Five Forces Model: Analysis from an Emerging Economy

Abstract

The five-force model of competition was first introduced by Porter in 1980 in his book on Competitive Strategy. For 30 years since the concept was first outlined, the model has been considered an important tool in understanding industry structures and analyzing industry attractiveness. In a recent video interview, Porter has emphasized his faith in the model and has provided examples from the airline and steel industries to argue that the model is universal. The model is an integral part of books on management in general and on strategy in particular. Thus, the five-force model can be seen as a torch-bearer of robust theory. The question however arises as to whether the model is equally applicable in all situations. Should managers use this as the ultimate tool in formulating strategy? To understand the practical implications, the author has studied a number of industries from an emerging economy, India. For many years, India has shown a robust growth of 9% per year and even in the midst of a global recession, has managed a decent growth of about 6%. Against this scenario, an attempt has been made to test the efficacy of the five-force model on a variety of industries. This is a work-in-progress and due to limitations on length, the results from one industry are presented in this paper. The initial results seem to indicate that managers need to exercise caution while using the model. Particularly in the context of emerging economies, the results obtained so far seem to suggest that a re-thinking of the model may be necessary. This interesting but paradoxical intersection of strategy theory and strategy practice is the focus of this paper. Obviously, a lot more needs to be done in terms of gathering data not only from the Indian context but also from other economies notably China, Korea, Brazil, Russia, and the ASEAN countries before more forceful conclusions can be drawn. The author’s hope is that the findings would stimulate objective discussion on the scope of interpreting theoretical frameworks in practical situations.