Michael Porter's competitive positioning strategies. Michael Porter and his theory of competitive advantage. Model of the five forces of competition by Michael Porter. The problem of attracting resources

Michael Porter is Professor of Business Administration at Harvard Business School; leading specialist in the field of competitive strategy and competition in international markets. He joined Harvard Business School in 1973 and was the youngest professor in the college's history. His ideas formed the basis of one of the popular courses in college. Along with other top lecturers at Harvard Business School, Professor Porter teaches the strategy course. He is the author of a course for senior executives of large corporations that have recently been appointed and taken up in their new role. Often government organizations and private corporations from different countries of the world invite M. Porter to speak on competitive strategy issues. M. Porter is the author of 15 books and over 50 articles. Published in 1980, his book Competitive Strategy: Techniques for Analysing Industries and Competitors is widely recognized as one of the foremost works in this field. His next two books, Competitive Advantage: Creating and Sustaining Superior Performance and The Competitive Advantage of Nations, published in 1985 and 1990, respectively, offer a new theory of competition between nations, states and regions that he developed. In his latest research, he goes back to where he started — company strategy.

In the mid 70s. In the twentieth century, Harvard Business School professor Michael Porter, later the youngest of the life-long professors of this school, studied some of the most advanced approaches to competitive strategy at that time and remained dissatisfied. He knew that competitive strategy was a top priority for managers because it raises fundamental questions that all business leaders have to answer, such as: What drives competition in my industry or in the industries in which I intend to expand? What are the likely actions of my competitors and what is the best way to respond to these actions? How will my industry develop? What position can my firm take to compete in the long term?

Despite the importance of these questions, Porter found that the largest strategy experts at the time offered very few or no competition analysis techniques that managers could use to find answers to such questions. Instead of genuinely analytical techniques, the gurus recommended what Porter considered weak and primitive models, lacking breadth and completeness of coverage. Porter was particularly concerned about the value of the then most popular growth / market share matrix.

Market share Industry growth rate High Low High “Stars” “Question marks” Low “Cash cows” “Dogs” TO DETERMINE YOUR STRATEGY USING THE GROWTH / MARKET SHARE MATRIX, THE MANAGER SHOULD ASSESS THE POSITIONS, DRAWING PARAMETERS - GROWTH RATE OF THE INDUSTRY AND RELATIVE SHARE OF THE MARKET.

The STARS own a large share of fast-growing markets need financing for further development as they are in a strong position in the competition, they have high profits and they generate significant cash. provide their own financial needs if they need funds, they must be provided. Under equal conditions, it is impossible to siphon money from such units, as this will certainly harm them.

"DAWN COWS", which occupies a very strong competitive position, owns large shares of slowly emerging markets, generate significant amounts of money, but they themselves have very modest needs. Money can be milked out of them in order to send money to help other divisions of the company or to finance R&D.

QUESTION SIGNS - need huge funds because they need to finance their growth it is unlikely that these divisions will generate large capital, as they seek to take over market share and do not yet benefit from the savings achieved through production experience create problems because in the future, as the market matures, they can become either "stars" or "dogs", always tormented by money hunger. The model suggests that promising "question marks" should be given a short-term money pump and see if they can turn into “stars” if such enterprises become “dogs”, they need an eye and an eye.

"DOGS" work at a loss and sometimes even turn into financial traps. These include businesses that retain small shares of slow-growing markets with little or no profits to reorient the dog to a small market niche and transform it into a star or cash cow in a changed market it is unlikely that attempts will be successful they should be avoided. According to the Boston consultant model, it is best not to feed the "dogs" with money and let them die. Better yet, sell or liquidate unprofitable businesses.

WHY IS THE GROWTH / MARKET SHARE MATRIX USELESS IN REALITY? it is necessary to define the market, and this requires tremendous analytical work. The model does not provide any tools for such analysis. the model assumes that market share is a good indicator of probable cash flows and growth is an equally good indicator of financial needs. However, neither is as reliable as the model suggests. the growth / market share matrix is \u200b\u200bnot very useful for defining the strategy of a particular enterprise. Simplified guidelines — starve the dog or grow a star from a question mark — are far from sufficient to guide managers. Managers need to move on to an adult analysis of competition.

KEY CONCEPT # 1: KEY COMPETITIVE FORCES identifies five key competitive forces that drive the intensity of competition in any industry. "The goal of a competitive strategy for an enterprise in an industry is to find a position in the industry where it can best defend itself against competitive forces or influence them to its advantage." 1. The threat of new competitors appearing in the industry. 2. The ability of your buyers to push prices down. 3. The ability of your suppliers to seek higher prices for their products. 4. Threat of appearance on the market of substitutes for your products and services. 5. The degree of fierceness of the struggle between competitors existing in the industry.

THE THREAT OF NEW COMPETITORS Porter's first strength is about the ease or difficulty a new competitor in the industry can face. The more difficult it is to enter the industry, the less competition and the more likely it is to generate income in the long term. Porter identifies seven barriers to market entry for new competitors: Economies of scale. Product Differentiation Investment Requirements. Switching costs. Access to distribution channels. Costs arising regardless of the scale of the activity. Government policy.

SUBSTITUTE PRESSURE Porter's second competitive strength relates to the ease with which a customer can substitute one type of product or service for another.

DIFFERENT ABILITY OF BUYERS TO ACHIEVE PRICE REDUCTIONS Buyers are not created equal. Buyers become much more powerful when they: Purchase in large quantities, which allows them to demand lower unit prices. Significantly interested in saving money, since the goods they buy constitute a significant part of their total costs. buy standard products or products that include shipping and service charges face low switching costs have low incomes produce the product they buy are extremely concerned about the quality of the product they buy are fully informed

SUPPLIERS 'ABILITY TO ACHIEVE PRICE INCREASES Suppliers' ability to drive price increases is similar to buyers' ability to drive prices down. In Porter's opinion, suppliers associated with associations have significant power in the following cases. When the industry in which the suppliers operate is dominated by several companies and there is a higher level of production concentration than in the buyer's industry. When suppliers don't have to contend with the substitute products their industry sells. When a significant part of the sales of a particular supplier does not depend on a particular buyer. When the supplier's products are in some way unique, or when the buyer tries to find a replacement product, there are high costs and difficulties. When suppliers pose a real threat of "forward integration"

COMPETITION BETWEEN CURRENT COMPETITORS Competition is fiercer in industries dominated by the following conditions: There are many firms competing in the industry, or competing firms are roughly equal in size and / or resources at their disposal The industry is developing slowly Firms have high fixed costs Firms high costs of storage of products Firms have to reckon with the time during which it is necessary to sell a product A product or service is perceived by buyers as a product that is available in abundance and in different versions, and the costs of switching a buyer from one type of product to another or from one manufacturer to another are small Production capacity has to grow in leaps and bounds Competitors have different strategies, different backgrounds, different people, and so on. Competitive stakes are high. Serious obstacles to leaving the industry.

KEY CONCEPT # 2. TYPICAL COMPETITIVE STRATEGIES “Competitive strategy is defensive or offensive actions aimed at achieving a strong position in the industry, successfully overcoming the five competitive forces and thereby obtaining higher returns on investment. »You can beat other firms with just three internally consistent and successful strategies: Minimizing Costs. Differentiation. Concentration.

COST MINIMIZATION “The cost position of such a firm protects it from competitor rivalry, since lower costs mean that the firm can still earn revenues after its competitors have already depleted their profits through competition. Low costs protect this firm from powerful buyers, because buyers can only use their power to bring its prices down to the level of prices offered by a competitor that is next to this firm in efficiency. Low costs protect the firm from suppliers, providing more flexibility to counter them as input costs rise. Factors leading to low costs also tend to create high barriers to competitors entering the industry, such as economies of scale or cost advantages. Finally, low costs tend to put the firm in an advantageous position in relation to substitute products. Thus, the low cost position protects the firm from all five competitive forces, because the struggle for favorable terms of the transaction can reduce its profits only as long as the profits of the next most efficient competitor are not destroyed. Less efficient firms will be the first to suffer in the face of heightened competition. ”

The lowest cost strategy is not suitable for every company. Porter argued that companies wishing to pursue such a strategy must control large market shares relative to competitors, or have other advantages, such as the most favorable access to raw materials. Products must be designed to be easy to manufacture; in addition, it is prudent to produce a wide range of related products in order to evenly distribute costs and reduce them for each individual product.

DIFFERENTIATION A firm pursuing a differentiation strategy is less concerned about costs and more committed to being seen as unique within the industry. allows several leaders to exist within the same industry, each of which retains some distinctive feature of its product. Differentiation requires a certain increase in costs: you have to have better design products, you have to invest heavily in customer service and be prepared to give up some market share.

RISKS OF DIFFERENTIATION 1. 2. 3. If the price of a product from firms that minimize costs is much lower than that of firms pursuing a differentiation strategy, consumers may prefer the first that distinguishes a company today, it may not work tomorrow. And the tastes of buyers are changeable competitors, following strategies to minimize costs, are able to sufficiently successfully imitate the products of firms pursuing a differentiation strategy in order to lure consumers and switch them to themselves.

CONCENTRATION A company pursuing this strategy focuses its efforts on the satisfaction of a specific customer, a specific range of products, or a market in a specific geographic region. The main difference between this strategy and the two previous ones is that a company choosing a concentration strategy decides to compete only in a narrow market segment. In doing so, it faces the same advantages and losses as leaders in minimizing costs and companies that produce unique products.

DANGER OF GETTING STUFFED IN THE MID-WAY Porter cautions that it is best to use only one of these approaches. Failure to follow just one of them will leave the company stuck in the middle without any coherent, well-founded strategy. there will be no "market share, investment, and determination to play with the cost minimization or differentiation within the industry necessary to avoid this in a narrower market segment." will lose both customers who purchase products in large quantities and require low prices, and customers who demand uniqueness of products and services. will have low profits, a blurred corporate culture, conflicting organizational structures, weak incentives, etc.

CONCEPT # 3: THE VALUE ROOM “The competitive advantage cannot be understood when looking at the firm as a whole” Porter suggests looking at the value chain for detailed strategic analysis and strategy selection. He identifies five primary and four secondary activities that make up such a chain in any firm.

FIVE PRIMARY ACTIONS 1. 2. 3. 4. 5. Material and technical support of the enterprise. Production processes. Material and technical support of sales. Marketing and sales. Service.

FOUR SECONDARY ACTIONS 1. 2. 3. 4. Procurement Technology Development Human Resource Management Maintaining Firms Infrastructure

Each standard category can and should be divided into actions that are unique to this particular company. The purpose of this disaggregation is to help companies choose one of three generic strategies. Identify the areas of potential competitive advantage that a company can gain by countering five competitive forces that are unique to each industry and company. This analysis should be carried out by all company leaders, and it should be done in stages. It is useful for managers to draw diagrams, analyze the cost of their

CONCLUSION The main reason Porter's ideas did not work is that some companies simply refused to play by his rules. Many Japanese and some American upstart companies have simultaneously minimized costs and implemented differentiation. In Porter's terminology, they were stuck somewhere in the middle, but at the same time they not only survived, but also succeeded, flourished. It became clear to American corporations that Porter's theory no longer matched reality. But, despite everything, Porter made a huge contribution to the development of the economy, for which many say a big thank you to him.

Michael Porter's basic strategies

Harvard professor Michael Porter presented his three strategies for strengthening the company's competitiveness back in 1980 in the book Competitive Strategy. Since then, Porter's strategies have not lost their relevance. Of course, many entrepreneurs think they have a fairly general look. But wait, Michael Porter is a professor, a consultant - his task is precisely to collect general methods and present them to the general public. Practical subtleties are a private matter for every businessman.

Porter described his strategies at a time when the concept of positioning, described by Jack Trout and Al Rice, was just gaining popularity. The main essence of Michael Porter's strategies is that for the successful operation of the company, it needs to somehow stand out from the competitors, so as not to appear in the eyes of consumers as everything for everyone, which, as you know, means nothing to anyone. To cope with this task, the company must choose the right strategy, which it will subsequently adhere to. Professor Porter identifies three types of strategy: cost leadership, differentiation and focus. At the same time, the latter is divided into two more: focusing on differentiation and focusing on costs. Let's consider each strategy in detail.

Cost leadership

This strategy is extremely simple. To be successful, a company must reduce costs and become a leader in this indicator in its industry. Usually, this type of strategy is understandable to absolutely all employees of the company, especially if its activities are related to the production of any goods. But being the most economical company in the industry is not an easy task. First, for this you will have to use all the most modern equipment and try to achieve maximum process automation. Accordingly, a company trying to become a cost leader needs the highest quality personnel who will do their job faster and better (while getting more).

In order to have low costs, the company will have to serve many different market segments. This is logical, since the larger the scale of production, the lower the cost of it. This, according to Michael Porter, is the most important aspect of this strategy.

In order to remain the leader in terms of costs all the time, the company will have to constantly look for new opportunities to save money by introducing new management techniques and the latest technical developments. In addition, differentiation principles cannot be ignored, as there is a possibility that buyers will find the quality of the company's products not worthy of them. And therefore, one must understand that low costs are not synonymous with low-quality products, and are not even synonymous with cheap products. With proper positioning, no one bothers to sell products at the same price as competitors. And due to low costs, the company will be able to get higher profits.

The cost leadership strategy involves constant monitoring of the current situation. This strategy is very dangerous, since there is a high probability that sooner or later there will be competitors who can make their costs even lower. All this is possible, both due to better marketing, and due to such factors as: distribution network, technological progress, management know-how, external factors in the country and the world, the arrival of larger global players on the market, loss of employee motivation and etc.

One of the main temptations for the cost leader is to expand the product range. But it is worth resorting to it, thinking 10 times, since such an expansion can destroy all the cost advantage, thereby ruining the company. Another factor that shouldn't be overlooked is consumers. They can be the factor that can force the company to lower prices, leading to the destruction of the leader's entire cost advantage.

Differentiation

Differentiation used to be based on the concept of a unique selling proposition. This is no longer the case. In principle, with proper marketing, a company's product may be typical of the industry, but in the minds of consumers it will be special. Differentiation is precisely about taking a unique place in the minds of consumers, operating with some unique property of the product.

Differentiation, however, can refer not only to the product itself or marketing, but also to the distribution system (for example, credit cards of the Tinkoff bank can only be obtained through direct mail) and so on. This strategy allows you to create products that will cost end users much more expensive than competing products (we are talking about luxury goods). But do not get carried away, when differentiating, it is very important to keep track of finances all the time, since with improper management it may turn out that the company is going to the bottom.

Among the successful examples of differentiation should be noted the strategy of the company 7Up, which presented its drink as "not Cola". 7Up was an overwhelming success, which would only have developed if the company, for no one understandable reasons, for some time did not abandon its "no-cola" strategy and switched to "America chooses 7Up." The Volkswagen Beetle is one of the best examples of differentiation. This car was introduced at a time when large, beautiful and often expensive cars were in vogue in the United States. The Beetle did not fit any of these definitions and quickly became the best-selling car in the United States. True, then a failure followed. This was because Volkswagen decided to become everything to everyone by changing its differentiation strategy.

Companies pursuing a differentiation strategy can fall prey to problems such as large cost differentials with an industry leader. This may lead to a situation that the company will become irrelevant, despite all its positioning. Also, there is a high probability that the company's product will be copied by competitors. In this way, all the differentiating advantages of the company (if it is associated with the product) can be lost. Finally, it's worth noting that a company pursuing a differentiation strategy must keep a close eye on costs. The appearance of the Japanese luxury car under the Lexus brand has hit the big US and European giants such as Cadillac and Mercedes. The Japanese also positioned themselves as a luxury car, but due to the lower costs, it was much cheaper than similar Cadillacs.

Focusing

A focusing strategy is to select a specific segment in the industry and target it exclusively, so that that specific group of buyers will differentiate the company from the competition. Accordingly, the company's task is to look attractive for this particular segment of buyers. Michael Porter divides the focusing strategy into two parts. The first is the focus on costs. Moreover, it is associated with focusing on costs in working with one segment of the industry allocated by the company. At the expense of lower costs, the company will be able to achieve a high competitive advantage in the eyes of its target group. The second offshoot of the strategy is focusing on differentiation. In this case, the company's task is to present its product as attractive as possible for a specific target audience. In this case, it is important to choose a narrow target audience (not by quantity), which will differ significantly from the rest of the audience.

The problem with this strategy is that when working with a small target audience, the company will have higher costs than one that works for the entire industry. Finally, Michael Porter highlights another important threat - competitors can find a narrow segment of the market in the segment in which the company operates, thereby seriously complicating its life.

According to Michael Porter, any of these strategies gives the company a competitive edge. The worst thing is if the company is delayed halfway to the choice of strategy. In this case, it will gradually lose its market share, its costs will grow, which will not allow working with large buyers. Also, the company will not be able to grasp narrow niches and compete with other products that have bypassed it due to differentiation. When choosing one of Porter's basic strategies, it is very important to understand what the company ultimately wants to achieve. After all, focusing and differentiating strategies can even lead to a serious decrease in income (but not profit). All this leads to the fact that when choosing a strategy for an operating company, a full-fledged reorganization may be required, which will inevitably entail dismissals.

Michael Porter's basic strategies are management classics and have served as the basis for many of the current strategies. I hope this article was helpful for you as well.

“The goal of a competitive strategy for an enterprise is to have a position where the company can best defend against action.

competitive forces or to influence them for your own benefit. " Michael Porter

Porter's first key concept identifies five major competitive forces that,

in his opinion, they determine the intensity of competition in any industry.

Five competitive forceslook like this:

The threat of new competitors appearing in the industry.

The ability of your customers to drive price reductions.

The ability of your suppliers to seek higher prices for their products.

Threat of substitutes for your products and services on the market.

The severity of the competition between competitors in the industry.

Typical Competition Strategies by Michael Porter

“Competitive strategy is defensive or offensive actions aimed at gaining a strong position in the industry, successfully overcoming the five competitive forces and thereby generating higher returns on investment” Michael Porter.

Porter admits that companies have demonstrated many different ways to achieve a goal, but he insists that only three internally consistent and successful strategies can be used to outperform other firms:

Cost minimization.

Differentiation.

Concentration.

First typical strategy: minimizing costs

In some companies, managers place great emphasis on cost management. While they do not neglect the issues of quality, service and other necessary things, the main strategy of these companies is to reduce costs relative to the costs of competitors in the industry. Low costs provide these companies with protection from five competitive forces.

Once a company becomes a leader in minimizing costs, it is able to maintain high levels of profitability, and if it intelligently reinvests its profits in equipment upgrades, it can maintain leadership for a while.

Leadership in minimizing costs can be an effective response to the actions of competitive forces, but it does not provide any guarantee against failure.

Second typical strategy: differentiation

As an alternative to leadership in minimizing costs, Porter offers product differentiation, i.e. its difference from the rest in the industry. A firm pursuing a differentiation strategy is less worried about costs and more committed to being seen as unique within the industry.

For example, Caterpillar emphasizes the durability of its tractors, availability of service and parts, and an excellent dealer network to differentiate itself from the competition.

The differentiation strategy allows several leaders to exist within the same industry, each of whom retains some distinctive feature of their product.

At the same time, differentiation carries with it certain risks, as well as the leadership strategy in minimizing costs. Competitors pursuing cost-minimizing strategies are able to mimic the products of firms pursuing a differentiating strategy well enough to entice consumers and switch them to themselves.

The third typical strategy: concentration

The last typical strategy is the concentration strategy.

A company pursuing this strategy focuses its efforts on the satisfaction of a specific customer, a specific range of products, or a market in a specific geographic region.

While cost minimization and differentiation strategies aim to achieve industry-wide goals, a total focus strategy is built on serving a specific customer very well.

The main difference between this strategy and the two previous ones is that a company choosing a concentration strategy decides to compete only in a narrow market segment. Instead of attracting all customers by offering them either cheap or unique products and services, the concentration strategy company serves a very specific type of customer.

Operating in a narrow market, such a company may attempt to become a leader in minimizing costs or follow a differentiation strategy in its segment. In doing so, it faces the same benefits and losses as leaders in minimizing costs and companies that produce unique products.

“The goal of a competitive strategy for an enterprise is to have a position where the company can best defend against action.

competitive forces or to influence them for your own benefit. " Michael Porter

Porter's first key concept identifies five major competitive forces that,

in his opinion, they determine the intensity of competition in any industry.

Five competitive forceslook like this:

The threat of new competitors appearing in the industry.

The ability of your customers to drive price reductions.

The ability of your suppliers to seek higher prices for their products.

Threat of substitutes for your products and services on the market.

The severity of the competition between competitors in the industry.

Typical Competition Strategies by Michael Porter

Cost minimization.

Differentiation.

Concentration.

First typical strategy: minimizing costs

Leadership in minimizing costs can be an effective response to the actions of competitive forces, but it does not provide any guarantee against failure.

Second typical strategy: differentiation

For example, Caterpillar emphasizes the durability of its tractors, availability of service and parts, and an excellent dealer network to differentiate itself from the competition.

The differentiation strategy allows several leaders to exist within the same industry, each of whom retains some distinctive feature of their product.

The third typical strategy: concentration

The last typical strategy is the concentration strategy.

A company pursuing this strategy focuses its efforts on the satisfaction of a specific customer, a specific range of products, or a market in a specific geographic region.

While cost minimization and differentiation strategies aim to achieve industry-wide goals, a total focus strategy is built on serving a specific customer very well.

Michael Porter was born on May 23, 1947 in Michigan, the son of an American Army officer. He graduated from Princeton University, then received an MBA and a PhD from Harvard University, completing each stage of study with honors. From 1973 to the present, he has been working at the Harvard University Business School, since 1981 as a professor. Lives in Brooklyn, Massachusetts.

Throughout his scientific career, M. Porter was engaged in the study of competition. He has been a consultant to many leading companies such as T&T, DuPont, Procter & Gmble and Royl Dutch / Shell, provided services to the directorate lph-Bet Technologies, Prmetric Technology Corp., R&B Flcon Corp. and ThermoQuest Corp... In addition, Porter has served as a consultant and advisor to the governments of India, New Zealand, Canada and Portugal, and is currently a leading regional strategy development specialist for presidents of several Central American countries.

Being one of the most influential specialists in the field of management, Porter largely determined the main directions of research of competition (primarily in a global context), proposed models and methods of such research. He managed to connect the issues of developing enterprise strategy and applied microeconomics, which were previously considered independently of each other.

He has written 17 books and over 60 articles. Among the most famous are: "Competitive strategy: a methodology for analyzing industries and competitors" ( Competitive Strtegy: Techiques for nlyzing Competitors) (1980), "Competitive advantage: how to achieve high results and ensure its sustainability" ( Competitive dvntge: Creting nd Sustining Superior Performnce) (1985) and Country Competitive Advantages ( Competitive dvntge of Ntions) (1990).

In his main book, Competitive Strategy, Porter proposed revolutionary approaches to the development of enterprise strategy and individual sectors of the economy. This book is based on a careful study of hundreds of companies in various business areas. According to Porter, the development of a competitive strategy comes down to a clear formulation of what should be the goals of the enterprise, what means and actions will be needed to achieve these goals, what methods the enterprise will use to compete. Managers and consultants often use different terminology when talking about strategy. Some talk about "mission" or "task" meaning "purpose", others talk about "tactics" meaning "current operations" or "production activities". However, in any terms the main condition in developing a competitive strategy is the delineation of goals and means.

On the picture 1 competitive strategy is presented in the form of a scheme called by Porter "The Wheel of Competitive Strategy":

the axle of the wheel is goalscompanies, including a general definition of its competitive intentions, specific economic and non-economic objectives, the results that it plans to achieve;
wheel spokes are facilities (methods) by which the company seeks to realize its main goals, key areas of business policy.

For each point of the diagram, the key points of business policy are briefly identified (depending on the nature of the business, the formulations can be more or less specific). Together, goals and directions represent a concept of strategy that guides a company through its development and market behavior. As with the wheel, the spokes (methods) come from the center (s) and are connected to each other; otherwise, the wheel will not roll.

In general, the development of a competitive strategy is associated with consideration of the key factors that determine the boundaries of its capabilities for the organization ( fig. 2). The company's advantages and weaknesses lie in the structure of its assets and competencies compared to competitors, including financial resources, technological state, brand recognition, etc. The individual values \u200b\u200bof the organization include the motivation and demands of both top managers and other employees of the company implementing the chosen strategy. Strengths and weaknesses, combined with individual values, determine the internal constraints on strategy choices.

It is equally important when developing a competitive strategy to take into account factors external to the company, set by its environment. The concept of "environment" is understood by Porter very broadly, it includes the action of both economic and social forces. The key element of the company's external environment is the industry (industries) in which it competes: the structure of the industry largely determines the rules of the game, as well as the acceptable options for competitive strategies. Since external factors tend to affect all companies in the industry simultaneously, accounting for forces outside the industry is relatively less important in developing a successful competitive strategy than the ability of a particular company to interact with these forces.

The intensity of competition in the industry is far from accidental. It is determined by the economic structure of the industry, and not by subjective factors (for example, luck or the behavior of existing competitors). According to Porter, the state of competition in an industry depends on the action of five major competitive forces (fig. 3). The cumulative effect of these forces determines the ultimate potential for profitability in the industry, measured as a long-term measure of return on investment. Industries differ significantly in their potential for profitability because of the different competitive forces at work. Under intense exposure (for example, in industries such as tire manufacturing, paper industry, iron and steel industry), companies do not receive impressive profits. With relatively moderate exposure, high profits are common (in the production of oilfield equipment, cosmetics and toiletries; in the service industry).

Michael Porter proposed a revolutionary approach to developing enterprise strategy - using the laws of microeconomics. He began to consider strategy as a basic principle that can be applied not only to individual companies, but also to entire sectors of the economy. The analysis of strategic requirements in various industries allowed the researcher to develop five forces model (fig. 3), taking into account the effect of five competitive factors:

The emergence of new competitors. Competitors inevitably bring new resources, which requires other market participants to attract additional funds; accordingly, profit decreases.
The threat of substitutes. The existence of competitive analogs of products or services in the market forces companies to limit prices, which reduces revenue and reduces profitability.
The ability of buyers to defend their own interests. This entails additional costs.
The ability of suppliers to defend their own interests. Leads to higher costs and higher prices.
Rivalry between existing companies. Competition requires additional investment in marketing, research, new product development, or price changes, which also reduces profitability.

The impact of each of these forces varies from industry to industry, but collectively they determine a company's long-term profitability.

Porter offers three basic strategies: absolute leadership in costs; differentiation; focusing... By using these strategies, companies will be able to resist competitive forces and achieve success. For the effective implementation of the chosen basic strategy, it is necessary: \u200b\u200bthe development of targeted strategic plans (organizational measures), coordination of actions of all divisions of the company, well-coordinated team work. Based on the basic strategy, each company develops its own version of the strategy. Achieving better performance for specific companies than competitors in some industries can lead to an overall increase in profitability for all. In other industries, the very ability of a company to receive an acceptable profit depends on the success of a competitive strategy.

Porter makes it clear that there is no single “best” strategy in any industry: different companies use different strategies, and the same five competitive forces operate in each industry, albeit in different combinations.

Another significant contribution of Michael Porter to management theory is the development value chain concepts... It takes into account all the actions of the company that lead to an increase in the value of a product or service. The researcher highlights the main activities related to the production of goods and their delivery to the consumer, and subsidiary that either directly contribute to value creation (such as technological development) or enable the company to operate more efficiently (through the creation of new lines of business, new procedures, new technologies or new inputs). Understanding the value chain is extremely important: it allows you to understand that a company is more than a collection of different activities, since all activities in an organization are interrelated. In order to ensure the achievement of competitive goals and successfully respond to external influences from the industry, the company must decide which of these activities should be optimized, which trade-offs are possible.

In his work "Competitive Advantages", Porter moved from analyzing the phenomenon of competition to considering the problem of creating lasting competitive advantages. Later, he concentrated his efforts on applying the developed principles of competitive strategy analysis on a global scale.

In Competition in Global Industries (1986), Porter and his colleagues applied these principles to companies operating in international markets. Based on industry analysis, Porter highlighted two types of international competition... According to his classification, there are multi-internal industries in which there is internal competition in each individual country (for example, private banking), and global industry. Global is “an industry in which the competitive position of a firm in one country is largely dependent on its position in other countries, and vice versa” (for example, automotive and semiconductor technology). According to Porter, the key difference between the two types of industries is that international competition in multi-domestic industries is optional (companies can decide whether to compete in foreign markets or not), while competition in global industries is inevitable.

International competition is characterized by the distribution of activities that form a value chain between several countries. Therefore, in addition to choosing the space for competition and the type of competitive advantage, companies should develop options for their strategy, also taking into account the characteristics that are included in the value chain of activities:

geography of distribution and concentration (where they are carried out);
coordination (how closely they are related to each other).

There are four possible combinations of these factors:

High concentration - high coordination (simple global strategy: all actions are carried out in one region / country and are highly centralized).
High concentration - low coordination (strategy based on export and decentralization of marketing activities).
Low concentration - high coordination (strategy of large foreign investment in geographically dispersed but well coordinated operations).
Low concentration - low coordination (a country-oriented strategy in which decentralized subsidiaries focus on their own markets).

There is no single “best” strategy for companies in the struggle in international markets. Each time, the strategy is chosen depending on the nature of the competition in the industry and the actions of the five main competitive forces. Porter points out that there are cases when there is a "dispersion" of some activities that determine the value chain, and the "concentration" of others. It is important to remember that competitive advantage is determined primarily by as this or that type of activity is carried out, and not where .

In the book “Competitive Advantages of Countries” (1990), Porter deepens the analysis of the phenomenon of competition: reveals determinants determining the action of competitive forces at the national level:

working conditions (the presence in the country of such factors necessary for the production of products as skilled labor or industrial infrastructure);
demand conditions (features of the market for a specific product or service);
presence of supporting or related industries (internationally competitive suppliers or distributors);
nature of the company's strategy (specifics of rivalry with other companies, including factors such as organizational and management climate, as well as the level and nature of internal competition).

The impact of these determinants can be found in every country and in every industry. They determine the effect of the forces of competition within industries: "The determinants of national advantage reinforce each other and grow over time, favoring an increase in the competitive advantage in the industry." The emergence of such a competitive advantage often leads to an increase in concentration both in individual industries (mechanical engineering in Germany, electronics in Japan) and in geographical areas (in northern Italy, in the Rhine regions in Bavaria).

Porter places particular emphasis on the importance of national competitive advantage often occurs under the influence initially unfavorable conditionswhen nations or industries are forced to actively respond to a challenge. “Selected factor deficiencies, powerful local buyers, early market saturation, skilled international sourcing, and intense domestic rivalry can be critical conditions for creating and maintaining an advantage. Pressure and adversity are powerful drivers of change and innovation. " When new industrial forces try to change the existing order, nations go through ups and downs - in terms of having a competitive advantage. The author makes an optimistic forecast: "Ultimately, nations will succeed in certain industries, as their internal environment is the most dynamic and most active, and also stimulates and pushes companies to increase and expand their advantages."

The significance of Porter's contribution to management theory is not disputed by anyone. At the same time, some of the shortcomings of his work provoked a number of just criticisms. For example, his distinction between multi-domestic and global industries may disappear when demands for free trade and growing exports bring elements of international competition to domestic markets in virtually all industries.

The main advantage and appeal of Porter's models is their simplicity. He encourages readers to use the proposed models as starting points for their own analysis of the relationships between various elements. These models provide extremely flexible opportunities for choosing the direction of movement, developing a strategy (especially international).

Michael Porter has proposed effective methods for analyzing the phenomenon of competition and for formulating company strategy (both in domestic and international markets). He demonstrated the benefits of joint exploration of strategic and economic challenges, thus making an important contribution to the development of understanding of strategy and competition.

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