Martin E. Porter was a young economist who wrote the article How Competitive Forces Shape Strategy, which began a revolution in the strategy sector. Over the following decades, porter continues to delve into this area further bringing in new ideologies. Porter’s five forces of competition have had a big influence on academic research and commercial enterprise world. In the business world, the function of strategy formula is dealing with competition. It may be easy to see competition as nothing, however it has a huge influence in marketplaces. Additionally, following the scramble for market share, it is not simply the other players, but rather on different different facets. These facets entail customers, suppliers, potential new entrants, alternative products.
The broadened rivalry that is derived from all five forces describes the industry’s makeup and influences the nature of competitive correlations within a given industry. Even though industries might seem different, they all have same impetuses that drive profitability. As porter puts in, there are five forces namely the threats of new entrants, bargaining powers of suppliers and clients, rivalry among the competitors as well as threat of substitution (Porter 1979, P.22). These are aspects which may not have been traditionally taken into account by strategists and economists. Porter’s advice is very useful in any industry, and therefore many businesses apply it in their day to day activities.
The first competitive force which is prevalent in any industry is the threat of new entries. New entrants which strategize well will have to take a share of the market at some point, and often they come with enough resources. A problem many businesses have is that they assume that the new entrants may not penetrate their current market since they are not well grounded yet. However, new entrants are often well established and have done enough research before venturing out.
The second force is the power of supplies and buyers. Suppliers may apply bargaining power on the players in a given industry by increasing the prices or tampering with the quality of the services rendered or products. Powerful suppliers, therefore, can shake an industry by squeezing out profitability hence driving it out of business since they would not be able to recover the expenses (Porter 1979, P.25). Clients also can force the prices down by failing to purchase products, ask for quality or simply go to the competitors.
Another force is the threat of substitution. In the current world, technology has advanced greatly giving room to a lot of invention and creation of substitute products. For instance, in the wake of an invention of high-quality camera smart phones, very few people purchase a camera (Schoenberger 1986, p. 326). Substitute products drive many businesses to enhance the quality of the products or differentiate their commodities.
The last force is a rivalry in competition. Granted any business shall always have competition, the ways of handling competition, however, is what determines the profitability of that business (Azoev 1996, p. 15). Rivalry can take place in various forms such as price reductions, new product entrances, upgrading the quality of products or differentiating it or through marketing.
These forces as co-signed by many scholars, academicians, economists and all players in the business world have essential in the success and profitability of any business. They shall continue being applied even in the future. Businesses and industries that disregard this have seen a decline in their businesses or have even been completely phased out by their competitions and new entrants. No matter how big and well-established business is, if it does not have an ideal strategy for dealing with competition and inevitable changes like advancement in technology, it shall certainly decline in its profitability.
Azoev, G.L., 1996. Competition: analysis, strategy and practice. Moscow: Center for Economics and Marketing, 2(08).
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review. 21-26.
Schoenberger, E., 1986. Competition, competitive strategy, and industrial change: the case of electronic components. Economic Geography, 62(4), pp.321-333.