Michael Porter is a very famous American economist. In the 1980s he threw light on how to evaluate the attractiveness and profitability of an industry. He developed the five forces model where five ‘pressures’ may impact on the industry’s profitability and attractiveness. These five forces are the following:

1. threat of new entrants
2. threat of substitute products
3. bargaining power of customers
4. bargaining power of suppliers
5. rivalry among the existing competitors

For example, the greater the number of firms in an industry, the greater the level of competition. On the other hand, the more concentrated the industry, the greater its bargaining power towards suppliers and customers. The higher the threat of substitute products, the higher the rivalry.

Once this analysis has been carried out, the organisation might have managed to identify opportunities and threats in the external environment to take or face. The long-term competitive advantage seems to be set on the basis of a good market positioning, which means, how well I can set my business in the industry structure. In fact, if I look at what my competitors, my customers, my suppliers are doing, I may not run the risk to find myself out of business because things have changed too fast and too radically.

A detailed explanation of each force will be given in the following pieces of writing.