Porters Five Forces explained for use in Practice of International Business EIMSO based course. Source: http://www.mindtools.com/pages/article/newTMC_08.htm taken from web on 12/21/2009.

1. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools
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Five Forces Analysis assumes that there are five important forces that
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The next steps for my 1. Supplier Power: Here you assess how easy it is for suppliers to drive
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2. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools
Self-Study Courses outsourcing it. If substitution is easy and substitution is viable, then work really well in
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Career Starters These forces can be neatly brought together in a diagram like the one below:
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Then download our free worksheet, mark the key factors on the diagram,
and summarize the size and scale of the force on the diagram. An easy way Sponsored Links
of doing this is to use, for example, a single “+” sign for a force moderately
in your favor, or “--" for a force strongly against you (you can see this in the
example below). Stat-Ease DOE
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Tools site, brought Software
Then look at the situation you find using this analysis and think through how
together into one easily Improve your
it affects you. Bear in mind that few situations are perfect; however use
downloadable, easily Product or
environmental scanning as a framework for thinking through what you could
printable PDF. Process w/
change to increase your power with respect to each force.
Powerful & Easy-
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This tool was created by Harvard Business School professor, Michael www.StatEase.com
Porter, to analyze the attractiveness and likely-profitability of an industry.
Since publication, it has become one of the most important business Pareto Software
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3. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools
strategy tools. The classic article which introduces it is "How Competitive for Excel
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This worries him:
The threat of new entry is quite high: if anyone looks as if they’re
making a sustained profit, new competitors can come into the industry
easily, reducing profits;
Competitive rivalry is extremely high: if someone raises prices,
they’ll be quickly undercut. Intense competition puts strong downward
pressure on prices;
Buyer Power is strong, again implying strong downward pressure on
prices; and
There is some threat of substitution.
Unless he is able to find some way of changing this situation, this looks like
a very tough industry to survive in. Maybe he'll need to specialize in a sector
of the market that's protected from some of these forces, or find a related
business that's in a stronger position.
Key points:
Porter's Five Forces Analysis is an important tool for assessing the potential
http://www.mindtools.com/pages/article/newTMC_08.htm[12/21/2009 11:33:56 AM]

4. Porter's Five Forces Analysis - Problem Solving Techniques from Mind Tools
for profitability in an industry. With a little adaptation, it is also useful as a
way of assessing the balance of power in more general situations.
It works by looking at the strength of five important forces that affect
competition:
Supplier Power: The power of suppliers to drive up the prices of your
inputs;
Buyer Power: The power of your customers to drive down your prices;
Competitive Rivalry: The strength of competition in the industry;
The Threat of Substitution: The extent to which different products and
services can be used in place of your own; and
The Threat of New Entry: The ease with which new competitors can
enter the market if they see that you are making good profits (and
then drive your prices down).
By thinking through how each force affects you, and by identifying the
strength and direction of each force, you can quickly assess the strength of
the position and your ability to make a sustained profit in the industry.
You can then look at how you can affect each of the forces to move the
balance of power more in your favor.
For more information on five forces analysis, and on Michael Porter's
approaches to competitive analysis, read Competitive Strategy: Techniques
for Analyzing Industries and Competitors by Michael E. Porter.
The next article in this section looks at Core Competence Analysis - a key
technique for understanding your competitive strengths. To read this, click
"Next Article" below.
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