Micheal porter's Five Forces Theory- An insight

 The biggest advantage companies can draw in a developed economy is the Purchase Power of its citizens(PPP). Companies can directly concentrate on a single parameter like quality of the product/service where customers and consumers think about quality of the commodity. This leads to the exponential growth  in performance in terms of innovation of the prouct. Though the competition in such markets is very high, the yields companies get if the product is also very high if it is very well received by the customer .

Eg: U.S.market stands as an outstanding example where most of the innovations happen. Competition levels  are very high and companies exhibit monopolistic behavior despite the hyper competition exist.

The nature of competition of different markets is different in both developed economies like USA, Japan, Germany, France etc and emerging economies like India, China etc. However, the most common trends that were observed in most of the markets differentiating the developed from emerging economies are:

	Factors	Developed economy	Emerging economy
1	Market competition	Free competition,Monopolistic	Monopoly or oligopoly
2	% of Organized sector	High	Very low(3% offline;10% both offline and online)
3	Supply of products/services	High	Shortage of supply
4	Quality Preference	High	Low
5	Rights and Choices	Buyers have the rights and choices	Sellers have the rights and choices
6	Dominant power	Buyers are the dominant power in the market	Sellers are the dominant power in the market
7	Entry Barriers	Low	High
8	Restrictions imposed on sellers	Limited	High
9	Government intervention	Industry specific	High
10	Competition for capital	High	Low

    Intelligent competitors are those who try to get an edge over the competitor not through innovation but through techniques like mass production and sales. They might sometimes kill their existing products with the new products they offer and thus try to increase their sale numbers and maximize profits. They do it by improvising on their marketing abilities and not by differentiation of products, service etc.

Competitive intelligence is to gain an edge over the other competing players in the market by differentiating products, services and anything else that the company offers to the customers for a long period of time(present and future), thus making competition irrelevant.

For example, while Samsung is an intelligent competitor offering a variety of smart phones, Apple displays competitive intelligence through innovation in its products. Though intelligence competition gets you a reasonably good share in the market, Competitive intelligence makes you the price leader. Apple has set a standard for itself, differentiating itself in the crowd through its services, product quality, and technology and thus finds no other firm as competition. Samsung which is the market leader of smart phones still finds competition from firms like Micromax etc.

  Hyper competition is all about fast beating the slow, rather than big beating the small. With advancement in technology happening at a faster pace and no. of companies (start-ups included) growing like mushrooms in all industrial sectors, companies are under pressure to outperform themselves. Every firm is trying to figure out ways of reaching out to the customer better. Companies are competing with its competitors and inside as well for that matter.

A company should use competitive intelligence to gain competitive advantage in a hyper-competitive market. For example, Amazon has showed competitive intelligence by making use of analytics and displaying the “Most Viewed Item” or “Customers who viewed this have also viewed” segments and gained benefit out of it.

M-commerce is certainly very interesting growing industry. Lets have a look at this industry as of today’s scenario. Payment banks made the home work easy for m-commerce enthusiasts. Recent incident of government’s issue of licences to 11 corporates already created huge buzz in companies’ marketing strategies and also revealed their highly rival ad campains by the companies. The simple instance shows the competition between companies who are trying to offer best value at highly competitive prices to the customers.

SWOT Analysis for all frame works of Michael Porter:

The Strengths of Value Chain Analysis

1. It is a very flexible strategy tool for looking at a business, competitors and the respective places in the industry’s value system.

 2. The value chain can be used to diagnose and create competitive advantages on both cost and differentiation.

3. It focuses attention on the activities needed to deliver the value proposition.

 4. Comparing the business model with the competitors using the value chain can give a much deeper understanding of the strengths and weaknesses to be included in the SWOT analysis.

 5. It can be adapted for any type of business – manufacturing, retail or service, big or small.

6. The value chain has developed into an extra model, the industry value chain or value system which gives a better understanding of the much broader competitive arena.

The Limitations of Value Chain Analysis:

1. Its very strength of flexibility mean that it has to be adapted to a particular business situation and that can be a disadvantage since, to get the best from the value chain, it’s not “plug and play”.

 2. The format of the value chain laid out in Porter’s book Competitive advantage is heavily oriented to a manufacturing business.

3. The scale and scope of a value chain analysis can be intimidating. It can take a lot of work to finish a full value chain analysis for your company and for your main competitors so that you can identify and understand the key differences and strategy drivers.

4. The value chain idea has been adopted by supply chain and operations experts and therefore its strategic impact for understanding, analyzing and creating competitive advantage has been reduced

5. Business information systems are often not structured in a way to make it easy to get information for value chain analysis.

Strengths of four corners model:

Considers implicit aspects of competitive behavior

Firms are more often than not aware of their rivals and do have a generally good understanding of their strategies and capabilities. However, motivational factors are often overlooked. Sufficiently motivated competitors can often prove to be more competitive than bigger but less motivated rivals. What sets this model apart from others is its insistence on accounting for the "implicit" factors such as culture, history, executive, consultants, and board’s backgrounds, goals, values and commitments and inclusion of management's deep beliefs and assumptions about what works or does not work in the market.[1]

Predictive in nature

Porter's four corners model provides a framework that ties competitor's capabilities to their assumptions of the competitive environment and their underlying motivations. By looking at both a firm's capabilities (what the firm can do) and underlying implicit factors (their motivations to follow a course of action) can help predict competitor's actions with a relatively higher level of confidence. The underlying assumption here is that decision makers in firms are essentially human and hence subject to the influences of affective and automatic processes described by neuroscientists.[1] Hence by considering these

Strengths of Generic Strategies: Michael Porter’s generic strategies are very useful in strategic business planning. These strategies are unique and versatile. They can be used in almost all practical business planning.

 Limitations of Generic Strategies: Each generic strategy is based on erecting different kinds of defenses against the competitive forces, and hence they involve different risks.

1). Maintaining cost leadership can be risky because:

Innovations nullify past inventions and learning, and hence cost leadership requires continual capital investment to maintain cost advantage.

 Exclusive attention to cost can blind firms to changes in product requirements.

 Cost increases narrow price differentials and reduce ability to compete with competitors’ brand loyalty.

2). The risks involved in cost differentiation are:

i. Cost differentiation between low cost firms and differentiating firms becomes too large to hold customer loyalty

 ii. Buyers need for differentiation fall

Strengths of 5 force model: A means of providing corporations with an analysis of their competition and determining strategy, Porter's five-forces model looks at the strength of five distinct competitive forces, which, when taken together, determine long-term profitability and competition.

Limitations of 5 force model:  Whilst the Porter’s five forces model has its benefits there are certain considerations that one should bear in mind while using it.

 The considerations are:

üPace of change is now more rapid

üMarket structures were seen as relatively static

üThe model provides only the snapshot of the environment

üIt can be difficult to define the industry

üThe model is most applicable for analysis of simple market structures

üThe market is based on the idea of competition

 Here is what Micheal Porter says about five forces in much more detailed insights!!

Strengths of diamond model:

1. Porter’s Diamond model explains why corporations domiciled in certain countries are successful in penetrating foreign markets, why industry clusters are relevant

2. This model is an addition to Porter’s five forces model dealing with industry structure. The diamond model emphasizes that a firm should only internationalize when it has a strong position in its home market.

5. The model shows that apart from inter-firm rivalry, cooperation is a vital component of corporate strategy. Companies should form strategic alliances, especially with organizations in related and supporting industries.

4. The model explains in part the “resource curse” -- why a large natural resources base is not sufficient to develop industrial might.

 Limitation of Diamond Model:

1. The situation in which all four attributes are correctly lined up to boost the development of a given industry provides only a higher probability that an industry will develop. Its development depends on personal action for the favorable conditions to be fully commercially exploited.

 2. The absence of any of the four conditions from the diamond domestically, may not inhibit companies and industries from becoming globally competitive.

 3. The model pays no direct attention to competence building.

4. The level of importance of chance as a nucleus for change is not clear. How much ‘change’ is needed to make the transition to a globally competitive economic cluster?