Tuesday, April 4, 2017

The limitation of The Five Forces Model

The limitation of The Five Forces Model

This week, I ‘d like to discuss the limitations of Porter’s Five Forces model in some special fields. Of course, these opinions are based on my basic understanding of the model and some experience about my studying. As everyone knows, five forces analysis model was proposed by Michael Porter (Michael Porter) in the early 80s, which had a far-reaching impact on the development of corporate strategy. The five forces model identified five main sources of competition, the suppliers and the bargaining power of buyers, the threat of potential entrants, the threat of substitutes, and finally, rivalry between companies in the same industry competition. However, I notice that if we want to analyze the profits to industry, we also need to consider other influential forces.
            While the economic environment is relatively less constrained by government for some countries, but the effect of government control is indeed not negligible. For example, tobacco industry, due to the particularity of tobacco products, most of the countries and regions in the world have adopted the arrangements of government regulation. I lived in Beijing about 10 years, as well as other provinces in China, such as Nanjing, Guiyang, Kunming, etc. Unlike America, the tobacco industry is strictly controlled by one company named China National Tobacco Corp which hand in glove with State Tobacco Monopoly Administration. Enterprises engaging in the production or import and export of monopolized tobacco must apply to the State Tobacco Monopoly Bureau for a special license for doing tobacco monopoly businesses. I remember I saw a news report that CNTC is very likely to buy other tobacco companies into its selling group in the future. Finally, the unified management company of state-owned of tobacco industry is CNTC. The State Tobacco Monopoly Bureau takes charge of administrative functions. Thus, for some place, government management force plays a vital influence toward specific industry and for that Porter’s five forces model did not consider this situation.
            Besides, the impact of animal protection groups on the pharmaceutical industry is enormous. As we known, the pharmaceutical industry conducts or supports some of its basic research that seeks to examine normal biological processes and the nature of disease on living animals. [1] Through years of protests by animal protection organization, the United States government promulgated The Animal Welfare Act (AWA) (7 U.S.C. § 2131) in 1966 which regulates the treatment of animals in research and exhibition and avoids millions of animals horrific experiments and deaths. [2] Because of this bill, the pharmaceutical industry has lost a large portion of the profits and has to introduce new management to adapt to the bill.
            In my opinion, it is important to note that Potter five forces model does not see the other forces which may also make an effect on the market and The four forces are regarded as isolated rather than systematic.

1. Parija, S., & Mandal, J. (2013). Ethics of involving animals in research. Tropical Parasitology, 3(1), 4. doi:10.4103/2229-5070.113884

2. Society, New England Anti-Vivisection. "Animals in Science / Research." Laws and Regulations. N.p., n.d. Web. 04 Apr. 2017.

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