Sketch Porter’s 1980 Model and Briefly Discuss the Five Competitive Forces Outlines in This Model.

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In search of the answer for the question of “why some companies are more profitable than others”, led to development of the Five Competitive Forces by Michael Porter. As for Porter, competition does not mean to fight with rivalry organizations; instead, it is all about to earn profit. This is because competitor is not the only element exist in any business environment; it involves some other players such as customers, suppliers and so forth. Therefore, model developed by Porter below provide an instant understanding on the structure of an industry, how the industry works and how it create and share value as well as how an organization can make profit out of it. He is in the opinion that, although market change all the time, but structural change is sticky and takes time to change. Thus, Porter suggest that, analyzing the underlying structure of an industry based on the five forces in Figure 2.1 below is the key secret in understand competition and profitability. Figure 2.1: The Five Competitive Forces by Michael Porter All the forces are related to microenvironment of any organization, which is closely related to its ability to serve customer and market. Three out of the five forces are related to sources of internal competition while the remaining two relates to external competitions. This model require an organization to re-assess its’ position and strategy whenever there is changes in these forces. However, Porter warned that configuration of all five forces are differ by industry. Strategy formulation should base on the strongest force(s) to win competition and determine profitability of an industry. Following section will describe the five competitive forces briefly. 1. Threat of New Entrants Entry barriers are hurdles that new entrants need to clear before it can compete with incumbents of the industry. Therefore, entry barriers actually protect

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