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Evaluation of Porter's Five Forces Theory
The main strategy of a competition that is the basis of competitive behaviour of a company in a market and that describes the scheme of ensuring advantages over competitors is the central moment in a company’s strategic orientation.
All the following marketing actions of a company depend on its right choice. This factor determines the necessity of a well-defined reasoning of this procedure. However, some stereotypes, which have been formed for the last several years in entrepreneurial circles concerning the way one should compete in a market, impede greatly the analysis of the present task solving. Before starting to choose the basic competitive strategy it is necessary to get rid of unnecessary stereotypes, cliché and errors.
First of all, all the factors mentioned above refer to the wrong understanding of what is the most future-oriented market from the viewpoint of competition. Entrepreneurs usually believe that attractive markets are those, which are developing very fast or use improved technology. This position is wrong. The practice shows that flourishing and future-oriented markets have high entry barriers, a state patronage, unpretentious consumers, cheap delivery system and the lowest number of alternative industries, which are able to replace them. Business with modern technologies and high effectiveness is greatly subjected to competitors’ attacks. The possibility of bankruptcy in such markets is really great.
Porter’s model is based on the understanding that a company’s strategy should correspond to the opportunities and threats in the company’s external environment. Moreover, competitive strategy should be based on the understanding of industry structures and the way they change. Porter has emphasized five competitive forces which form every industry and every market.
These forces define the intensity of competition and, thus, the attractiveness and profitability of an industry (Porter 1980). The purpose of company’s strategy must be to alter these competitive forces so that the position of the company will improve. Porter’s model backs the analysis of the driving forces in a market. Consequently, management decides how to impact particular characteristics of their industry on the basis of data taken from five forces theory.
By Olivia Hunt
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