Five Forces Model

• FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY •

FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

ABSTRACT For thirty years, the five-force model of Michael Porter has been used as a standard tool to analyze and determine industry attractiveness. In a recent interview to mark thirty years of the theoretical framework, Porter reaffirmed his faith in the model, quoting examples from the airline and steel industries. The model along with the others that Porter has developed, such as the value chain, strategic groups and national competitive advantage, continue to influence strategic thinking in profound ways. And yet, one cannot help observing that perhaps the time has come to re-examine these models in the light of empirical evidence. This paper attempts to argue that the usefulness of the five-force model is limited in emerging economies as compared to mature markets. A longitudinal study of the IT Enabled Services Industry in India demonstrates that with low entry barriers, a high degree of competition (industry rivalry), bargaining power of buyers (Fortune 100 companies), bargaining power of suppliers (large manufacturers of hardware who force technological up gradation at regular intervals), and the absence of clear differentiators (or close substitutes being offered), the industry should have been very unattractive according to the five-force model. On a practical level though, the paper shows that the major players in the industry have all been able to turn in stellar performances year after year. With this apparent dichotomy between theory and practice, the paper questions the usefulness of depending on one model for all situations. INTRODUCTION: The five-force model of competition was first introduced by Porter in 1980 in his book on Competitive Strategy. For 30 years since the concept was first outlined, the model has been considered an important tool in understanding industry structures and...