Gabriel Segrest
Porter’s Five Competitive Forces
Porter’s journal article “How Competitive Forces Shape Strategy” was first published in
1979. This management strategy have changed the way companies are structured based on
their industry competition. According to Porter, the most important factor that drives
competition and profitability is the industry’s structure. A company plans their structure
based on competitive forces: which include, threat of entry, the power of suppliers, the
power of buyers, the threat of substitutes, and rivalry among existing competitors.
The threat of entry, the first force, into an industry affects each one differently based on the
height of their entry barriers. Industries with a low threat of entry have a more difficult
time trying to enter into that industry. The airline industry is one particular industry that
has a very low threat to entry. One reason the airline industry is difficult to enter is the
amount of capital it requires to build an airplane. There are seven barriers to entry that
favor the incumbents relative to new entrants. 1. Supply-side economies of scale is the
ability for an existing company to produce at larger volume which lower the prices per
unit. 2. Demand-side benefits of scale benefits the larger company because consumers
have more trust in their products. 3. Customer switching costs make it difficult to switch
companies because the price to switch is too expensive. 4. Capital requirements require a
substantially large up-front investment to be able to enter that industry. 5. Incumbency
advantages independent of size states that incumbents have an advantage in size, cost, or
