Michael Porter is well known as the guru of strategic Management.

He introduced
three theoretical concept which related international business strategies and mo
dern competitive environment.
1. Five Forces Model
2. Generic Strategy
3. Value Chain

Five Forces Model

The model of the Five Competitive Forces was developed by Michael E. Porter in h
is book “Competitive Strategy: Techniques for Analysing Industries and Competitors”
in 1980. Since that time the ‘five forces tool’ has become an important method for a
nalysing an organizations industry structure in strategic processes.
Porter has identified five competitive forces that shape every industry and ever
y market whether it’s no mature, high-low, regulated or unregulated. These forces
find out the power of competition and for this reason the profitability and attr
activeness of an industry.
In any industry, whether it is domestic or international or whether its produce
s a product or provide service. The rules of competition is alive in five compet
itive forces.
Five forces analysis in an international context :
Five forces model is the industry attractiveness model. The model’s dimensions are
• The bargaining power of busyers
• The bargaining power of suppliers
• The barrier to entry
• The threats of substitutes
• Rivalries
We’ll discuss this model in brief and then begin using it to examine modes of entr
y and foreign markets.
(1) Threat of potential entrants
The threat of new entrants into an industry depends on the barriers that exist i
n the market and the expected reaction of existing competitors to the entrant. P
orter identified six possible sources of barriers to entry, namely economies of
scale, differentiation of the product, capital requirements of entry, cost advan
tages, access to distribution channels and legislative intervention.
(2) Threat of substitute products
The threat of substitute products can alter the competitive environment within w
hich the firm operates. A new process or product may render an existing product
useless. For an individual firm the main issue is the extent to which there is a
danger that substitutes may encroach on its activities. The firm may be able to
minimise the risks from substitutes by a policy of product differentiation or b
y achieving a low-cost position in the industry.
(3) Bargaining power of suppliers
Suppliers have the ability to squeeze industry profits by raising prices or redu
cing the quality of their products. Porter states that a supplier is powerful if
few suppliers exist in a particular market, there are no substitute products av
ailable, the industry is not an important customer of the supplier, or the suppl
ier’s product is an important input to the buyer’s business. Japanese firms have sho
wn the importance of establishing a strong relationship with suppliers so that t
hey ‘become an extension of the firm itself’, as in the keiretsu approach to industr
ial organisation (see Chapter 5).
(4) Bargaining power of buyers
In general, the greater the bargaining power of buyers, the greater is their abi
lity to depress industry profitability. Porter identified a number of determinan
ts of bargaining power including; the concentration and size of buyers, the impo
rtance of purchases to the buyer in cost terms, the costs of switching between s
uppliers, and the degree of standardisation of products. Buyers should be treate
d as rivals but should have a ‘friendly relationship based on performance and inte
grity’.
(5) Rivalry among existing firms
Finally, the extent of rivalry between firms can influence the competitive envir
onment within which the firm operates. Rivalry is influenced by the above forces
but also depends on the concentration of firms in the marketplace and their rel
ative market shares, the rate of industry growth, the degree of product differen
tiation, and the height of exit barriers. Porter refers to the tactics used by f
irms to seek an advantage over their competitors as ‘jockeying for position’. This u
sually takes the form of policies towards pricing, promotion, product innovation
and service level.
According to Porter, strategy formulation requires that each of the above forces
be carefully analysed in order to successfully:
■ position the company so that its capabilities provide the best defence against t
he competitive forces;
■ influence the balance of the forces through strategic moves, thereby improving t
he company’s position;
■ anticipate changes in the factors underlying the forces and respond to them

International effected by 5 forces model :