Porter’s Five Forces Model Application

Running head: PORTER’S FIVE FORCES MODEL APPLICATION
PORTER’S FIVE FORCES MODEL APPLICATION
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PORTER’S FIVE FORCES MODEL APPLICATION1
Executive Summary
In this paper the Porter’s Five Force Model, The Small and Medium Enterprises in Malaysia
and the application of the Five Force Model is discussed. The Paper also addresses the
implications of the application of the model to analyse the industry and how it affects the
industries. The Five Factors are Bargaining Power of the Supplier, Bargaining Power of the
Buyer, Threat of the New Entrant, Threat of the Substitutes and the Existing Competition.
The Paper also addresses the 3H model of Holistic Marketing that is the Heart, Head and the
Hand. It also discusses the drawbacks of the Porter’s model and how the model is still useful
in analysing the current situation of the industry that is of the Small and Medium Enterprises.

PORTER’S FIVE FORCES MODEL APPLICATION2
Table of Contents
Introduction................................................................................................................................4
Discussion..................................................................................................................................5
Development..........................................................................................................................5
Bargaining Power of Suppliers..............................................................................................6
Pricing Pressure..................................................................................................................6
Supply Problems................................................................................................................7
Quality Concerns................................................................................................................7
Encourages Alternatives.....................................................................................................7
Bargaining Power of Buyers..................................................................................................7
Threat of New Entrants..........................................................................................................8
Threat of Substitutes..............................................................................................................9
Competition in the Industry.................................................................................................10
Avoiding Uncertainty...........................................................................................................10
3-H Framework for Holistic Management...........................................................................11
Heart.................................................................................................................................11
Head.................................................................................................................................12
Hands................................................................................................................................13
Arguments against the Porter’s Five Force Model..............................................................15
Conclusion................................................................................................................................17
Recommendations....................................................................................................................18

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References................................................................................................................................19

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Introduction
Porter’s Five Force model is a framework that can be used to analyse the competitive
environment of a company. The model helps in determining the strength and weakness of a
company. It is can be used to determine the system of the industry and how a corporate
strategy can be made for it (Mathooko & Ogutu, 2015). It can be applied to all the segments
of the of the economy that is, small, medium and large. The central idea of this model is to
obtain a competitive advantage that can be used to increase the profitability of the company
in its segment (AYDIN, 2017). The primary work of the strategic management is to know the
high profitability industries by analysing them using the five forces. The model has a global
and serious impact on the formulation of the corporate strategy. The Porter’s model is an
amalgamation of different factors that are put in a simpler model to understand and analyse
the industry and its competition, strengths and weakness. The five forces of the model are:
 Bargaining Power of Suppliers: The bargaining power of the suppliers is
how they can drive up the cost of the product by increasing the cost of the raw
materials. The bargaining power of the suppliers depends on the uniqueness of
the inputs that the company uses to manufacture its good and services. The
more unique the product the more the cost of the raw material. It also depends
on the amount of suppliers in the market, the fewer the suppliers the less the
company has an upper hand in the negotiation of the price of the raw material.
 Bargaining Power of Buyers: The consumers or the buyers can also drive
down the price of the product. The power depends on the number of buyers
the company has and how significant they are. The more significance a buyer
has the more power they have to decease the price of the product. Huge
companies have a huge client base; however, they are not that significant thus
they do not have much impact on them.
 Threat of New Entrants: The new entrants in the economy can pose a serious
threat to the existing companies in the economy. An industry where there are
strong barriers to enter is the one that is ideal and favourable to the existing
companies that are there. The new entrant could come up with a new
technology and potentially disrupt the market.
 Threat of Substitutes: The substitute goods that are there in the market can
pose serious threat as they can be substituted. The customers might favour the

PORTER’S FIVE FORCES MODEL APPLICATION5
substitute than the company’s product, which will decrease the sales of the
company and reduce the power in the market.
 Competition in the Industry: The more the competition in the industry the
more the ability for one to undercut the other. The suppliers and the buyers
seek out the competition of the company for their own betterment and thus the
more the competition in the market the more the company has to do in order to
be at the top.
In Malaysia, there are more number of Small and Medium Enterprises and they are
the major players in building of the economy. The most recent definition of the Small and
Medium Enterprises can be segregated into two different categories that manufacturing and
services, on the basis of these aspects that is total sales turnover in a year, or the number of
full time employees that are employed by them (Burns & Dewhurst, 2016). A small-medium
enterprise can be defined as an enterprise whose sales turnover cannot be more than RM25
million annually and has not more than 150 full time employees. More than 98.5% companies
in Malaysia are Small and Medium Enterprise in all the sectors of the economy (Fakha &
Saed, 2014). The Small and Medium Enterprises have grown enormously in the present years
with the help of the Malaysian government and their rules and regulations for Small and
Medium Enterprises. The government to uplift the economy promotes the Small and Medium
Enterprises to benefit all. The Small and Medium Enterprises are the major resources in the
economy of Malaysia. The internationalisation of the Small and Medium Enterprises is a
necessity because the economy is moving towards globalisation (Chittithaworn, 2011). These
Small and Medium Enterprises have thrived under pressure and have expanded to compete in
the global market. These Small and Medium Enterprises are the backbone of the Malaysian
economy in the manufacturing and service sector. They have employed the majority of the
people and have made a huge impact on the economy to boost it.
In this paper, the impact of Porter’s Five Forces on the Small Medium Enterprise in
the Malaysian economy is discussed. The 3-H holistic model of marketing and its application
is also discussed in the paper.
Discussion
Development
Porter’s Five Forces can be used to understand the external forces that affect the
company and its working. All the aspects of the business are analysed to understand the