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Porter's Five Forces


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A framework for analysing the balance of power within a particular industry and hence its overall profitability. The frame identifies five forces in the microenvironment that drive competition and threaten a firm’s ability to make profits: (1) rivalry between existing competitors (depending on e.g. their number, size, and relative market shares); (2) the threat of new entrants (i.e. the extent to which there are significant barriers to entering a market); (3) the threat of substitutes (i.e. products in another industry that the consumer may see as alternatives); (4) the strength of buyer power; and (5) the strength of supplier power.Forces (2), (3), (4), and (5) all feed back into force (1) by driving up competitive rivalry. The five-forces model is probably the most widely used tool in industry structure analysis and is also a popular starting point in strategic management planning. It was developed by Michael E. Porter of Harvard Business School in the late 1970s.

(1) rivalry between existing competitors (depending on e.g. their number, size, and relative market shares); (2) the threat of new entrants (i.e. the extent to which there are significant barriers to entering a market); (3) the threat of substitutes (i.e. products in another industry that the consumer may see as alternatives); (4) the strength of buyer power; and (5) the strength of supplier power.

Subjects: Accounting.


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