MGT 401 SEU Porter Five Forces Framework Questions

Assignment 1
Strategic Management (MGT 401)
Assignment Question(s):
A. Discussion questions
1. How can a decision maker identify strategic factors in a corporation’s external
international environment? (2 marks)
2. Discuss the relationship between corporate governance and social responsibility?
Give examples. (2 marks)
B. Critical thinking
Review the figure 4-3, p.110 from your textbook and answer the following questions:
1. Choose any example of industry from the real national or international market, and
detail Porters’ five forces framework with a graphic representation. (2.5 marks)
2. According to Porter’s framework, what determines the level of competitive
intensity in your chosen industry? (1.5 marks)
3. Assess the threat of new entrants, and substitute products/ services for your chosen
industry. (1 mark)
4. Is your chosen industry attractive for investment? Why or why not? (1 mark)
Answers
110
PART 2 Scanning the Environment
PORTER’S APPROACH TO INDUSTRY ANALYSIS
Michael Porter, an authority on competitive strategy, contends that a corporation is most con-
cerned with the intensity of competition within its industry. The level of this intensity is deter-
mined by basic competitive forces, as depicted in Figure 4-3. “The collective strength of these
forces,” he contends, “determines the ultimate profit potential in the industry, where profit po-
tential is measured in terms of long-run return on invested capital.947 In carefully scanning its
industry, a corporation must assess the importance to its success of each of six forces: threat
of new entrants, rivalry among existing firms, threat of substitute products or services, bar-
gaining power of buyers, bargaining power of suppliers, and relative power of other stakehold-
ers.48 The stronger each of these forces, the more limited companies are in their ability to raise
prices and earn greater profits. Although Porter mentions only five forces, a sixth-other
stakeholders-is added here to reflect the power that governments, local communities, and
other groups from the task environment wield over industry activities.
Using the model in Figure 4-3, a high force can be regarded as a threat because it is likely
to reduce profits. A low force, in contrast, can be viewed as an opportunity because it may al-
low the company to earn greater profits. In the short run, these forces act as constraints on a
company’s activities. In the long run, however, it may be possible for a company, through its
choice of strategy, to change the strength of one or more of the forces to the company’s advan-
tage. For example, Dell’s early use of the Internet to market its computers was an effective way
to negate the bargaining power of distributors in the PC industry.
A strategist can analyze any industry by rating each competitive force as high, medium,
or low in strength. For example, the global athletic shoe industry could be rated as follows:
FIGURE 4-3
Forces Driving
Industry
Competition
Potential
Entrants
Threat
of New
Entrants
Relative
Power
of Unions,
Governments,
Special
Interest
Groups, etc.
Other
Stakeholders
Industry
Competitors
Bargaining
Power
of Buyers
O
Buyers
Suppliers
Rivalry Among
Existing Firms
Bargaining
Power
of Suppliers
Threat of
Substitute
Products
or Services
Substitutes
SOURCE: Reprinted with the permission of The Free Press. A Division of Simon & Schuster, from COMPETITIVE
ADVANTAGE: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1988
by The Free Press. All rights reserved.

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