INTRODUCTION A framework for diagnosing industry structure, built around five competitive forces that erode long-term industry average profitability. The industry structure framework can be applied at the level of the industry, the strategic group (or group of firms with similar strategies) or even the individual firm. Its ultimate function is to explain the sustainability of profits against bargaining and against direct and indirect competition. IN RESPECT TO THE INFLUENCE OF GOVERNMENT: Laws governing rivalry: A third facet of institutional context is the legitimacy of competition that is both nurtured and enforced.
The focus here is on the laws governing rivalry that is at the heart of most market economies: How does a state ensure that economic bases of competition prevail rather than ‘unfair trading practices? ’. Although less developed in the emerging economy literature, the existence of contraband trade is recognized, for example in Brazil (Nelson, 1990), and along Porter’s Five Forces Framework with it the recognition of the need for at least one facet of legitimate rivalry: strong intellectual property regimes that are a ‘safeguard against the illegal use or application of patented technology and copyrights by local imitators’ (Isobe et al. 2000). The FFF presumes that rivalry in its economic form is not impeded by forces ‘external’ to the product marketplace. The model transports, perhaps inadvertently, a dominant assumption of Bain/Mason paradigm (Bain, 1968; Mason, 1939): legally enforced rules pertaining to Antitrust (e. g. price discrimination, collusion and unfair trade practices) and to intellectual property ensure that firms do not have to worry about unfair means of competition. However, moving beyond the established institutional confines of advanced economies calls into question this pivotal assumption.
In emerging economies laws pertaining to legitimate rivalry may not exist and the informal norms may not be readily transparent. This absence of laws may alter the nature of competitive rivalry in emerging economies. When formal rules are not evidently in force, much of Porter’s discussion of competitive signalling (1980) simply does not apply. However, competing firms can manage the competitive uncertainty through several mechanisms, not recognized in FFF. For one, they can privately communicate with one another without incurring severe legal penalties.
For example, competing firms can cooperate (Stark, 1996) through such mechanisms as cross-ownership (Kogut et al. , 1992). Alternately, they can use the socio-political networks between firms’ managers and government agencies to thwart existing or new competitors. Thus Doh (2000) described how the Mexican government provided protection to the Telmex consortium partly by charging new carriers to help Telmex pay for long distance network improvements, and by charging high interconnect fees. REFERENCE 1.
Porter ME, 1979 Mar/Apr, ‘How competitive forces shape strategy’, Harvard Business Review. 2. Porter ME, 1980, “Competitive Strategy: Techniques for Analysing Industries and Competitors”. The Free Press. 3. Porter ME, “Towards a Dynamic Theory of Strategy”, Strategic Management Journal 1991, vol. 12, 95-117. 4. Bain, J. S. (1968). Industrial Organization, 2nd edition. New York: Wiley 5. Doh, J. (2000). ‘Entrepreneurial privatization strategies: order of entry and local partner collaboration as sources of competitive advantage’.
Academy of Management Review, 25, 551–71. 6. Isobe, T. , Makino, S. and Montgomery, D. B. (2000). ‘Resource commitment, entry timing, and market performance of foreign direct investments in emerging economies: the case of Japanese international joint ventures in China’. Academy of Management Journal, 43, 468–84. 7. Kogut, B. , Shan, W. and Walker, G. (1992). ‘The make or cooperate decision in the context of an industry network’. In Nohria, N. and Eccles, R. G. (Eds), Networks and Organizations.
Cambridge, MA: Harvard Business School Press, 348–65. UNIVERSITY OF SALFORD BUSINESS SCHOOL MSc MANAGEMENT PG 24033 MANAGEMENT AND BUSINESS ENVIRONMENT STUDENT ID NO @00317752 TOPIC: PORTERS FIVE FORCES FRAMEWORK 2011 Information Services Division University of Salford UNIVERSITY OF SALFORD BUSINESS SCHOOL MSc MANAGEMENT PG 24033 MANAGEMENT AND BUSINESS ENVIRONMENT STUDENT ID NO @00317752 TOPIC: PORTERS FIVE FORCES FRAMEWORK 2011 Information Services Division University of Salford