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Porter's five forces analysis is a framework for industry analysis and business strategy development by Michael E. Porter. The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness of an industry structure. It captures the key elements of industry competition.
Suppliers
Rivalry among existing firms
Buyers
Bargaining power of buyers
Threat of substitutes
Substitute products
For example, water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product.
Competitive Advantage
The Competitive Advantage model of Porter learns that competitive strategy is about taking offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces.
Companies can combat the pressure of the five forces and create competitive advantages.
There are 2 basics types of Competitive Advantage : Cost leadership (low cost) Differentiation
Limitations
Inside-out strategy is ignored (core competence) It does not cope with synergies and interdependencies within the portfolio of large corporations (parenting advantage)
The environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation (disruptive innovation)
Sometimes it may be possible to create completely new markets instead of selecting from existing ones (blue ocean strategy)