een
&3isting (la$ers

A,o' pr'(e (ompet't'on
D'$$erent'ate +o&r pro&(t
3&+ o&t (ompet't'on
Re&(e 'n&"tr+ o,er;(apa('t+
2o(&" on '$$erent "egment"
Comm&n'(ate w'th (ompet'tor"


5 Criti-ue
(orter=s model of Fie !ompetitie Forces has #een su#4ect of much criti,ue' /ts main "eakness results from the
historical conte3t in "hich it "as deeloped' /n the earl$ eighties, c$clical gro"th characteri.ed the glo#al
econom$' Thus, primar$ corporate o#4ecties consisted of profita#ilit$ and surial' - ma4or prere,uisite for
achieing these o#4ecties has #een optimi.ation of strateg$ in relation to the e3ternal enironment' -t that time,
deelopment in most industries has #een fairl$ sta#le and predicta#le, compared "ith toda$=s d$namics'
/n general, the meaningfulness of this model is reduced #$ the follo"ing factors+

In the e(onom'( "en"e8 the moe! a""&me" a (!a""'( per$e(t mar)et. 1he more an 'n&"tr+ '"
reg&!ate8 the !e"" mean'ng$&! 'n"'ght" the moe! (an e!',er.
1he moe! '" *e"t app!'(a*!e $or ana!+"'" o$ "'mp!e mar)et "tr&(t&re". A (omprehen"',e
e"(r'pt'on an ana!+"'" o$ a!! $',e $or(e" get" ,er+ '$$'(&!t 'n (omp!e6 'n&"tr'e" w'th m&!t'p!e
'nterre!at'on"8 pro&(t gro&p"8 *+;pro&(t" an "egment". A too narrow $o(&" on part'(&!ar
"egment" o$ "&(h 'n&"tr'e"8 howe,er8 *ear" the r'") o$ m'""'ng 'mportant e!ement".
1he moe! a""&me" re!at',e!+ "tat'( mar)et "tr&(t&re". 1h'" '" har!+ the (a"e 'n toa+>" +nam'(
mar)et". 1e(hno!og'(a! *rea)thro&gh" an +nam'( mar)et entrant" $rom "tart;&p" or other
'n&"tr'e" ma+ (omp!ete!+ (hange *&"'ne"" moe!"8 entr+ *arr'er" an re!at'on"h'p" a!ong the
"&pp!+ (ha'n w'th'n "hort t'me". 1he 2',e 2or(e" moe! ma+ ha,e "ome &"e $or !ater ana!+"'" o$ the
new "'t&at'on? *&t 't w'!! har!+ pro,'e m&(h mean'ng$&! a,'(e $or pre,ent',e a(t'on".
1he moe! '" *a"e on the 'ea o$ (ompet't'on. It a""&me" that (ompan'e" tr+ to a(h'e,e
(ompet't',e a,antage" o,er other p!a+er" 'n the mar)et" a" we!! a" o,er "&pp!'er" or (&"tomer".
@'th th'" $o(&"8 't o" not rea!!+ ta)e 'nto (on"'erat'on "trateg'e" !')e "trateg'( a!!'an(e"8 e!e(tron'(
!'n)'ng o$ 'n$ormat'on "+"tem" o$ a!! (ompan'e" a!ong a ,a!&e (ha'n8 ,'rt&a! enterpr'"e;networ)" or
other".

@erall, (orters Fie Forces %odel has some ma4or limitations in toda$=s market enironment' /t is not a#le to
take into account ne" #usiness models and the d$namics of markets' The alue of (orters model is more that it
ena#les managers to think a#out the current situation of their industr$ in a structured, eas$-to-understand "a$ A
as a starting point for further anal$sis'

-ro.:
http://www.%&'()m*a.(om/"trateg+/porter."htm!
PorterA" 2',e 2or(e"
$ %&'() F&* +N',S-*. $N$).S+S
1he moe! o$ p&re (ompet't'on 'mp!'e" that r'");a.&"te rate" o$ ret&rn "ho&! *e
(on"tant a(ro"" $'rm" an 'n&"tr'e". =owe,er8 n&mero&" e(onom'( "t&'e" ha,e
a$$'rme that '$$erent 'n&"tr'e" (an "&"ta'n '$$erent !e,e!" o$ pro$'ta*'!'t+? part o$ th'"
'$$eren(e '" e6p!a'ne *+ 'n&"tr+ "tr&(t&re.
M'(hae! Porter pro,'e a $ramewor) that moe!" an 'n&"tr+ a" *e'ng 'n$!&en(e *+
$',e $or(e". 1he "trateg'( *&"'ne"" manager "ee)'ng to e,e!op an ege o,er r',a!
$'rm" (an &"e th'" moe! to *etter &ner"tan the 'n&"tr+ (onte6t 'n wh'(h the $'rm
operate".
'ia2ram of Porter"s 5 Forces

S,PP)+(* P&3(*
S&pp!'er (on(entrat'on
Importan(e o$ ,o!&me to "&pp!'er
D'$$erent'at'on o$ 'np&t"
Impa(t o$ 'np&t" on (o"t or '$$erent'at'on
Sw't(h'ng (o"t" o$ $'rm" 'n the 'n&"tr+
Pre"en(e o$ "&*"t't&te 'np&t"
1hreat o$ $orwar 'ntegrat'on
Co"t re!at',e to tota! p&r(ha"e" 'n 'n&"tr+

4$**+(*S
-& (N-*.
A*"o!&te (o"t a,antage"
Propr'etar+ !earn'ng (&r,e
A((e"" to 'np&t"
Bo,ernment po!'(+
E(onom'e" o$ "(a!e
Cap'ta! re%&'rement"
3ran 'ent't+
Sw't(h'ng (o"t"
A((e"" to '"tr'*&t'on
E6pe(te reta!'at'on
Propr'etar+ pro&(t"
-5*($- &F
S,4S-+-,-(S
;Sw't(h'ng (o"t"
;3&+er 'n(!'nat'on to
"&*"t't&te
;Pr'(e;per$orman(e
trae;o$$ o$ "&*"t't&te"

4,.(* P&3(*
3arga'n'ng !e,erage
3&+er ,o!&me
3&+er 'n$ormat'on
3ran 'ent't+
Pr'(e "en"'t','t+
1hreat o$ *a()war 'ntegrat'on
Pro&(t '$$erent'at'on
3&+er (on(entrat'on ,". 'n&"tr+
S&*"t't&te" a,a'!a*!e
3&+er"A 'n(ent',e"
'(6*(( &F *+7$)*.
;E6't *arr'er"
;In&"tr+ (on(entrat'on
;2'6e (o"t"/Ca!&e ae
;In&"tr+ growth
;Interm'ttent o,er(apa('t+
;Pro&(t '$$eren(e"
;Sw't(h'ng (o"t"
;3ran 'ent't+
;D',er"'t+ o$ r',a!"
;Corporate "ta)e"
+8 *ivalry
In the tra't'ona! e(onom'( moe!8 (ompet't'on among r',a! $'rm" r',e" pro$'t" to
<ero. 3&t (ompet't'on '" not per$e(t an $'rm" are not &n"oph'"t'(ate pa""',e pr'(e
ta)er". Rather8 $'rm" "tr',e $or a (ompet't',e a,antage o,er the'r r',a!". 1he 'nten"'t+
o$ r',a!r+ among $'rm" ,ar'e" a(ro"" 'n&"tr'e"8 an "trateg'( ana!+"t" are 'ntere"te
'n the"e '$$eren(e".
E(onom'"t" mea"&re r',a!r+ *+ 'n'(ator" o$ 'n&"tr+ (on(entrat'on. 1he
Con(entrat'on Rat'o 9CR: '" one "&(h mea"&re. 1he 3&rea& o$ Cen"&" per'o'(a!!+
report" the CR $or ma.or Stanar In&"tr'a! C!a""'$'(at'on" 9SICA":. 1he CR 'n'(ate"
the per(ent o$ mar)et "hare he! *+ the $o&r !arge"t $'rm" 9CRA" $or the !arge"t D8 0#8
an #E $'rm" 'n an 'n&"tr+ a!"o are a,a'!a*!e:. A h'gh (on(entrat'on rat'o 'n'(ate"
that a h'gh (on(entrat'on o$ mar)et "hare '" he! *+ the !arge"t $'rm" ; the 'n&"tr+ '"
(on(entrate. @'th on!+ a $ew $'rm" ho!'ng a !arge mar)et "hare8 the (ompet't',e
!an"(ape '" !e"" (ompet't',e 9(!o"er to a monopo!+:. A !ow (on(entrat'on rat'o
'n'(ate" that the 'n&"tr+ '" (hara(ter'<e *+ man+ r',a!"8 none o$ wh'(h ha" a
"'gn'$'(ant mar)et "hare. 1he"e fragmented mar)et" are "a' to *e (ompet't',e. 1he
(on(entrat'on rat'o '" not the on!+ a,a'!a*!e mea"&re? the tren '" to e$'ne 'n&"tr'e"
'n term" that (on,e+ more 'n$ormat'on than '"tr'*&t'on o$ mar)et "hare.
I$ r',a!r+ among $'rm" 'n an 'n&"tr+ '" !ow8 the 'n&"tr+ '" (on"'ere to *e
'"('p!'ne. 1h'" '"('p!'ne ma+ re"&!t $rom the 'n&"tr+A" h'"tor+ o$ (ompet't'on8 the
ro!e o$ a !ea'ng $'rm8 or 'n$orma! (omp!'an(e w'th a genera!!+ &ner"too (oe o$
(on&(t. E6p!'('t collusion genera!!+ '" '!!ega! an not an opt'on? 'n !ow;r',a!r+
'n&"tr'e" (ompet't',e mo,e" m&"t *e (on"tra'ne 'n$orma!!+. =owe,er8 a ma,er'()
$'rm "ee)'ng a (ompet't',e a,antage (an '"p!a(e the otherw'"e '"('p!'ne mar)et.
@hen a r',a! a(t" 'n a wa+ that e!'('t" a (o&nter;re"pon"e *+ other $'rm"8 r',a!r+
'nten"'$'e". 1he 'nten"'t+ o$ r',a!r+ (ommon!+ '" re$erre to a" *e'ng (&tthroat8 'nten"e8
moerate8 or wea)8 *a"e on the $'rm"A aggre""',ene"" 'n attempt'ng to ga'n an
a,antage.
In p&r"&'ng an a,antage o,er 't" r',a!"8 a $'rm (an (hoo"e $rom "e,era! (ompet't',e
mo,e":
Chang'ng pr'(e" ; ra'"'ng or !ower'ng pr'(e" to ga'n a temporar+ a,antage.
Impro,'ng pro&(t '$$erent'at'on ; 'mpro,'ng $eat&re"8 'mp!ement'ng
'nno,at'on" 'n the man&$a(t&r'ng pro(e"" an 'n the pro&(t 't"e!$.
Creat',e!+ &"'ng (hanne!" o$ '"tr'*&t'on ; &"'ng ,ert'(a! 'ntegrat'on or &"'ng a
'"tr'*&t'on (hanne! that '" no,e! to the 'n&"tr+. 2or e6amp!e8 w'th h'gh;en
.ewe!r+ "tore" re!&(tant to (arr+ 't" wat(he"8 1'me6 mo,e 'nto r&g"tore" an
other non;tra't'ona! o&t!et" an (ornere the !ow to m';pr'(e wat(h mar)et.
E6p!o't'ng re!at'on"h'p" w'th "&pp!'er" ; $or e6amp!e8 $rom the /F#EA" to the
/FGEA" Sear"8 Roe*&() an Co. om'nate the reta'! ho&"eho! app!'an(e
mar)et. Sear" "et h'gh %&a!'t+ "tanar" an re%&'re "&pp!'er" to meet 't"
eman" $or pro&(t "pe('$'(at'on" an pr'(e.
1he 'nten"'t+ o$ r',a!r+ '" 'n$!&en(e *+ the $o!!ow'ng 'n&"tr+ (hara(ter'"t'(":
/. $ lar2er num9er of firms 'n(rea"e" r',a!r+ *e(a&"e more $'rm" m&"t (ompete
$or the "ame (&"tomer" an re"o&r(e". 1he r',a!r+ 'nten"'$'e" '$ the $'rm" ha,e
"'m'!ar mar)et "hare8 !ea'ng to a "tr&gg!e $or mar)et !eaer"h'p.
0. Slo: market 2ro:t1 (a&"e" $'rm" to $'ght $or mar)et "hare. In a grow'ng
mar)et8 $'rm" are a*!e to 'mpro,e re,en&e" "'mp!+ *e(a&"e o$ the e6pan'ng
mar)et.
4. 5i21 fi;ed costs re"&!t 'n an e(onom+ o$ "(a!e e$$e(t that 'n(rea"e" r',a!r+.
@hen tota! (o"t" are mo"t!+ $'6e (o"t"8 the $'rm m&"t pro&(e near (apa('t+
to atta'n the !owe"t &n't (o"t". S'n(e the $'rm m&"t "e!! th'" !arge %&ant't+ o$
pro&(t8 h'gh !e,e!" o$ pro&(t'on !ea to a $'ght $or mar)et "hare an re"&!t" 'n
'n(rea"e r',a!r+.
5. 5i21 stora2e costs or 1i21ly peris1a9le products (a&"e a pro&(er to "e!!
goo" a" "oon a" po""'*!e. I$ other pro&(er" are attempt'ng to &n!oa at the
"ame t'me8 (ompet't'on $or (&"tomer" 'nten"'$'e".
#. )o: s:itc1in2 costs 'n(rea"e" r',a!r+. @hen a (&"tomer (an $ree!+ "w't(h
$rom one pro&(t to another there '" a greater "tr&gg!e to (apt&re (&"tomer".
H. )o: levels of product differentiation '" a""o('ate w'th h'gher !e,e!" o$
r',a!r+. 3ran 'ent'$'(at'on8 on the other han8 ten" to (on"tra'n r',a!r+.
G. Strate2ic stakes are 1i21 when a $'rm '" !o"'ng mar)et po"'t'on or ha"
potent'a! $or great ga'n". 1h'" 'nten"'$'e" r',a!r+.
D. 5i21 e;it 9arriers p!a(e a h'gh (o"t on a*anon'ng the pro&(t. 1he $'rm
m&"t (ompete. ='gh e6't *arr'er" (a&"e a $'rm to rema'n 'n an 'n&"tr+8 e,en
when the ,ent&re '" not pro$'ta*!e. A (ommon e6't *arr'er '" a""et "pe('$'('t+.
@hen the p!ant an e%&'pment re%&'re $or man&$a(t&r'ng a pro&(t '" h'gh!+
"pe('a!'<e8 the"e a""et" (annot ea"'!+ *e "o! to other *&+er" 'n another
'n&"tr+. L'tton In&"tr'e"A a(%&'"'t'on o$ Inga!!" Sh'p*&'!'ng $a('!'t'e" '!!&"trate"
th'" (on(ept. L'tton wa" "&((e""$&! 'n the /FHEA" w'th 't" (ontra(t" to *&'!
Na,+ "h'p". 3&t when the C'etnam war ene8 e$en"e "pen'ng e(!'ne an
L'tton "aw a "&en e(!'ne 'n 't" earn'ng". A" the $'rm re"tr&(t&re8 ',e"t'ng
$rom the "h'p*&'!'ng p!ant wa" not $ea"'*!e "'n(e "&(h a !arge an h'gh!+
"pe('a!'<e 'n,e"tment (o&! not *e "o! ea"'!+8 an L'tton wa" $or(e to "ta+
'n a e(!'n'ng "h'p*&'!'ng mar)et.
F. $ diversity of rivals w'th '$$erent (&!t&re"8 h'"tor'e"8 an ph'!o"oph'e" ma)e
an 'n&"tr+ &n"ta*!e. 1here '" greater po""'*'!'t+ $or ma,er'()" an $or
m'".&g'ng r',a!A" mo,e". R',a!r+ '" ,o!at'!e an (an *e 'nten"e. 1he ho"p'ta!
'n&"tr+8 $or e6amp!e8 '" pop&!ate *+ ho"p'ta!" that h'"tor'(a!!+ are (omm&n't+
or (har'ta*!e 'n"t't&t'on"8 *+ ho"p'ta!" that are a""o('ate w'th re!'g'o&"
organ'<at'on" or &n',er"'t'e"8 an *+ ho"p'ta!" that are $or;pro$'t enterpr'"e".
1h'" m'6 o$ ph'!o"oph'e" a*o&t m'""'on ha" !ea o((a"'ona!!+ to $'er(e !o(a!
"tr&gg!e" *+ ho"p'ta!" o,er who w'!! get e6pen"',e 'agno"t'( an therape&t'(
"er,'(e". At other t'me"8 !o(a! ho"p'ta!" are h'gh!+ (ooperat',e w'th one
another on '""&e" "&(h a" (omm&n't+ '"a"ter p!ann'ng.
/E. +ndustry S1akeout8 A grow'ng mar)et an the potent'a! $or h'gh pro$'t"
'n&(e" new $'rm" to enter a mar)et an 'n(&m*ent $'rm" to 'n(rea"e
pro&(t'on. A po'nt '" rea(he where the 'n&"tr+ *e(ome" (rowe w'th
(ompet'tor"8 an eman (annot "&pport the new entrant" an the re"&!t'ng
'n(rea"e "&pp!+. 1he 'n&"tr+ ma+ *e(ome (rowe '$ 't" growth rate "!ow"
an the mar)et *e(ome" "at&rate8 (reat'ng a "'t&at'on o$ e6(e"" (apa('t+
w'th too man+ goo" (ha"'ng too $ew *&+er". A "ha)eo&t en"&e"8 w'th 'nten"e
(ompet't'on8 pr'(e war"8 an (ompan+ $a'!&re".
3CB $o&ner 3r&(e =ener"on genera!'<e th'" o*"er,at'on a" the R&!e o$
1hree an 2o&r: a "ta*!e mar)et w'!! not ha,e more than three "'gn'$'(ant
(ompet'tor"8 an the !arge"t (ompet'tor w'!! ha,e no more than $o&r t'me" the
mar)et "hare o$ the "ma!!e"t. I$ th'" r&!e '" tr&e8 't 'mp!'e" that:
o I$ there '" a !arger n&m*er o$ (ompet'tor"8 a "ha)eo&t '" 'ne,'ta*!e
o S&r,','ng r',a!" w'!! ha,e to grow $a"ter than the mar)et
o E,ent&a! !o"er" w'!! ha,e a negat',e (a"h $!ow '$ the+ attempt to grow
o A!! e6(ept the two !arge"t r',a!" w'!! *e !o"er"
o 1he e$'n't'on o$ what (on"t't&te" the Imar)etI '" "trateg'(a!!+ 'mportant.
@hate,er the mer't" o$ th'" r&!e $or "ta*!e mar)et"8 't '" (!ear that mar)et
"ta*'!'t+ an (hange" 'n "&pp!+ an eman a$$e(t r',a!r+. C+(!'(a! eman
ten" to (reate (&tthroat (ompet't'on. 1h'" '" tr&e 'n the '"po"a*!e 'aper
'n&"tr+ 'n wh'(h eman $!&(t&ate" w'th *'rth rate"8 an 'n the greet'ng (ar
'n&"tr+ 'n wh'(h there are more pre'(ta*!e *&"'ne"" (+(!e".
++8 -1reat &f Su9stitutes
In PorterA" moe!8 "&*"t't&te pro&(t" re$er to pro&(t" 'n other 'n&"tr'e". 1o the
e(onom'"t8 a threat o$ "&*"t't&te" e6'"t" when a pro&(tA" eman '" a$$e(te *+ the
pr'(e (hange o$ a "&*"t't&te pro&(t. A pro&(tA" pr'(e e!a"t'('t+ '" a$$e(te *+
"&*"t't&te pro&(t" ; a" more "&*"t't&te" *e(ome a,a'!a*!e8 the eman *e(ome"
more e!a"t'( "'n(e (&"tomer" ha,e more a!ternat',e". A (!o"e "&*"t't&te pro&(t
(on"tra'n" the a*'!'t+ o$ $'rm" 'n an 'n&"tr+ to ra'"e pr'(e".
1he (ompet't'on engenere *+ a 1hreat o$ S&*"t't&te (ome" $rom pro&(t" o&t"'e
the 'n&"tr+. 1he pr'(e o$ a!&m'n&m *e,erage (an" '" (on"tra'ne *+ the pr'(e o$
g!a"" *ott!e"8 "tee! (an"8 an p!a"t'( (onta'ner". 1he"e (onta'ner" are "&*"t't&te"8 +et
the+ are not r',a!" 'n the a!&m'n&m (an 'n&"tr+. 1o the man&$a(t&rer o$ a&tomo*'!e
t're"8 t're retrea" are a "&*"t't&te. 1oa+8 new t're" are not "o e6pen"',e that (ar
owner" g',e m&(h (on"'erat'on to retrea'ng o! t're". 3&t 'n the tr&()'ng 'n&"tr+
new t're" are e6pen"',e an t're" m&"t *e rep!a(e o$ten. In the tr&() t're mar)et8
retrea'ng rema'n" a ,'a*!e "&*"t't&te 'n&"tr+. In the '"po"a*!e 'aper 'n&"tr+8
(!oth 'aper" are a "&*"t't&te an the'r pr'(e" (on"tra'n the pr'(e o$ '"po"a*!e".
@h'!e the treat o$ "&*"t't&te" t+p'(a!!+ 'mpa(t" an 'n&"tr+ thro&gh pr'(e (ompet't'on8
there (an *e other (on(ern" 'n a""e""'ng the threat o$ "&*"t't&te". Con"'er the
"&*"t't&ta*'!'t+ o$ '$$erent t+pe" o$ 1C tran"m'""'on: !o(a! "tat'on tran"m'""'on to
home 1C antenna" ,'a the a'rwa+" ,er"&" tran"m'""'on ,'a (a*!e8 "ate!!'te8 an
te!ephone !'ne". 1he new te(hno!og'e" a,a'!a*!e an the (hang'ng "tr&(t&re o$ the
enterta'nment me'a are (ontr'*&t'ng to (ompet't'on among the"e "&*"t't&te mean"
o$ (onne(t'ng the home to enterta'nment. E6(ept 'n remote area" 't '" &n!')e!+ that
(a*!e 1C (o&! (ompete w'th $ree 1C $rom an aer'a! w'tho&t the greater ',er"'t+ o$
enterta'nment that 't a$$or" the (&"tomer.
+++8 4uyer Po:er
1he power o$ *&+er" '" the 'mpa(t that (&"tomer" ha,e on a pro&('ng 'n&"tr+. In
genera!8 when *&+er power '" "trong8 the re!at'on"h'p to the pro&('ng 'n&"tr+ '"
near to what an e(onom'"t term" a monopsony ; a mar)et 'n wh'(h there are man+
"&pp!'er" an one *&+er. 7ner "&(h mar)et (on't'on"8 the *&+er "et" the pr'(e. In
rea!'t+ $ew p&re monop"on'e" e6'"t8 *&t $re%&ent!+ there '" "ome a"+mmetr+ *etween
a pro&('ng 'n&"tr+ an *&+er". 1he $o!!ow'ng ta*!e" o&t!'ne "ome $a(tor" that
eterm'ne *&+er power.
Bu&ers are Powerful if* "'ample
5u$ers are concentrated - there are a fe" #u$ers "ith
significant market share
D@D purchases from defense contractors
5u$ers purchase a significant proportion of output -
distri#ution of purchases or if the product is
standardi.ed
!ircuit !it$ and *ears6 large retail market proides
po"er oer appliance manufacturers
5u$ers possess a credi#le #ack"ard integration threat -
can threaten to #u$ producing firm or rial
Barge auto manufacturers6 purchases of tires

Bu&ers are .ea/ if* "'ample
(roducers threaten for"ard integration - producer can
take oer o"n distri#utionCretailing
%oie-producing companies hae integrated for"ard to
ac,uire theaters
*ignificant #u$er s"itching costs - products not
standardi.ed and #u$er cannot easil$ s"itch to another
product
/5%6s >D0 s$stem strateg$ in the 11D06s
5u$ers are fragmented 7man$, different8 - no #u$er has
an$ particular influence on product or price
%ost consumer products
(roducers suppl$ critical portions of #u$ers6 input -
distri#ution of purchases
/ntel6s relationship "ith (! manufacturers
+78 Supplier Po:er
A pro&('ng 'n&"tr+ re%&'re" raw mater'a!" ; !a*or8 (omponent"8 an other "&pp!'e".
1h'" re%&'rement !ea" to *&+er;"&pp!'er re!at'on"h'p" *etween the 'n&"tr+ an the
$'rm" that pro,'e 't the raw mater'a!" &"e to (reate pro&(t". S&pp!'er"8 '$ power$&!8
(an e6ert an 'n$!&en(e on the pro&('ng 'n&"tr+8 "&(h a" "e!!'ng raw mater'a!" at a
h'gh pr'(e to (apt&re "ome o$ the 'n&"tr+A" pro$'t". 1he $o!!ow'ng ta*!e" o&t!'ne "ome
$a(tor" that eterm'ne "&pp!'er power.
Suppliers are Powerful if* "'ample
!redi#le for"ard integration threat #$ suppliers
5a3ter /nternational, manufacturer of hospital supplies,
ac,uired -merican 9ospital *uppl$, a distri#utor
*uppliers concentrated Drug industr$6s relationship to hospitals
*ignificant cost to s"itch suppliers %icrosoft6s relationship "ith (! manufacturers
!ustomers (o"erful
5o$cott of grocer$ stores selling non-union picked
grapes

Suppliers are .ea/ if* "'ample
%an$ competitie suppliers - product is standardi.ed Tire industr$ relationship to automo#ile manufacturers
(urchase commodit$ products Erocer$ store #rand la#el products
!redi#le #ack"ard integration threat #$ purchasers Tim#er producers relationship to paper companies
!oncentrated purchasers
Earment industr$ relationship to ma4or department
stores
!ustomers ;eak Trael agents6 relationship to airlines
78 4arriers to (ntry < -1reat of (ntry
It '" not on!+ 'n(&m*ent r',a!" that po"e a threat to $'rm" 'n an 'n&"tr+? the po""'*'!'t+
that new $'rm" ma+ enter the 'n&"tr+ a!"o a$$e(t" (ompet't'on. In theor+8 an+ $'rm
"ho&! *e a*!e to enter an e6't a mar)et8 an '$ $ree entr+ an e6't e6'"t"8 then pro$'t"
a!wa+" "ho&! *e nom'na!. In rea!'t+8 howe,er8 'n&"tr'e" po""e"" (hara(ter'"t'(" that
prote(t the h'gh pro$'t !e,e!" o$ $'rm" 'n the mar)et an 'nh'*'t a't'ona! r',a!" $rom
enter'ng the mar)et. 1he"e are barriers to entry.
3arr'er" to entr+ are more than the norma! e%&'!'*r'&m a.&"tment" that mar)et"
t+p'(a!!+ ma)e. 2or e6amp!e8 when 'n&"tr+ pro$'t" 'n(rea"e8 we wo&! e6pe(t
a't'ona! $'rm" to enter the mar)et to ta)e a,antage o$ the h'gh pro$'t !e,e!"8 o,er
t'me r','ng own pro$'t" $or a!! $'rm" 'n the 'n&"tr+. @hen pro$'t" e(rea"e8 we wo&!
e6pe(t "ome $'rm" to e6't the mar)et th&" re"tor'ng a mar)et e%&'!'*r'&m. 2a!!'ng
pr'(e"8 or the e6pe(tat'on that $&t&re pr'(e" w'!! $a!!8 eter" r',a!" $rom enter'ng a
mar)et. 2'rm" a!"o ma+ *e re!&(tant to enter mar)et" that are e6treme!+ &n(erta'n8
e"pe('a!!+ '$ enter'ng 'n,o!,e" e6pen"',e "tart;&p (o"t". 1he"e are norma!
a((ommoat'on" to mar)et (on't'on". 3&t '$ $'rm" 'n','&a!!+ 9(o!!e(t',e a(t'on
wo&! *e '!!ega! (o!!&"'on: )eep pr'(e" art'$'('a!!+ !ow a" a "trateg+ to pre,ent potent'a!
entrant" $rom enter'ng the mar)et8 "&(h entry#deterrin2 pricin2 e"ta*!'"he" a
*arr'er.
3arr'er" to entr+ are &n'%&e 'n&"tr+ (hara(ter'"t'(" that e$'ne the 'n&"tr+. 3arr'er"
re&(e the rate o$ entr+ o$ new $'rm"8 th&" ma'nta'n'ng a !e,e! o$ pro$'t" $or tho"e
a!rea+ 'n the 'n&"tr+. 2rom a "trateg'( per"pe(t',e8 *arr'er" (an *e (reate or
e6p!o'te to enhan(e a $'rmA" (ompet't',e a,antage. 3arr'er" to entr+ ar'"e $rom
"e,era! "o&r(e":
/. 6overnment creates 9arriers8 A!tho&gh the pr'n('pa! ro!e o$ the go,ernment
'n a mar)et '" to pre"er,e (ompet't'on thro&gh ant';tr&"t a(t'on"8 go,ernment
a!"o re"tr'(t" (ompet't'on thro&gh the grant'ng o$ monopo!'e" an thro&gh
reg&!at'on. In&"tr'e" "&(h a" &t'!'t'e" are (on"'ere nat&ra! monopo!'e"
*e(a&"e 't ha" *een more e$$'('ent to ha,e one e!e(tr'( (ompan+ pro,'e
power to a !o(a!'t+ than to perm't man+ e!e(tr'( (ompan'e" to (ompete 'n a
!o(a! mar)et. 1o re"tra'n &t'!'t'e" $rom e6p!o't'ng th'" a,antage8 go,ernment
perm't" a monopo!+8 *&t reg&!ate" the 'n&"tr+. I!!&"trat',e o$ th'" )'n o$
*arr'er to entr+ '" the !o(a! (a*!e (ompan+. 1he $ran(h'"e to a (a*!e pro,'er
ma+ *e grante *+ (ompet't',e *''ng8 *&t on(e the $ran(h'"e '" aware *+
a (omm&n't+ a monopo!+ '" (reate. Lo(a! go,ernment" were not e$$e(t',e 'n
mon'tor'ng pr'(e go&g'ng *+ (a*!e operator"8 "o the $eera! go,ernment ha"
ena(te !eg'"!at'on to re,'ew an re"tr'(t pr'(e".
1he reg&!ator+ a&thor't+ o$ the go,ernment 'n re"tr'(t'ng (ompet't'on '"
h'"tor'(a!!+ e,'ent 'n the *an)'ng 'n&"tr+. 7nt'! the /FGEA"8 the mar)et" that
*an)" (o&! enter were !'m'te *+ "tate go,ernment". A" a re"&!t8 mo"t *an)"
were !o(a! (ommer('a! an reta'! *an)'ng $a('!'t'e". 3an)" (ompete thro&gh
"trateg'e" that empha"'<e "'mp!e mar)et'ng e,'(e" "&(h a" awar'ng
toa"ter" to new (&"tomer" $or open'ng a (he()'ng a((o&nt. @hen *an)" were
ereg&!ate8 *an)" were perm'tte to (ro"" "tate *o&nar'e" an e6pan the'r
mar)et". Dereg&!at'on o$ *an)" 'nten"'$'e r',a!r+ an (reate &n(erta'nt+ $or
*an)" a" the+ attempte to ma'nta'n mar)et "hare. In the !ate /FGEA"8 the
"trateg+ o$ *an)" "h'$te $rom "'mp!e mar)et'ng ta(t'(" to merger" an
geograph'( e6pan"'on a" r',a!" attempte to e6pan mar)et".
0. Patents and proprietary kno:led2e serve to restrict entry into an
industry8 Iea" an )now!ege that pro,'e (ompet't',e a,antage" are
treate a" pr',ate propert+ when patente8 pre,ent'ng other" $rom &"'ng the
)now!ege an th&" (reat'ng a *arr'er to entr+. Ew'n Lan 'ntro&(e the
Po!aro' (amera 'n /F5G an he! a monopo!+ 'n the 'n"tant photograph+
'n&"tr+. In /FG#8 Koa) attempte to enter the 'n"tant (amera mar)et an
"o! a (ompara*!e (amera. Po!aro' "&e $or patent 'n$r'ngement an won8
)eep'ng Koa) o&t o$ the 'n"tant (amera 'n&"tr+.
4. $sset specificity in1i9its entry into an industry8 A""et "pe('$'('t+ '" the
e6tent to wh'(h the $'rmA" a""et" (an *e &t'!'<e to pro&(e a '$$erent pro&(t.
@hen an 'n&"tr+ re%&'re" h'gh!+ "pe('a!'<e te(hno!og+ or p!ant" an
e%&'pment8 potent'a! entrant" are re!&(tant to (omm't to a(%&'r'ng "pe('a!'<e
a""et" that (annot *e "o! or (on,erte 'nto other &"e" '$ the ,ent&re $a'!".
A""et "pe('$'('t+ pro,'e" a *arr'er to entr+ $or two rea"on": 2'r"t8 when $'rm"
a!rea+ ho! "pe('a!'<e a""et" the+ $'er(e!+ re"'"t e$$ort" *+ other" $rom ta)'ng
the'r mar)et "hare. New entrant" (an ant'('pate aggre""',e r',a!r+. 2or
e6amp!e8 Koa) ha m&(h (ap'ta! 'n,e"te 'n 't" photograph'( e%&'pment
*&"'ne"" an aggre""',e!+ re"'"te e$$ort" *+ 2&.' to 'ntr&e 'n 't" mar)et.
1he"e a""et" are *oth !arge an 'n&"tr+ "pe('$'(. 1he "e(on rea"on '" that
potent'a! entrant" are re!&(tant to ma)e 'n,e"tment" 'n h'gh!+ "pe('a!'<e
a""et".
5. &r2anizational =+nternal> (conomies of Scale8 1he mo"t (o"t e$$'('ent !e,e!
o$ pro&(t'on '" terme %inimum (fficient Scale 9MES:. 1h'" '" the po'nt at
wh'(h &n't (o"t" $or pro&(t'on are at m'n'm&m ; '.e.8 the mo"t (o"t e$$'('ent
!e,e! o$ pro&(t'on. I$ MES $or $'rm" 'n an 'n&"tr+ '" )nown8 then we (an
eterm'ne the amo&nt o$ mar)et "hare ne(e""ar+ $or !ow (o"t entr+ or (o"t
par't+ w'th r',a!". 2or e6amp!e8 'n !ong '"tan(e (omm&n'(at'on" ro&gh!+ /EJ
o$ the mar)et '" ne(e""ar+ $or MES. I$ "a!e" $or a !ong '"tan(e operator $a'! to
rea(h /EJ o$ the mar)et8 the $'rm '" not (ompet't',e.
1he e6'"ten(e o$ "&(h an e(onom+ o$ "(a!e (reate" a *arr'er to entr+. 1he
greater the '$$eren(e *etween 'n&"tr+ MES an entr+ &n't (o"t"8 the greater
the *arr'er to entr+. So 'n&"tr'e" w'th h'gh MES eter entr+ o$ "ma!!8 "tart;&p
*&"'ne""e". 1o operate at !e"" than MES there m&"t *e a (on"'erat'on that
perm't" the $'rm to "e!! at a prem'&m pr'(e ; "&(h a" pro&(t '$$erent'at'on or
!o(a! monopo!+.
3arr'er" to e6't wor) "'m'!ar!+ to *arr'er" to entr+. E6't *arr'er" !'m't the a*'!'t+ o$ a $'rm
to !ea,e the mar)et an (an e6a(er*ate r',a!r+ ; &na*!e to !ea,e the 'n&"tr+8 a $'rm
m&"t (ompete. Some o$ an 'n&"tr+A" entr+ an e6't *arr'er" (an *e "&mmar'<e a"
$o!!ow":
"as& to "nter if there is*
!ommon technolog$
Bittle #rand franchise
-ccess to distri#ution channels
Bo" scale threshold
+ifficult to "nter if there is*
(atented or proprietar$ kno"-ho"
Difficult$ in #rand s"itching
Restricted distri#ution channels
9igh scale threshold
"as& to "'it if there are*
*ala#le assets
Bo" e3it costs
/ndependent #usinesses
+ifficult to "'it if there are*
*peciali.ed assets
9igh e3it costs
/nterrelated #usinesses
'.N$%+? N$-,*( &F +N',S-*. *+7$)*.
O&r e"(r'pt',e an ana!+t'( moe!" o$ 'n&"tr+ ten to e6am'ne the 'n&"tr+ at a
g',en "tate. 1he nat&re an $a"('nat'on o$ *&"'ne"" '" that 't '" not "tat'(. @h'!e we
are prone to genera!'<e8 $or e6amp!e8 !'"t BM8 2or8 an Chr+"!er a" the I3'g 4I an
a""&me the'r om'nan(e8 we a!"o ha,e "een the a&tomo*'!e 'n&"tr+ (hange.
C&rrent!+8 the enterta'nment an (omm&n'(at'on" 'n&"tr'e" are 'n $!&6. Phone
(ompan'e"8 (omp&ter $'rm"8 an enterta'nment are merg'ng an $orm'ng "trateg'(
a!!'an(e" that re;map the 'n$ormat'on terra'n. S(h&mpeter an8 more re(ent!+8 Porter
ha,e attempte to mo,e the &ner"tan'ng o$ 'n&"tr+ (ompet't'on $rom a "tat'(
e(onom'( or 'n&"tr+ organ'<at'on moe! to an empha"'" on the 'nterepenen(e o$
$or(e" a" +nam'(8 or punctuated equilibrium8 a" Porter term" 't.
In S(h&mpeterA" an PorterA" ,'ew the +nam'"m o$ mar)et" '" r',en *+ 'nno,at'on.
@e (an en,'"'on the"e $or(e" at wor) a" we e6am'ne the $o!!ow'ng (hange":
-op /@ ,S +ndustrial Firms 9y Sales /A/! # /ABB
1011 10#5 1022 103 1033
1 :* *teel Eeneral %otors Eeneral %otors &33on Eeneral %otors
2 *"ift :* *teel Ford Eeneral %otors Ford
> -rmour *tandard @il -?J *tandard @il -?J 7&33on8 %o#il &33on
< -merican *melting :* *teel Eeneral &lectric Te3aco /5%
5 *tandard @il -?J 5ethlehem *teel !hr$sler Ford Eeneral &lectric
D 5ethlehem *teel *"ift %o#il /5% %o#il
F Ford -rmour Te3aco *ocal 7@il8 !hr$sler
2 Du(ont !urtiss-;right :* *teel Du(ont Te3aco
1 -merican *ugar !hr$sler /5% Eulf @il Du(ont
10 Eeneral &lectric Ford Eulf @il *tandard @il of /ndiana (hilip %orris
/@ )ar2est ,S Firms 9y $ssets0 /A@A and /AB!
1040 1031
1 :* *T&&B E% 7?ot listed in 11018
2 *T-?D-RD @/B, ?J 7?o", &GG@? H>8 *&-R* 71101 I <58
> -%&R/!-? T@5-!!@ 7?o", -merican 5rands H528
&GG@? 7*tandard @il trust
#roken up in 11118
<
-%&R/!-? %&R!-?T/B& %-R/?& 7Renamed :* BinesJ ac,uired #$
Kidde, /nc', 11D1J sold to %cBean /ndustries, 11F2J #ankruptc$, 112D
/5% 7Ranked D2, 11<28
5
/?T&R?-T/@?-B 9-RL&*T&R 7Renamed ?aistar H1228J diested farm
e,uipment
F@RD 7Bisted in 11118
D -?-!@?D- !@((&R 7ac,uired #$ -R!@ in 11FF8 %@5/B @/B
F :* B&-T9&R 7Bi,uidated in 11>58
E&?&R-B &B&!TR/!
71101I 1D8
2
-R%@:R 7%erged in 11D2 "ith Eeneral 9ostJ in 11D1 #$ Ere$houndJ 112>
sold to !on-gra8
!9&LR@? 7?ot listed in
11018
1
-%&R/!-? *:E-R R&F/?/?E 7Renamed -%*T-R' /n 11DF I>208
Beeraged #u$out and sold in pieces8
T&G-!@ 71101I 118
10
(:BB%-?, /?! 7-c,uired #$ ;heela#rator Fr$e, 1120J spun-off as
(ullman-(ea#od$, 1121J 112< sold to Trinit$ /ndustries8
D: (@?T 71101I 218
6(N(*+? S-*$-(6+(S -& ?&,N-(* -5( F+7( F&*?(S
Strateg+ (an *e $orm&!ate on three !e,e!":
(orporate !e,e!
*&"'ne"" &n't !e,e!
$&n(t'ona! or epartmenta! !e,e!.
1he *&"'ne"" &n't !e,e! '" the pr'mar+ (onte6t o$ 'n&"tr+ r',a!r+. M'(hae! Porter
'ent'$'e three gener'( "trateg'e" 9cost leadership8 differentiation8 an focus: that (an
*e 'mp!emente at the *&"'ne"" &n't !e,e! to (reate a (ompet't',e a,antage. 1he
proper gener'( "trateg+ w'!! po"'t'on the $'rm to !e,erage 't" "trength" an e$en
aga'n"t the a,er"e e$$e(t" o$ the $',e $or(e".
*ecommended *eadin2
Porter8 M'(hae! E.8 Competitive Strategy: Techniques for Analyzing Industries and Competitors
Competitive Strategy '" the *a"'" $or m&(h o$ moern *&"'ne"" "trateg+. In th'" (!a""'( wor)8 M'(hae!
Porter pre"ent" h'" $',e $or(e" an gener'( "trateg'e"8 then '"(&""e" how to re(ogn'<e an a(t on
mar)et "'gna!" an how to $ore(a"t the e,o!&t'on o$ 'n&"tr+ "tr&(t&re. =e then '"(&""e" (ompet't',e
"trateg+ $or emerg'ng8 mat&re8 e(!'n'ng8 an $ragmente 'n&"tr'e". 1he !a"t part o$ the *oo) (o,er"
"trateg'( e('"'on" re!ate to ,ert'(a! 'ntegrat'on8 (apa('t+ e6pan"'on8 an entr+ 'nto an 'n&"tr+. 1he
*oo) (on(!&e" w'th an appen'6 on how to (on&(t an 'n&"tr+ ana!+"'".
C'*&D
http://www.*&"'ne""*a!!".(om/porter"$',e$or(e"o$(ompet't'on.htm
1he &"e th'" mater'a! '" $ree pro,'e (op+r'ght 9A!an Chapman 0EE/;# *a"e on M'(hae! PorterA" 2',e
2or(e" o$ Compet't'on theor+: '" a()now!ege an re$eren(e or !'n) '" mae to the
www.*&"'ne""*a!!".(om we*"'te. 1h'" mater'a! ma+ not *e "o!8 or p&*!'"he 'n an+ $orm. D'"(!a'mer:
Re!'an(e on 'n$ormat'on8 mater'a!8 a,'(e8 or other !'n)e or re(ommene re"o&r(e"8 re(e',e $rom
A!an Chapman8 "ha!! *e at +o&r "o!e r'")8 an A!an Chapman a""&me" no re"pon"'*'!'t+ $or an+ error"8
om'""'on"8 or amage" ar'"'ng. 7"er" o$ th'" we*"'te are en(o&rage to (on$'rm 'n$ormat'on re(e',e
w'th other "o&r(e"8 an to "ee) !o(a! %&a!'$'e a,'(e '$ em*ar)'ng on an+ a(t'on" that (o&! (arr+
per"ona! or organ'<at'ona! !'a*'!'t'e". Manag'ng peop!e an re!at'on"h'p" are "en"'t',e a(t','t'e"? the
$ree mater'a! an a,'(e a,a'!a*!e ,'a th'" we*"'te o not pro,'e a!! ne(e""ar+ "a$eg&ar" an
(he()". P!ea"e reta'n th'" not'(e on a!! (op'e".
alan chapman 2001-5
porter"s five forces model
%ic1ael ( Porter"s five forces of competitive position model and dia2rams
M'(hae! PorterA" $amo&" 2',e 2or(e" o$ Compet't',e Po"'t'on moe! pro,'e" a "'mp!e
per"pe(t',e $or a""e""'ng an ana!+"'ng the (ompet't',e "trength an po"'t'on o$ a
(orporat'on or *&"'ne"" organ'<at'on. A $ree 2',e 2or(e" 'agram 'n MS@or '"
a,a'!a*!e here. 9PorterA" 2',e 2or(e" 'agram p$ here.:
Amer'(an M'(hae! Porter wa" *orn 'n /F5G. A$ter 'n't'a!!+ gra&at'ng 'n aerona&t'(a!
eng'neer'ng8 Porter a(h'e,e an e(onom'(" o(torate at =ar,ar8 where he wa"
"&*"e%&ent!+ aware &n',er"'t+ pro$e""or"h'p8 a po"'t'on he (ont'n&e" to $&!$'! at
=ar,ar 3&"'ne"" S(hoo!. ='" re"ear(h gro&p '" *a"e at the =ar,ar 3&"'ne""
S(hoo!8 an "eparate!+ he (o;$o&ne w'th Mar) Kramer the 2o&nat'on Strateg+
Bro&p8 Aa m'""'on;r',en "o('a! enterpr'"e8 e'(ate to a,an('ng the pra(t'(e o$
ph'!anthrop+ an (orporate "o('a! 'n,e"tment8 thro&gh (on"&!t'ng to $o&nat'on" an
(orporat'on"A. A pr'me e6amp!e o$ "omeone operat'ng at a "e!$;a(t&a!'<at'on !e,e! '$
e,er there wa" one.
A$ter h'" ear!'er wor) on (orporate "trateg+ Porter e6tene the app!'(at'on o$ h'"
'ea" an theor'e" to 'nternat'ona! e(onom'e" an the (ompet't',e po"'t'on'ng o$
nat'on"8 a" $eat&re 'n h'" !ater *oo)". In $a(t 'n /FD# Porter wa" appo'nte to
Pre"'ent Rona! ReaganA" Comm'""'on on In&"tr'a! Compet't',ene""8 wh'(h
mar)e the w'en'ng o$ h'" per"pe(t',e to nat'ona! e(onom'e". 3+ the /FFEA" Porter
ha e"ta*!'"he a rep&tat'on a" a "trateg+ g&r& on the 'nternat'ona! "pea)'ng ('r(&'t
"e(on on!+ to 1om Peter"8 an wa" among the wor!A" h'ghe"t earn'ng a(aem'(".
PorterA" $'r"t *oo) Compet't',e Strateg+ 9/FDE:8 wh'(h he wrote 'n h'" th'rt'e"8 *e(ame
an 'nternat'ona! *e"t "e!!er8 an '" (on"'ere *+ man+ to *e a "em'na! an e$'n't',e
wor) on (orporate "trateg+. 1he *oo)8 wh'(h ha" *een p&*!'"he 'n n'neteen
!ang&age" an re;pr'nte approa(h'ng "'6t+ t'me"8 (hange the wa+ *&"'ne"" !eaer"
tho&ght an rema'n" a g&'e o$ (ho'(e $or "trateg'( manager" the wor! o,er.
A"'e $rom h'" 'nno,at',e th'n)'ng8 Porter ha" a "pe('a! a*'!'t+ to repre"ent (omp!e6
(on(ept" 'n re!at',e!+ ea"'!+ a((e""'*!e $ormat"8 nota*!+ h'" 2',e 2or(e" moe!8 'n
wh'(h mar)et $a(tor" (an *e ana!+"e "o a" to ma)e a "trateg'( a""e""ment o$ the
(ompet't',e po"'t'on o$ a g',en "&pp!'er 'n a g',en mar)et. 1he $',e $or(e" that Porter
"&gge"t" r',e (ompet't'on are:
porter"s five forces
1' (;istin2 competitive rivalry 9et:een suppliers
2' -1reat of ne: market entrants
>' 4ar2ainin2 po:er of 9uyers
<' Po:er of suppliers
5' -1reat of su9stitute products =includin2 tec1nolo2y c1an2e>
1+p'(a!!+ th'" $',e $or(e" moe! '" "hown a" a "er'e" o$ $',e *o6e" 'n a (ro""
$ormat'on8 'tem / *e'ng (entra!. 9P$ 'agram here8 MS@or 'agram here.:
PorterA" 2',e 2or(e" moe! (an *e &"e to goo ana!+t'(a! e$$e(t a!ong"'e other
moe!" "&(h a" the S@O1 an PES1 ana!+"'" too!".
PorterA" 2',e 2or(e" moe! pro,'e" "&gge"te po'nt" &ner ea(h ma'n hea'ng8 *+
wh'(h +o& (an e,e!op a *roa an "oph'"t'(ate ana!+"'" o$ (ompet't',e po"'t'on8 a"
m'ght *e &"e when (reat'ng "trateg+8 p!an"8 or ma)'ng 'n,e"tment e('"'on" a*o&t a
*&"'ne"" or organ'<at'on.
Porter '" a!"o )nown $or h'" "'mp!e 'ent'$'(at'on o$ $',e gener'( e"(r'pt'on" o$
'n&"tr'e":
1' Fra2mented 9eg8 "hoe repa'r"8 g'$t "hop":
2' (mer2in2 9eg8 "pa(e tra,e!:
>' %ature 9eg8 a&tomot',e:
<' 'eclinin2 9eg8 "o!' $&e!":
5' 6lo9al 9eg8 m'(ro;pro(e""or":
An Porter '" a!"o part'(&!ar!+ re(ogn'"e $or h'" (ompet't',e A'amonA moe!8 &"e
$or a""e""'ng re!at',e (ompet't',e "trength o$ nat'on"8 an *+ 'mp!'(at'on the'r
'n&"tr'e":
1' Factor ?onditions pro&(t'on $a(tor" re%&'re $or a g',en 'n&"tr+8 eg.8
")'!!e !a*o&r8 !og'"t'(" an 'n$ra"tr&(t&re.
2' 'emand ?onditions e6tent an nat&re o$ eman w'th'n the nat'on
(on(erne $or the pro&(t or "er,'(e.
>' *elated +ndustries the e6'"ten(e8 e6tent an 'nternat'ona! (ompet't',e
"trength o$ other 'n&"tr'e" 'n the nat'on (on(erne that "&pport or a""'"t the
'n&"tr+ 'n %&e"t'on.
<' ?orporate Strate2y0 Structure and *ivalry the (on't'on" 'n the home
mar)et that a$$e(t how (orporat'on" are (reate8 manage an grown? the 'ea
*e'ng that $'rm" that ha,e to $'ght har 'n the'r home mar)et are more !')e!+ to
*e a*!e to "&((ee 'n 'nternat'ona! mar)et".
M'(hae! PorterA" )e+ *oo)":
Compet't',e Strateg+: 1e(hn'%&e" $or Ana!+<'ng In&"tr'e" an Compet'tor"8 /FDE
Compet't',e A,antage: Creat'ng an S&"ta'n'ng S&per'or Per$orman(e8 /FD#
Compet't'on 'n B!o*a! In&"tr'e"8 /FDH
1he Compet't',e A,antage o$ Nat'on"8 /FFE
See a!"o:
S@O1 ana!+"'" temp!ate
PES1 ana!+"'" temp!ate
*&"'ne"" an mar)et'ng p!ann'ng pro(e"" an temp!ate"