The Six Forces Theory of Competition

All of us have been conditioned to the Five Forces Theory of Competition proposed by Prof. Micheal Porter from Harvard Business School in 1979 through HBR. (click here)

 

Two generations over the past 41 years have been made to believe that this theory is sacrosanct and cannot be challenged. Being a global strategy expert  and a product of Harvard Business School, his words remained unchallenged over the past many years. 

After 41 years, is the same model still valid ?

While Porter only speaks of the supplier, the end customer and their bargaining power, he has conveniently forgotten to mention the impact of Supply Chain partners in improving the profitability of the product or service and thus making it competitive.

 

The SC partners have a major role to play in influencing the final costs by as much as 15 - 20%. 

 

The recent growth of China in the global scene as a cheap factory of the world raised many a doubt. It is now common knowledge how the Chinese government saw to the shipping of the product from anywhere inside China to the nearest sea port free of cost, which resulted in reduced landing costs of the product in any other port of the world. The reduced costs at foreign ports saw the growth of Chinese exports throughout the world. 

 

Click here for an interesting paper that reveals that supply chain costs do provide a competitive edge for products and producers.

 

Porter's Five Forces model of Competition

Similar is the case in all industries. Supply chain costs are an important cost component in any competitive industry. One of the major reasons for outsourcing to India, China and Far east, besides high cost of labour has been the high supply chain costs in developed countries.

 

Only Marketing Professors have been looking at the competitive forces all this while. Now that Operations Professors also have started looking at the forces that finally shape competition, it is an inevitable fact that supply chain costs do constitute an important part of the costs of the product and hence the competitive positioning of the product. 

This is my humble submission and hope Prof. Porter considers this major force and cost important in his analysis and suitably modifies his 41 year old theory.

George