Porter’s five forces analysis, called also as a framework for competition analysis, refers to five forces that determines industries’ competing capacity and attraction to market. The attraction to market here can be understood as profit level of the industry . So “lack of attraction” means that the composition of the five forces reduces profit level of the industry. The five forces is composed of bargaining power of suppliers, bargaining power of buyers, potential new entrants, threats of substitute products or service, intensity of competitive rivalry. This five forces gather a great deal of factors in a simple framework in order to analyze the competing state of the industry. In addition, these forces define where the five competition forms come from. A practical strategy should probably contain the definition and the evaluation of the five forces. Anyway, the characteristics and importance of forces vary a lot with nature of industry and company itself.

Bargaining power of suppliers takes effect by means of raising prices and reducing prime cost. Thus it can influence profits and product competition of the existing enterprises in a industry. When the elements supplied by suppliers play a important part in companies’ production, the influence of suppliers’ bargaining power is more evident and greater. Bargaining power of buyers refers to the market of output. Buyers effects companies’ profits through demanding lower prices and higher quality of products or service. Generally, this force counts especially when the number of buyers is small and their purchasing volume is important for the sellers.Besides, if the products or service are not unique, the seller is landed in a passive position. Potential new entrants bringing new productivity and new resources, they also aim at a market part, which presents a threat to the existing enterprises. What is worse, the new entrants tend to adopt new technologies and renew their equipments, so they are probably to become the future competitors to the existing companies. Two enterprises in different industries will also become competitors when their products turn to be reciprocal substitute products.  The cheaper and the better substitute products are, the bigger the pression impressed on the existing companies is.

For most industries, intensity of competitive rivalry seems to be the key determinant of competitiveness of a industry. This is because the enterprises in the same industry have related and interactive interests within them. As a major part of enterprise’s strategy, analysis of this force aims at gaining more favorable competing advantages. Nowadays, the competition among enterprises is more often presented in price, advertising, product and after-service (see following graph, market survey car China).

Desbite the above-mentioned favorable effects, Porter’s five forces analysis have been challenged and queried. Foe the present, the common opinion says that the framework is just a theoretical tool divorced from practice. This theory is base on the following hypothesis:

l  One who formulates the strategy knows the whole situation of a company, which is evidently difficult to control.

l  Companies in the same industry only has competition without cooperation. This statement is surely not proper.

l  The industry dimension is fixed and we have no other choices but to conquer our competitors’ market. In fact, the existing market can be enlarged by exploring new target.

As a result, Porter’s five forces is a market survey analysis has restrictions when put into application. But the signification of the method lies in its three successful strategy spirits, that is, the general cost coming first, discrepancy in strategies and concentrated strategy.

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