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Porter’s five forces
3. Critical review of Porter’s five forces

The model of Porter’s 5 forces is suitable foranalysingan industry in general. You can get a good overview about the main factors of the external environment and with the aid of other strategic tools it can be helpful for making decisions concerning the entry in the business or for further expansion. But, like all economic tools, there are limitations. This model helps to simplify the view to this industry but every personal situation is too complex to analyse it with such a tool. There are always many other factors to take into consideration. If you combine this tool with other common external environment tools like PESTLE, Porter’s diamond, the I/R Grid, Yips’s drivers and the industry life cycle, you get a very detailed overview about the opportunities and the threats of an industry.

Porter had a great success with his model and it is valid until today. But the industrial environment has changed in the last thirty years, so today entrepreneurs have to handle it very carefully. In the early 1980s the competitive situation was completely different to today´s situation. With a strategy you gained a lot of money thirty years ago, today you could go bankrupt. There was no thinking about globalization and competitors who force their way into a market which comes from the other side of the planet. Changes are more rapid because of the information age. The value chain has become easier because often one company takes the role of the producer, wholesaler and retailer. Porter had not even thought about selling products through the internet without seeing them before.

Before starting the analysis of the industry, how important each force in the current sector is has to be worked out because not all the five forces have the same significance that you can say you enter the industry because four forces are weak. One of the forces could be so strong that an entry is impossible although the others seem to be weak. On the other side there could be a force which is neither strong nor weak, because it does not play a role in this industry. A web designer for instance does not have supplier which really affect his business.

The model assumes that there are no changes in the industrial environment but in fact the market is very flexible. This is shown for example on the enormous growth of the e-commerce sector. If you use this tool, you have to repeat this analysis continuously. (Lynch, 2009, p. 101-102)

Although Porter mentioned some government restrictions like pollution control or access to raw materials, he does not consider other direct or indirect influences of the government, for instance an industry could be more or less attractive if there are tax changes or if the government gives subventions (Porter, 1980, p.13). Another influence could be that the government helps a company in order to save jobs like in 2009 in Germany with Opel. Other car companies feared a competitive disadvantage. (Tagesschau, 2009) Governments also often act as a company buying aircraft or needing construction firms. Under touristic aspects countries are in a competitive situation where they frequently support holiday facilities.

The model of Porter’s five forces is only a starting point for further research. The tool needs revising to adjust it to today’s requirements because of the considerable environmental changes of the 21st century’s industries.

 

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