How Do Upper Echelons Perceive Porter’s Five Forces? Evidence From Strategic Entrepreneurship in China

Abstract

Porter’s five forces model is an authoritative management tool used in analyzing the profitability and attractiveness of industries through an outside-in viewpoint. In the past decade, dramatic and rapid changes have prompted some criticism of the model. The comparison between new and old economy analysis makes the fundamentals of the model seem weak. Moreover, the past decade has shown that strategy and entrepreneurship in China are not completely dependent on the model. This study first aims to verify the sustainability of the five forces model and analyze its integration into China’s entrepreneurial economy. By conducting in-depth interviews among the upper echelons from various industries, it was found that along with the competitive factors emphasized by the model, Chinese entrepreneurs attend to cooperative factors such as Guanxi, the Chinese term for relationship, and the possibilities of technology integration with the five forces. They also tend to enlarge the strategic view to consider factors such as how the market evaluates the forces. To verify these findings, the authors carried out a large-scale survey with a modified questionnaire analyzing the data collected using exploratory factor analysis with SPSS 22. The outcome shows that Porter’s model is still valid to some extent. Companies are still working in a network of buyers, suppliers, substitutes, new entrants, and competitors. However, reinventions are necessary to include the new factors of Guanxi, technology (e-commerce and logistics), and marketing and branding, which have changed the structure of the industry. These factors arise from the cooperative nature of Chinese culture and may have equal or even larger significance compared with their competitive counterparts in today’s business world.

Using Porter's Five Forces analysis to drive strategy

“…Contrary to the assertions of some scholars that Porter's framework has lost its relevance because of the rapid progress in globalization and digitalization, we suggest that the framework retains its relevance, especially in industries that are less susceptible to disruption (Brandenburger, 2002;Isabelle et al, 2020;Slater & Olson, 2002). Its relevance has been corroborated among entrepreneurs by Shi et al (2021) as well as by Grundy (2006: p. 227), who quoted an entrepreneur saying that he wished he knew about the framework when he was running his venture since it seemed highly relevant to his company's context.…”

“…Its relevance has been corroborated among entrepreneurs by Shi et al. (2021) as well as by Grundy (2006: p. 227), who quoted an entrepreneur saying that he wished he knew about the framework when he was running his venture since it seemed highly relevant to his company's context.…”

“…Prior research has shown that industry accounts for a good proportion of the interfirm variation in profits (Slater & Olson, 2002). Porter's (1979, 2008) framework is one of the most frequently used tools to analyze industry structure, dynamics of competition, and the expected level of profitability, even by entrepreneurial firms (Shi et al., 2021). Contrary to the assertions of some scholars that Porter's framework has lost its relevance because of the rapid progress in globalization and digitalization, we suggest that the framework retains its relevance, especially in industries that are less susceptible to disruption (Brandenburger, 2002; Isabelle et al., 2020; Slater & Olson, 2002).…”

Business Environmental Forces and Competitive Advantage: An Empirical Study of Meetings, Incentives, Conferences and Exhibitions Facilities in Kenya

“…This is a model for assessing and evaluating the position and competitive intensity of an enterprise. Porter's framework measures the performance and relevance of a business from a macro environmental perspective and sets to act as an effective tool in evaluating and assessing the position of a business in a dynamic market (Shi et al, 2021). Consequently, the foundation of a business is anchored on the Five Forces model, namely: bargaining power of suppliers and buyers; threat of new entrants; alternative products and services and rivalry by existing competitors.…”

Re-Thinking Industry 4.0 Effect on Competitive Forces: Empirical Study on Innovation

“…Shi et al (2021) conducted a study in which they verified the sustainability of the five forces model and its subsequent integration into the Chinese business economy [15]. The study showed that the five forces model was used to control the profitability and attractiveness of the industry during startups and expansions.…”