Porters Model Essay Example | Topics and Well Written Essays - 2500 words

Porters Model - Essay Example In fact, Porters theories base on the economic situation in the eighties. This period was characterized by strong competition, cyclical developments and relatively stable market structures. Porter's models focus on the analysis of the actual situation (customers, suppliers, competitors etc) and on predictable developments (new entrants, substitutes etc). Competitive advantages develop from strengthening the own position within this Five-Forces-Framework. Hence, these models cannot explain or analyze today's dynamic In fact, digitalization, globalization and deregulation have become powerful forces during the last years, but Porter's models rarely take them into consideration. Today's markets are highly influenced by technological progress, especially in information technology. Therefore, it is not advisable - if not to say impossible - to develop a strategy solely on the basis of Porters models. Shapiro and Varian explain in their book "Information Rules"that the economical laws that apply to products and services cannot be simply transferred to the new category information good. Production, marketing etc are different for products and services and, hence, are different for information too ". Moreover, the latest shift from dot-com-hype to dot-com-crashes has given evidence that the basic laws of economics are viable for the new economy or information economy too. Even in the eighties, it was not advisable to build a strategy on nothing but Porters models. Every strategy should base on a careful analysis of all internal and external factors and on their potential future development. This is no new insight. Michael E. Porter is an economist. His Five Forces model is based on microeconomics. It just describes them in a more understandable way. Porter talks about the attractiveness of an Industry that is influenced by the shape of five forces. In economics, the constellation of factors determines issues like profit maximization or supernormal profits. Porter's Model and Micro economics Porters Five Forces Areas of Microeconomics Bargaining Power of Suppliers Supply and demand theory, cost and production theory, price elasticity Bargaining Power of Customers Supply and demand theory, customer behavior, price elasticity Rivalry between Existing Players Market structures, number of players, market size and growth rates Threat of Substitutes Substitution effects Threat of New Entrants Market entry barriers Source: Primary Michael Porters models do not have the influence they used to have any more as the economic model has changed to Internet economy in the past decade. Now with the emergence of Global companies and Dot Com companies, considering only the economic perspective for a nation's advantage or corporate strategies or the growth and development of industrial clusters is not sufficient. New economic laws came up and other drivers started to transform markets. Drivers transforming Markets beyond Porter's Model: Digitalization: As power of information technology grows, all players in a market will have access to far more information. Thus, totally new business models will emerge in which even players from outside the industry are able to vastly change the basis of competition in a market. The rise of electronic shopping malls, operated for instance by telecom operators