Porter's Five Forces Of Competitive Position Analysis

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Porter 's Five Forces of Competitive Position Analysis were developed in 1979 by Michael Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organization (CGMA ORG). The theory concept is similar to SWOT analysis, usually used to analyze market and business environment. However instead of analyzing the strength, weaknesses, opportunities and the threats, Porters five forces analyses and helps understand the power balance, where the power lies, and identify potential profitability. This analysis is important to understand the strength of an organization’s current competitive position, and the strength of a position that an organization may look to move into.…show more content…
The five forces are divided into two dimensions, the horizontal and vertical forces. Horizontal forces are threat of substitutes, threat of new entrants, competitive rivalry and vertical forces are bargaining power of buyers and bargaining power of customers (Martin, 2014). By understanding which forces are most powerful, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes.

According to the Entrepreneurial Insights magazine, a business may enter new markets in several ways. If a company is taking over an existing firm, from outside the industry, bringing along innovation and expertise, it may change the competitive dynamics in the existing market. A company can use product diversification and develop a specific competitive advantage to enter new markets. The barriers of entering new market can be caused by the existing firms that do not attempt to stop any new competitors from emerging, but may choose to control how a new firm enters the market (Martin,
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Often, profitable industries with attractive long term strategic mode and low barriers to enter are attractive to new companies. Such barriers will be determined by the economics of the industry of the market, are usually high when there is patents and proprietary knowledge access to specialized technology or infrastructure is required and high initial investment is needed (Martin, 2014). Thus it is important to address the questions of likelihood of the increased competition with the new entrants. Here the importance is what are the barriers, how much would it cost the entrant to enter the market and how quickly would this investment pay back (Strategywrap,

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