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PORTER'S FIVE COMPETITIVE FORCESMethodology 4
Because the subject matter of strategic management is so inherently complex and because each one of us brings his own personal biases to the analysis, it was suggested early on that virtually all case material in the field be analyzed from the perspective of more than one methodology. Profit theory and industrial chains were selected as the first of a number of viable approaches to the analytical process. It would have been equally correct to select the Five Competitive Forces analysis refined by Michael Porter, one of the major figures in the field of strategic management. This methodology addresses the same issues but differs only in the language that they use to describe corporate behavior. The five forces are:
· The threat of new entrants into an industry or a market served by a specific company.
· The bargaining power of suppliers.
· The bargaining power of customers.
· Threat of substitute products or services.
· The intensity of the rivalry among existing firms.
Each of these topics is treated separately in the discussion that follows.
The threat of new entrants
The ease with which firms can enter into a new market or industry is a critical variable in the strategic management process. In some industries the barriers to entry are minimal. In other industries, the barriers to entry are formidable. These barriers can take on many forms; among them: the amount of capital needed to enter into a specific industry may be great enough to deter entrants; the current participants in the industry may have product lines protected by patents; th ...