ere more important. In The competitive Advantage of Nations, published in 1990, Porter said that instead of trying to enter a market where there is little or no competition, a company should instead participate in national markets with the strongest rivals and most demanding customers. This is mainly due to the fact that in a closed, domestic industry, a company accustomed to weak competitors and undemanding customers has little to fear. In today’s global marketplace, such newly strong competitors are in no short supply. That is why it is important to understand one’s competition. (Yip, 1995)Michael Porter’s Competitive Forces Model (commonly referred to as Porter’s Five Forces Model) is by far the most widely used framework for an assessment of the profit potential in an industry. The collective strength of the so-called five forces differs from industry to industry.Each of those five forces is based on structural features (dimensions) which collectively impact the profit potential. All five forces jointly determine the intensity of the industry competition and profitability. The strongest forces become crucial from the point of view of strategy formulation.Porter’s Five Forces are a framework for diagnosing industry structure, built around the competitive forces that erode long-term industry average profitability. The industry structure framework can be applied at the level of the industry, the strategic group (or group of firms with similar strategies) or even the individual firm. Its ultimate function is to explain the sustainability of profits against bargaining and against direct and indirect competition. The five forces are covered in more detail below.Barriers to entryThese are the important structural components with an industry to limit or prohibit the entrance of new competitors. The major components are scale economies (advantage of experience, learning and volume), differentiation (brand image ...
