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Jour of Adv Research in Dynamical & Control Systems, Vol. 11, 04-Special Issue, 2019

Porter's Five Forces Model: Gives You A

Competitive Advantage
Dr. Yogesh Hole, Associate Professor, Department of Public Administration, Cihan University-Erbil, Kurdistan
Region, Iraq.
Snehal Pawar, Teacher, Cihan College School, Erbil, Kurdistan Region, Iraq.
Dr. Mahesh P. Bhaskar, Associate Professor, Samarth Group of Institutions Faculty of Management, At. Belhe,
Junnar, Pune, India.
Abstract--- In this prevailing global market, due to drastic changes worldwide in scope, application, and
technology, business organizations need to compete intensely with their national rivals together with
international industrial players. This extreme global pressure constantly alters the industry operating
environment, hence, the traditional strategies of industries are turning less effective. Therefore, the industries
and companies are compelled to create the core competencies by implementing cost-effective, quality practices,
with competitive pricing policies, better internet marketing, reliable strategy implementation, new ideas,
creativity, and product innovations, predict improved buyer’s behavior for added customer satisfaction.This
review paper explores how Michael E. Porter has created the leading Five Forces design and model with an
authority to develop a competitive strategy in the competitive analysis application of social, environmental and
business activities. In 1990, Porter provided this model, and presently widely accepted and also applied to
measure the competitive advantage to build the business of the Nation. This review paper highlights all the
aspects of Michael E. Porter Five forces design and model with critical features of Porter’s competitiveness and
their concepts based on its proposed conceptual model for our study.
Keywords--- Porter Model, Five Forces Design, Strategy, CSR- Corporate Social Responsibility, Diamond
Model, Industry Analysis,

I. Introduction
In this unpredictable and volatile business environment, the regional economic variations, the employee and
business performances have become a very common feature in the global economy (Ickis, 2006). Various
studies and research have been performed to explain the reasons for many regions to achieve a considerably
higher rate of growth than others (Lynch, et al., 2000).
Therefore, the researchers from several countries started focusing their attention on clusters, regions, and
industrial sectors, which have already achieved relatively better economic performance (Chobanyan & Leigh,
2006).
For example; Combes of France in 2000, Oz of Turkey in 2002, Porter and Emmons in 2003; Bresnahan and
Gambardella in 2004; Ellison and group of the USA, in 2010; Kao Group of Southeast Asia in 2008; Lattuch
group in 2013; Bonte of Germany in 2004; with specific emphasis on certain dimensions like, potential and
inclination for innovation, starting resources, constant improvements and technological upgrading, science,
technological aspects, knowledge management along with better composition of all the economic activities
related to successful performance at all times (Manjeet Kharub & Sharma, 2017).
The five forces design and model was created by Harvard Business School professor Michael E. Porter to
strengthen company performance, solve various problematic issues, measure the industry’s competitive nature, and
develop corporate strategies appropriately. The Porter framework lets the business to analyze and explore the major
forces that influence and determine the industry profitability (Albrecht Enders, et al., 2009).
The design framework of Porter's model of Five Forces performs a basic starting point to drive the Four
Forces on the basis of Back Casting machinery, indicates the process of transformation from the existing
unsustainable progress to future expectations of sustainable development through the application of a greening
force, environmental degradation, and greening process. These five basic transformations are processed based
on the theory of cause and effect (Gandhi, et al., 2006).

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Figure 1: Porter’s Five Forces Graphic Design (Tulchinskaya, 2019)

Porter’s model of five forces for industry analysis.
A. Introduction to the model: Using this model Porter elaborated how the competition plays the role in the
resulting in attractiveness and profitability and of a company. Using corporate strategies, a company should
aim to shape all the forces to strengthen its position in the market (Gupta, & Nanda, 2015).
B. A composition of Porter Forces: In any industry, there exist certain forces that compel to drive strategy
formation, which is difficult to determine, and that increase or decrease company profitability (Delgado,
Porter, & Stern, 2014).
1.1 Research Objectives
1. To maximize company shares, and profitability in the existing market using the Five Forces of Porter’s
Model and strategy in this competitive market (Kimiloglu, Ozturan, & Kutlu, 2011).
2. To educate potential customers about the company vision, by signifying leadership and to solve business
problems with solutions;
3. To turn the vision of the Five Forces of Porter’s Model into satisfied customers (Tang, 2014).
1. 2 Michael Porter's Competitive Strategy Model & Approach
The influence exerted by Porter's Competitive Strategies has generated an enormous impact on the business
strategy field, teachings in business schools together with the business community practices to hold the impression
of Porter's ideas.
This Porter's Competitive Strategies have laid out the reasons to convey its importance about the influence
Porter's ideas, designs and framework have created in the business and industrial environment (Brandenburger,
2002).
Porter identified his five forces by dividing them into:
1. Horizontal forces: Threat due to new entrants; Threat due to substitutes; and competitive rivalry;
2. Vertical forces: Buyer’s bargaining power; and customer’s bargaining power (Pringle & Huisman, 2011).
3. Porter's Five Forces are (1) Competitive Rivalry; (2) Threat of New Entrants, (3) Threat of Substitutes, (4)
Bargaining Power of Buyers; (5) Bargaining Power of Suppliers.
The Five Forces help Shape Industry success by overcoming competition

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Figure 2: Porter's Five Forces Analysis (Pringle & Huisman, 2011; Porter, 2008)
1. Competitive Rivalry
This vital force that Porter elaborates indicates the intensity of rivalry in the prevailing companies. In case any
additional companies compete, it will result in more competitive pressure that will affect prices and profits; hence
the strategies will change (Baptista, & Preto, 2010). Due to a selection choice offered for many quality products in
the market, there prevails a direct competition, whereby the customers get an option to simply select the best product
they prefer from a different company very easily.
When high competition prevails?
High competitive rivalry exists when:
1. Similar type products are available in one market;
2. The competitor companies maintain similar strategies;
3. The products have identical features, offering similar benefits;
4. Industrial growth is slow;
5. Low barriers exist for the new entry (Llusar & Mercedes, 2006).
2. Threat of New Entrants
The competitive threat is not merely from the prevailing business players but can come from probable new
entrants (Alonso & Kok, 2018). When the industry shows profits, it attracts new companies. Hence, it compels to
improve with long term marketing and business strategies. Unless the barrier to entry prevails, new companies can
easily enter the market and change the industry dynamics
The specific industry dynamics can restrict the new entry of companies and they are known as barriers to entry
(Martin, 2014).
The entry barriers can stem from various things like:
1. Knowledge gained from patents and proprietary rights;
2. Having access to innovative infrastructure and technology;
3. Government drive on obstacles or economies of scale;
4. Need for very high initial investment;
5. Large costs for switching of loyal consumers;
6. Problems in securing raw materials and problems to access effective distribution channels (Dobbs, 2014).
3. Threat of Substitutes
The substitute products of another industry may meet the same needs. The additional substitutes of any product
indicate bigger competitive environment, means less probability for profits. For instance, for the for a boxed fruit
juice producer, coconut water, fresh juice, and soft drinks remain major substitutes, even though they are from

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different categories. The substitutes can impact on the company’s cost of products, hence, reduces profits.
Otherwise, lower substitute prices can increase sales and lower attract more consumers, reducing the sales of
existing companies (Rajasekar & Raee, 2013).
4. Bargaining Power of Customers
When buyers carry less power to meet product prices, it becomes an important issue for the company to consider
(Rajasekar & Raee, 2013).
When High buying power prevails? (Kharub, & Sharma, 2017).
Buyer’s new tendency and the money power to buy can affect the sales.
5. Supplier’s Bargaining Power
The raw material suppliers provide the required goods and services. It indicates that there is an acute need to
keep good and steady rapport with suppliers. Based on the industry vigor and dynamics, suppliers remain in the
position to command their terms, establish prices and decide timeline availability. Strong suppliers can increase raw
material costs without changing the volume of their own sales or decrease sale quantity (Dobbs, 2014).
How to apply Porter’s Five Force Model?
When performing the company analysis, three basic steps need to be taken (Rajasekar & Raee, 2013).
1. Gathering Data and Information
Firstly, the company must collect information regarding the industry in applying the five forces to further
classify that information.
2. Analyze Results to Display by Diagrams
After gathering adequate information, there is a need for the team to analyze and identify factors affecting the
industry, because each industry has different factors and issues affecting them. This compels not to differentiate with
other industries to compare and not to use their data.
3. To Formulate and Articulate Strategy depending on the Conclusions
The factors generated from the analysis that affect the industries can be transformed into relevant strategies that
apply to improve the company for their interests (Rajasekar & Raee, 2013).
Model Development and its Navigation; Before, During, After
It is helpful for the company to apply Porter’s five forces to analyze and maintain the analytical framework prior
to processing, in the course of the process, also after its completion (Ormanidhi, & Stringa, 2008).
1.3 Corporate Social Responsibility: Perception, Practices, and Performance Related to Michael Porter's
Analysis
A. Perception
The efforts of CSR- Corporate Social Responsibility is highly elaborated in literature and are perceived as taking
the major role in meeting strategic objectives, mission, and promotional methods of several organizations (Karnani,
2010). Its growing awareness in strategic management and marketing field have been perceived to create company
values, customer-derived brand equity, and customer values. CSR voluntary environmental and social efforts happen
to be the most influential and remarkable business tool of the 21st century (Kanter 2010).
In fact, modern perception has recognized the dynamics of CSR efforts, as the main value-generating tool
involved in the whole company strategy (Carroll 2008). More well-known companies have started using CSR as
their strategic measure to differentiate their efforts for value creation, even when, SME have implemented CSR to
situate themselves in a better position (Jenkins 2009).
B. Practices
The industries generate products and services to serve customer needs with the intention of making profits. They
perform these industrial and business activities to inculcate a reliable and sound CSR in their prime business
strategy, and this practice has turned critical for their enduring commercial success and sustainability. CSR practices
create certain actions for furthering social good, and company profit-making interest, required by law, to help the
society create a positive influence on the consumers, employees, community, and the environment (Gond, et al.,
2011).

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C. Performance
The company foundations traditionally focus on the overall good performance responsibility providing funds for
the worthy social project and enterprises. The basic necessity must be to create a higher goal and social value. Social
values generate higher social benefits for the equivalent cost, to achieve equal social benefits with less investment.
The value creation of foundation performs by signaling many funders, selecting good grantees, performance
improvement of grantees, and enhancing awareness and understanding of social problems. To generate values, a
new strategy must be devised for foundation to meet with a better performance goal, generate the selected areas to
focus for approach, aligns strategic operations, and outline concrete objectives and goals in its selected fields to
perform on the evaluation to approach the set philanthropy strategically, and create an unrealized potential
(Brammer & Millington, 2008).
1.4 Sustainable Green Supply Chain Management: Trends and Current Practices
Singh and Trivedi (2016) recognized the synergy between business ethics and SCM and applied their limited
coverage for their future research agenda covering a large variety of topics like intra and inter-organizational
collaboration, Sustainable green SCM, self-regulating policies, and guiding principles, downstream SCM issues,
features, and the impact due to globalization.
More emphasis was provided on the environmental issues and logistics performance at the industry level
(Cosimato and Troisi, 2015), and from the definite SC member perspective. The study revealed certain insight due
to the innovative influence on SCM greenness, a procedure familiarized for the environment-friendly and
sustainable approach to SCM. As per the case study of DHL, in logistics modernization and innovation, the
emerging green technology is directly concerned with the development of environment-friendly and sustainable
SCM approach by decreasing core ecological activities that created a wrong impact on reliability, quality, cost-
saving, energy efficiency, and performance. Therefore, the environmental regulations remain as the basis to
achieve a lessening of ecological damage, along with overall economic gain (Abbasi and Nilsson, 2016).
1.5 Managerial Implications
Awareness of Porter’s five forces facilitates and benefits companies to understand the industrial structure and
helps stake out a more profitable position with less vulnerability to attack (Vijande, et al., 2013).
Michael E. Porter had developed many theoretical models to highlight company competitiveness based on
research and teaching. His model of five forces shows that the forces affect the small business competitive
environment. Moreover, Porter's diamond model indicates four main factors that influence and generate an effect on
the national and government’s competitiveness and its industries (Claessens, 2016).
The basic model Factor positions are the Porter Diamond first elements, indicating various kinds of resources
which may or may not exist in the country; like physical resources, human resources, capital resources, knowledge
resources, and infrastructure (Hodgetts, 2019). The distinction can be brought between basic to advanced factors.
The Basic factors involve natural resources, like minerals, climate, oil, where the factor’s mobility is low. Even
though such factors can generate the basis for international concern and competitiveness, they cannot generate real
value without the help of advanced factors. Whereas, the advanced factors remain highly sophisticated, like
employee skills, availability of human resources and research competency, which are usually specific to local
industries (Smit, 2010). The Porter’s Diamond Model is also called the National Competitive Theory of Industrial
Advantages, and it is a framework of diamond-shape, which explains why specific national industries remain highly
competitive globally, while others may not (Álvarez et al., 2011).

Figure 3: The Porter Diamond Model (Álvarez et al., 2011)

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Whereas, at the same time, for the managerial applications they apply Porter's five forces model for to gain
buyers and suppliers bargaining power to assess the threat aspects of new competitors, threats due to industry rivalry
and substitute products (Chobanyan & Leigh, 2006). Porter's diamond model contains four main determinants, and
they provide the most effective competitive advantage; (1) Demand conditions; (2) Factor conditions; (3) The
presence of sustainable industries and strategy of the company; (4) The Factor conditions inform about the country
resources, like labor and the available natural resources; (5) The Demand conditions consist of the local demand for
generating company's products and their services (Aiginger, 2006).
The five forces Porter evaluate the company's competitive features, which influences profitability. The strength
of customer and supplier bargaining power always affect the smaller company's performance, and the ability to step
up prices, manage costs, and provide adequate help. For instance, when a similar product is obtainable from various
suppliers, the buyers gain bargaining power over every supplier (European Competitiveness Report, 2010).
However, when only one supplier exists, for the specific product, the bargaining power of customers becomes very
low. The low-entry barrier also attracts new competitors, while the high barriers for the entry discourage new
entrants. For instance, starting a business of home-cleaning is very simple, but commencing a new manufacturing
company is very much difficult (Nalband & Amri, 2013). The Industry rivalry goes very high when many
companies are trying to gain access to the same customers, and therefore, an extremely rivalry aspects will result in
lower prices, but fewer profits (Day & Hsu, 2009).

II. Research Methodology

Porter ’s analytical framework symbolizes five characteristic forces to shape the overall industry competition.

Figure 4: Porter’s Five Forces (Dudovskiy, 2017)

1) Threat of New Entrants
2) Bargaining power of buyers
3) Bargaining power of suppliers
4) Rivalry among existing firms
5) Threat of substitute (Giaquinto, 2018).
In 2018, the operational methodology was conducted by Amazon Inc. the world leaders in the online retail
business. They reported a complete Amazon Five Forces of Porter’s analysis, with the application and
implementation of several major analytical, strategic, tactical, and calculated frameworks in their business
operations (Dudovskiy, 2018). Amazon declared their observance to four basic principles: (1) Instead of focusing on
competitors, customer obsession is more important; (2) Creating an intense passion for inventive ways of operations
and working; (3) Commitment to top quality products and operational excellence; (4) Long-term views, assessment,
and thinking (Marder, 2018). Such principles indicated Amazon’s advantage of competitiveness. Amazon hybrid
business strategy is highly cost leadership included with business diversification (Day & Hsu, 2009). Their online
retail also benefitted by motivating, effective communication between several elements in their ecosystem, to
promote leadership principles, the report stated (Kharub & Sharma, 2017). The visionary, autocratic, and pragmatist
leadership style had been implemented at several Amazon levels. They have a hierarchical structure of the
organization, nevertheless, the company remained completely flexible to adapt and accept frequent innovations and
changes in their external marketplace (Woods, & Hecker, 2011). Their organizational culture is established with the
objectives of cost-consciousness at the highest level; constant improvement and reinvention of their organizational
culture and to gain customer fascination (Shaughnessy, 2012).

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Their business strategy is motivated by holding four principles as mentioned above. Moreover, the methodology
carries the analyses of excellent and dynamic leadership, using top-level business strategies, maintaining and
respecting the organizational culture and organizational structure. The methodical report elaborates an Amazon’s
marketing strategy, Five Forces of Porter’s analysis, ecosystem and mentions the issues of CSR - Corporate Social
Responsibility (Hallam, 2017).

III. Review of Literature

The green business concept is very important and should be properly evaluated, because the green concept is
deep-seated in the green strategy, leading to green implementation and measures. Slovik (2013) elaborated green
establishment business as the product of green output while stating that the green business needs a steady assurance
to sustainability, profitability, and humanity.
Sertyesilisik, (2019) thereafter proposed environmental sustainability and demand process relevant to social
values and responsibility. The Green Business of the organization utilizes environmentally sustainable, renewable
resources and remains accountable for the human resource phase of socially responsible activities.
Whereas, the SCM carries a vital role in the business management of the organization, focusing on the entire
operations and functions of the organization. Webber, (1982), had illustrated SCM as the management procedure of
implementing, planning, and controlling the overall supply chain operations to satisfy customer needs with
maximum efficiency. SCM controls all the storage and movements of raw materials, inventory of work-in-process,
and delivers finished products on a regular and effective basis to the final customer point (Marco Sartor, et al.,
2019). Therefore, SCM acts as a crucial component of logistics, designing and manufacturing products, and
competitive strategy of the top most companies (Alonso-Almeida & Rodriguez-Anton, 2019).
Pressures from regulators, consumers, and another group of people made companies to re-evaluate their
environmental SCM strategies based on the new GSCM concept, Green supply chain management, and that has
attracted maximum attention, relating GSCM as the prime integrating factor based on environment thinking and
converting into SCM, involving material sourcing, selection of raw materials and developing product line,
designing, manufacturing procedures, final product delivery to consumers, and the product end-of-life
administration after its constructive life (Gandhi & Vasudevan, 2018).

IV. Study Design & Model

Michael Porter’s Diamond Model is also called the Theory of Competitive Advantage for National Industries, is
a framework of diamond-shape and explains how and why several local industries are competitive internationally,
while many others are not. What is the reason that a few industries in specific countries program consistent
innovations, while others do not? (Ketels, 2006).
Michael Porter argued that the company’s capability to contest and be ahead in the global arena depends
specifically on their geographical location advantages; namely: Strategy of the industry; Structure with Rivalry
aspects; Conditions of several Factors; Demand Specifications, Situations, and Conditions; and also Concerned
Supporting Industries. When such conditions are constructive and favorable, the forces of domestic industries have
the tendency to constantly innovate, improve and upgrade. Therefore, the competitiveness builds up, as a result, that
is helpful and altogether necessary when moving globally to battle with the world’s biggest competitors (Bruin,
Roekel, & Marques, 2018).
4.1 Exploratory Factor Analysis
The factor analysis is a major factor contributing to the advancement of psychological research, however, a
systematic approach and assessment of their application are lacking (Bensecilas et al., 2016).
The factor analysis involves grouping like cluster analysis similar to dimension variables. This procedure is
applied to identify concealed constructs or variables. The factor analysis, basic need can reduce several individual
items to collect in a lesser number of elements. Factor analysis simplifies data, reduces several variables in a
regression format. Factor analysis helps to verify and assess scale construction (Jeble et al., 2018). In these
applications, the items in every dimension can be specified up front. This kind of factor analysis is mostly applied
concerning the modeling of the structural equation, called CFA- confirmatory issue analysis. For instance, such CFA
can be simply performed if the researchers need factor structure to be validated applying the procedure of the Big
Five Inventory (Hsu et al., 2006).

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Analyzing industry competition is the best way to identify business threats and figure out how to counteract
them. Understanding the competition will help how to affect the actions and in which manner it becomes a critical
feature of the outcome, end results, and future planning. Even with the Fortune 500 companies or any smaller local
business, the competition generates a direct impact on business success (Nakano, 2015). Porter’s five forces model
specifies five explicit factors to ascertain whether the business will be profitable or not, on the basis of other
business progress in the industry.
By understanding and getting a clear picture of the competitive forces, their underlying reasons, they will reveal
the basic framework of industry's prevailing profitability structure, at the same time, they can provide a framework,
by which, the industry can anticipate and influence competitive forces to gain profitability in the course of time.
Porter had written a Review article on Harvard Business based on this subject (Multaharju et al., 2017). A robust
industry structure has a strong competitive concern to strategically overcome their company's position. The overall
industry structure and competitive forces are crucial to affect the strategic decision-making process. On completion
of such analysis, the proper strategy can be implemented to develop and increase the competitive advantage.
Therefore, to that effect, Porter acknowledged and branded three broad strategies to be implemented and put into
practice in any industry, and the company of any size. Porter's Five Forces act as a time-tested and effective model,
it cannot create a strategic alliance. Therefore, Adam Brandenbuger and Barry Nalebuff from the Yale School of
Management, in 1990, generated a new feature with a sixth force, called as the “Complementors”, applying the
instruments of game theory (Thompson, & Daniel, 1996).
In the model, the Complementors provide products with services, which are the best to be applied in conjunction
with the products of competitors. For instance, the Intel company manufacturing processors, and also the computer
manufacturer Apple are both considered as the “Complementors”, the Porter’s Sixth Force and they compliment
each other in this model (Wilkinson, 2013).
Moreover, the modeling tools help in understanding the business potential, whereas, the value chain
analysis provides help to understand where the most productive advantage is based, and they also assist companies
to identify the products that can benefit from increasing investment (Marci, 2018).

V. Scope for Future Research

The future research work should persist on synchronizing green SCM between various administrative levels so
as to gain the greatest level of flexibility, collaboration, quality, and environmental friendly raw materials, to
develop Eco-friendly products. The company management must enhance the scientific research budget for the
improvement of green supply chain and discover further and more improvements in SCM chain work with respect to
the environment.

VI. Conclusion and Future Direction

A number of conclusions can be derived to understand the relation that influence by the model of Porter's five
forces on the industry performance. To start with, it can be clearly mentioned that in some cases there is not an
excessive threat due to new entrants in many industries. There can be an intense threat due to substitute products
encountered by the companies.
Such are attributable to the basic logic that certain industries gain better control over the market and their clients
and hence, switching the clients is not an easy task. Also, the suppliers bargaining power is not always a strong
performance determinant of the operators. Hence, many companies fail to gain adequate control over their suppliers.
This indicated the relationship developed, a significant step towards the suppliers bargaining power and company
performance in the regression method adopted in this study (Gunther, et al., 2014).
This review paper highlighted all the aspects of a young economist and the professor Michael E. Porter, who
gave a theoretical explanation with diagrams and elaborated how the Competitive Forces Shape the Industrial
Strategies, He specified Five forces design and model with critical features and their concepts based on its
proposed conceptual model for our study (Woodside, & Walser, 2007).
To position to strategy and a deal to confront the Industry rivalry, it is important for the industries to place proper
planning and apply effective strategies to maintain a high standard of competitiveness in their performance. In this
regards, the industries should maintain highly flexible pricing policies, impermeable marketing strategies, together
with strong customer care attitude among others (Uddin, & Bose, 2013).

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Figure 5: Porter’s Five Competitive Forces help Shape Strategies (Uddin, & Bose, 2013).

VII. Discussion
Porter’s Five Competitive Forces help Shape Strategies On Competition, Michael Porter, in Harvard Business
School Press on September 1998, explained that Porter’s work started with his initial and original five forces
formulation by defining the fundamental features and understanding of industry and business competition, together
with competitive strategy. This review paper has elaborated all the basic and important features of Porter’s work and
his compilation of several articles. The new articles from Harvard Business Review are specified. Collectively, this
study provides a clear and complete image of Porter’s point of view of contemporary competition. He had organized
his subject around three basic categories: (1) Competition and Strategy, explaining the Core Concepts; (2) The
Competitiveness due to Location; and (3) The competitive solution to societal obstacles and Problems. This study
and the related articles have generated a building block to define competitive strategies (Porter, 1979).
The article of What Is Strategy?, Michael Porter in his Harvard Business Review of February 2000, explained
that by scrutinizing the five competitive and imposing forces, the company can identify opportunities to place the
company more strategically; which means, to achieve a sustainable value and advantage to gain an upper hand over
rivals by conserving distinctive measures and elements of the company. The company strategic place and locations
hinge on performing various activities like competitors do or performing almost the same activities, however, in a
different way. They materialize from three resources: 1) Serving a few, but specific needs of several customers, for
instance, Jiffy Lube supplies auto lubricants only; 2) Serving a large and broad requirements of selected few
customers, for example, Bessemer Trust is known for taking care of only selected high and wealthy clients; and 3)
serving a large and broad requirements of several customers in a small and restricted market segment, for instance,
Carmike Cinemas functions only in specific cities having less than 200,000 population (Porter, 1979).

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