Competitive forces

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Competitive forces or Porter’s 5 forces

It is a concept that allows companies to evaluate their position in relation to the competition in a market. These competitive forces determine the long-term attractiveness of a market or market segment and influence a company’s position in the market. They therefore represent a particular threat to the company in place.

Michael Porter states that competition in a given market is governed by 5 distinct forces:

  • the entry of new competitors,
  • the entry of substitute products,
  • the bargaining power of customers,
  • the bargaining power of suppliers
  • the rivalry between existing competitors.

The action of these 5 forces gives rise to a competitive “game” whose equilibrium depends on the evolution of the intensity of each of the forces. The analysis of these competitive forces allows companies to have a realistic idea of their room for maneuver in a given market.

Porter’s strategic forces analysis involves:

  • an analysis of the rivalry between existing companies,
  • an analysis of threats from new competitors, technologies and substitute products and services,
  • an analysis of the bargaining power of suppliers and customers.

Michael Porter proposes 3 different strategies to ensure a long-term competitive advantage by taking into account the 5 competitive forces:

  • the strategy of global cost domination,
  • the differentiation strategy,
  • the concentration strategy.

For a complete and sufficient analysis, Michael Porter recommends dividing the sector to which a company belongs into homogeneous strategic groups of companies.