The Theory Of The Five Forces Of Competition By Michael Porter

When the company is considering buying another smaller firm, it is a rather risky step, and there should be made a thorough business analysis of the situation for the purpose of considering the process of buying in terms of competitive advantage. The main aim of the assignment is to explain to senior management how it is possible to make the analysis of competitive advantage on the basis of Porter’s five forces model.

To begin, I am going to present Porter’s five forces model for the purpose of explaining its essence and proving its efficiency. According to Biswas & Twitchell (2002), Porter’s five forces model is a rather old and well-known model for determining the current attractiveness of the industry for the company, or the smaller firm for the another bigger company. It can be also used in the necessity to identify potential dangers and challenges that will face the company purchasing another smaller firm. Being more specific, according to Burrows (2012), it can be noted that Porter’s model is a tool for analyzing the competitive conditions prevailing in the market, and this model allows the management to estimate the degree of influence that each of the five forces has on the company and, therefore, how a particular sector answers areas of interest of the company. In addition, taking into account our case, Porter’s model can help to find a competitive advantage, allowing us to take a more advantageous position in the market.

Porter’s five forces model consists of the following elements: new competitors – new players in the market; existing competitors; “competitors” offering substitute products; influence of suppliers; influence of buyers. In such a way, it is important to analyze the firm that is considered to be bought for the purpose to understand its competitive advantage. Observing the first force that is new players in the market, it is good to research the firm’s activities and possibility of other similar firms to become more profitable and developed. It is a truth that the emergence of new players in the market is always perceived cautiously by existing firms, and it is hard to predict their emergence. The second force that is existing competitors allows to see how the firm is competing with all those companies with similar products or services and what it is doing for the purpose of taking a better position in the market through price wars, advertising campaigns, new products, improvement of tinning consumers, improvement of product warranty and much more. This fact will help to look at the firm’s existing potential of development.

Observing the next forces in this part, Braun (2013) stated that the competitive strength of customers as well as suppliers can range from mild to significant. For instance, buyers benefit from transactions in a number of cases. They are the most obvious, if buyers are large, and if they acquire a significant share of products manufactured by industry. The larger buyers and the greater the number of products they acquire show the greater their ability to influence the course of negotiations with sellers. And finally, regardless of whether there is a fierce competition or the level of competition is low, each company is required to develop a successful strategy that will ensure superiority over competitors and to strengthen the position of the buyers; so, this moment also should be taken into account in providing business analysis on the basis of Porter’s five forces model because it is better to make a good analysis timely than to be disappointed by the results.

To conclude, competitive analysis by Michael Porter can help to determine the intensity and severity of competitive forces in the industry, find a position in which the company will be protected from the effects of competitive forces and will be able to influence them. The golden rule of the theory of the five forces of competition created by Michael Porter is the following: the weaker the influence of competitive forces, the more opportunities has a company in obtaining high profits in the industry. Conversely, the higher the impact of competitive forces, the higher the probability that none of the companies will be able to provide high profitability of investment. As a result, the average industry profitability is determined by the most powerful competitive forces.

 

References

Biswas, S. & Twitchell, D. (2002). Management Consulting: A Complete Guide to the Industry. Wiley.

Braun, D. (2013). Successful Acquisitions: A Proven Plan for Strategic Growth. AMACOM, American Management Association.

Burrows, R. (2012). The Market-Driven Supply Chain: A Revolutionary Model for Sales and Operations Planning in the New on-Demand Economy. American Management Association.

The terms offer and acceptance. (2016, May 17). Retrieved from

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: March 28, 2024]

freeessays.club (2016) The terms offer and acceptance [Online].
Available at:

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]
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