Assess the Usefulness of Porter’S Theory of Competitive Strategy for Understanding the Competitive Behaviour of Companies, Giving Examples.

Assess the usefulness of Porter’s theory of competitive strategy for understanding the competitive behaviour of companies, giving examples.

Porter’s theory of competitive strategy is a very important managerial tool for analyzing companies’ industry structure in strategic process. The competitive theory of strategy is shaped by five forces which Michael E. Porter has developed in his book “Competitive Strategy: Techniques for Analyzing Industries and Companies” in 1980.
These five forces are:
  1. The bargaining power of buyers
  2. The bargaining power of suppliers
  3. The rivalry amongst the existing competitors
  4. The threat of substitute products
  5. The ability of new competitors to enter the industry.
According to Porter “is the collective strength of the five forces that determines industry profitability”.
It is undeniable the fact that Porter’s theory is a fundamental theory which, however, has been develop in the early eighties. So there are different opinions on how this theory is still applicable in today’s industry markets. Seeing how this theory works in practice we can consider of an example.
Let’s think of someone who wants to give up his job and start a new career as a farmer. He has always wanted to live and work in the countryside, so he decided to switch to a career where he can be his own boss. He applies Porter’s Five Forces Model to examine the situation:

The Bargaining Power Of Buyers
  * There are few, but very large supermarkets.
  * The orders are very large.
  * The price is extremely sensitive.
  * Buyers’ power is very high.
  * The number of substitute products is big.
Conclusion: Buyers have the power over the farmers and they have a strong influence on the price’s determination.

The Bargaining Power Of Suppliers
  * The number of suppliers is big.
  * There are many similar products that...