Porter’s Five Forces Theory: Strong and Weak Points

Porter is a recognized leader in competitive analysis elaboration and his five forces model has contributed to the study of competition (Porter 1979). It is necessary to point out that Porter’s approach to alternative strategies’ generation is a well-defined one and is based on the following statement: Company’s position stability in a market is determined by: costs of production and marketing of goods; irreplaceable products; competition’s sphere (the volume of market adaptation).
A company may achieve competitive advantages and strengthen its positions at the expense of: ensuring lower costs on production and marketing of products. Low costs mean the company’s ability to elaborate, produce and sell goods with comparative characteristic features but with lower costs than competitors. A company gets additional profit if it undercuts its products in a market; ensuring that product stays irreplaceable with the help of differentiation. Differentiation means the company’s ability to provide its customer with the product of great value, in other words, with the product of high use value. Differentiation gives the possibility to establish higher prices that brings higher profit. Besides, a company has a choice what market to compete in: the entire market or some its part. This choice can be done using the relation between the market share and company’s profitability suggested by Porter.
Companies which do not have possibilities for becoming leaders in a market must concentrate their efforts on some sector and strive for gaining more advantages with reference to competitors. Large companies become successful with big market share, as well as relatively small companies with narrow specialization. A tendency of small companies to behave the way large companies do regardless their real possibilities, will lead to the loss of competitive advantages. Small companies must follow the rule in order to achieve success: Segment the market. Shrink productive programme. Achieve and maintain maximal share in a minimal market.
Porter’s model is not correct because if every company adopts these strategies, none would be able to have a competitive advantage. Knights does not fully agree with Porter’s theory emphasizing that it is attractive to management because it gives ‘some illusion of control, legitimacy and security in the face of uncertainty’ (Knights 1992, pp. 514-536). Nevertheless, the concept of ‘unequal power’ is supported by senior management worldwide. In general, Porter’s model has some major limitations in today’s market environment. It cannot take in consideration new business models and the dynamics of markets.

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