Porter 5 Force Theory Analysis

The interest concerning the study of the forces that impact a company via the usage of competitive advantage is constantly growing. In 1980s Porter elaborated some principles and models which are based on the idea that competitive advantage comes from the ability to gain profit via investment in an industry sector with higher than the average return. There exists no company which can achieve the advantage over its competitors according to all commercial characteristic features of a product, as well as means of its promoting in a market. Every organisation needs to choose its priorities and to elaborate the most suitable company’s strategy. The strategy should effectively use strong sides of company’s activity and it can be applied to the tendencies of market development. Despite tactical planning in a market, the strategy of a competitor must be aimed at ensuring the company’s advantages over the competitors in a long-term outlook – 3-5- years (Porter 1980).

The analysis of competitors includes two major stages: evaluation of main competitive forces in an industry and formulation of primary variants of competitive strategies. Porter believes that the market share and the profit level of a company depend on how well it can react to effective competitive forces: new competitors with similar products; threat of substitute products; existing competitors; impact of suppliers and impact of buyers.

Porter’s five forces theory is based on factors outside an industry that influence the nature of competition within it and on factors inside the industry that influence the way in which companies compete. The researcher has conducted an examination of the industry profitability and competitive forces. This investigation is regarded as a valuable contribution to the market examination. However, Porter’s five forces model does not take into consideration technology and innovation. The research refers mainly to the situation that existed in 1980s and should be used with reserve to the above mentioned factors. This article is aimed at examining the current situation of the market and Porter’s theory relevance to the present day businesses. The article defines and evaluates Porter’s five forces model in terms of its being up to date for businesses. A company has to understand the dynamics of its industries in order to be competitive in a market. Porter’s five forces theory that is based on the intensity of competition and the determination of relative strengths of these forces is a helpful guide towards this aim.