Hi class,

This is regarding critical analysis of the pros and cons of Porter's five forces with example.
While running a business, many forces are operating in markets that affect a company’s sales
and profits. These factors need to be identified to formulate strategies to be ahead of
competitors. According to Porter, the five forces framework plays a vital role when a company
operates in the market. Such five forces of the porter model are (a) the bargaining power of
suppliers, (b) the bargaining power of buyers, (c) the threat of substitutes, (d) the threat of new
entrants, and (e) industry rivalry among companies. Let us analyze its Pros and Cons.

Pros:
Helps in Gauging Competition - It helps the company gauge the competition present in the
company's industry. Accordingly, it can make its own strategy of the business. Profit, In other
words, the pricing power of a company is inversely proportional to the competition present in the
industry - higher the competition, lower the pricing power, and vice versa.

Helpful in Planning - Through Porter's analysis, a company can identify those industries where
the threat of substitutes by the new entrant/existing one is less. The entry of new players results
in competition, which will not be beneficial for the company. Hence, at the planning stage to
enter into any industry, with the help of porter's five forces analysis, can eliminate industries with
close substitutes.

Dealing with Buyers and Suppliers - Where the bargaining power of suppliers is less/ weak,
the company has the advantage of getting raw materials for production at reasonable rates, and
when the bargaining power of buyers is weak, it will result in a company becoming price maker
and not a price taker.

Cons:
Ignore Other Factors - The most significant disadvantage of the porter five forces model is that
it ignores other factors that may impact the company's environment. For example - where all the
five factors that are barriers to entry & company products are inelastic, bargaining power of
suppliers is weak, there are no substitutes, no competition, and government introduces taxes on
products or make amendments regarding some products of the industry, the whole porter five
forces analysis will be of no use.

No Industry will be Perfect Fit - That no one industry will be perfect to have all positive points
as per porter's analysis. Every industry has some shortcomings, and it is to ignore those
shortcomings and pounce on the opportunities.

It is not helpful for All Industries Alike – It is not helpful for all industries and cannot be
universally applied to all sectors.

Despite some limitations of this model, we cannot ignore it totally because of its numerous
advantages.

Porter's Five Forces example:

How Porter's Five Forces are helpful in assessing opportunities and profitability:
Example: Argento, an existing apparel company, entered the athletic shoes and clothing
market: It used five force analysis.
Competitive rivalry: Several large, established companies with a big budget and many
resources occupy a good market share in the athletic apparel industry. Products of Argento are
not yet patented, so these companies or others could potentially copy them. In this case, the
Competitive rivalry for Argento is intense.
The threat of new entrants:  Existing large apparel companies could decide to enter the athletic
market. Hence there is a threat of new entrants that is medium to low.
The threat of substitute products: Demand for athletic wear was high and continuing to grow.
Argento's products were unpatented, which could be easily copied. As such, there was a threat of
substitute products, although it may be minor.
Bargaining power of buyers: Argento's buyers include both end-users and wholesale. End-
users were loyal to Argento's brand. The collective bargaining power of buyers was medium
Wholesale customers had enough bargaining power to substitute Argento's products with lower-
priced competitors.
Supplier's bargaining power: The sports apparel industry had a large and varied supplier base.
The bargaining power of suppliers is low.
Based on this analysis, Argento knew its requirement to focus on patenting its products to make
the business profitable in the athletic apparel industry and marketing to more end-users.

Regards
Bibhuti

References: https://www.letslearnfinance.com/porter-five-forces-model-advantages-and-
disadvantages.html

https://www.indeed.com/career-advice/career-development/porters-five-forces-example