In times of globalisation strategic decisions like diversification and international expansion become more and more important. As the economic world is developing into an increasingly intertwined network managers need strategic tools to facilitate their decisions. One of these models is the Five Forces model of Michael Porter. He developed this approach in 1980 in his book Competitive Strategy – Techniques for analysing industries and competitors. He claims that any industry has five basic forces that shape the internal competition.
This essay will analyse the underlying theories of the model and the its structure itself and apply it to a case study. The case study portraits the Vietnamese textile industry and their association with the government. By analysing the case study this paper will show the models insufficiencies and how it can be improved.
Table of Contents
1. Introduction
2. An analysis of Michael Porters Five Forces model and their underlying theories
3. Evaluation of a market entry decision in the textile industry in Vietnam according to Porter
3.1 Brief description of Vietnam
3.2 Assessment of Vietnam according to Porters five forces model
3.2.1 Power of the industry suppliers
3.2.2 Local versus international buyers
3.2.3 Substitutes for the textile industry
3.2.4 Threat of new market entries
3.2.5 Internal rivalry
3.3 Concluding investment proposal
4. Critical evaluation and further development of the five forces model
4.1 Factors versus forces
4.2 Interdependencies of the five forces
5. Conclusion
6. References
Research Objectives and Key Topics
The primary objective of this report is to critically evaluate the practical applicability and limitations of Michael Porter's Five Forces framework by applying it as an analytical tool to the textile industry in Vietnam.
- Theoretical analysis of Porter’s Five Forces model and its underlying assumptions.
- Assessment of the Vietnamese textile industry within the context of the Five Forces.
- Critical review of the model's static nature and its handling of external PEST factors.
- Investigation into the interdependencies of competitive forces within a globalized environment.
- Evaluation of market entry potential based on current industrial and economic conditions in Vietnam.
Excerpt from the Book
3.2.1 Power of the industry suppliers
The countries domestic textile sector is not competitive with the international market especially in terms of quality. Therefore the main supply for the garment industry derives from the international market. However, in the Vietnamese garment industry it is the general practice to produce after the CMT principle, which stands for “Cut make and trim”. In this business model the buyer will supply the raw materials and the design pattern for the production process and just pay for the actual service of CMT. This way the buyer, in this case the clothing retailer still profit from the cheap labour costs and do not have to deal with bad quality of the actual textile (Goto et all, Nadvi and Thoburn cited in Goto 2012)
The supply of production machinery is provided by Japan and Singapore. However, these are not the only suppliers of machinery (www.vtgvietnam.com, 2012).
Supply in the form of labour force is weakening in the industrial areas and therefore more expensive due to strikes and the public opinion which depicts work at the garment industry as hard and badly paid (www.sourceasean.com, 2010).
Summary of Chapters
1. Introduction: This chapter introduces the strategic relevance of Michael Porter's model in a globalized economy and outlines the report's intent to apply this framework to the Vietnamese textile sector.
2. An analysis of Michael Porters Five Forces model and their underlying theories: This section details the structural components of the P5F model and explains how Porter defines industry competition and profitability.
3. Evaluation of a market entry decision in the textile industry in Vietnam according to Porter: This chapter applies the Five Forces model to the Vietnamese market, covering the political background and conducting a comprehensive assessment of each competitive force.
3.1 Brief description of Vietnam: Provides an overview of Vietnam's political, economic, and social landscape to contextualize the subsequent strategic analysis.
3.2 Assessment of Vietnam according to Porters five forces model: Evaluates the specific pressures exerted by suppliers, buyers, substitutes, new entrants, and internal rivals in the Vietnamese textile market.
3.2.1 Power of the industry suppliers: Examines the dependence on international textile imports and the implications of the "Cut make and trim" (CMT) business model.
3.2.2 Local versus international buyers: Analyzes the influence of major international buyers from the EU and USA alongside the growing domestic demand.
3.2.3 Substitutes for the textile industry: Discusses the limited threat of substitutes and the industry's ability to hedge against shifting demand.
3.2.4 Threat of new market entries: Assesses the barrier to entry for new competitors in the rising Vietnamese market.
3.2.5 Internal rivalry: Explores the level of competition driven by private ownership and increased industrial demand.
3.3 Concluding investment proposal: Summarizes the findings to provide an evaluation on whether investing in the Vietnamese garment industry is a profitable endeavor.
4. Critical evaluation and further development of the five forces model: Challenges the model's validity, focusing on its static nature and the need for incorporating managerial action and external factors.
4.1 Factors versus forces: Discusses the distinction between environmental factors and competitive forces, specifically addressing government influence.
4.2 Interdependencies of the five forces: Highlights the limitation that the model does not sufficiently account for how the five forces influence one another.
5. Conclusion: Summarizes the report's findings, suggesting that while the P5F model is a solid foundation, it requires adaptation to contemporary global and technological realities.
6. References: Lists the academic and industry sources used throughout the report.
Keywords
Michael Porter, Five Forces Model, Vietnam, Textile Industry, Strategic Management, Competitive Rivalry, Market Entry, Globalization, Supply Chain, Industry Analysis, Investment Strategy, Doi Moi, Economic Reform, Industrial Competitiveness, PEST Factors
Frequently Asked Questions
What is the core subject of this report?
The report provides a critical analysis of Michael Porter's Five Forces framework by applying it to the textile industry in Vietnam to assess its current viability for investment.
What are the central thematic areas covered?
The key themes include industrial competitive analysis, the impact of globalization on strategic tools, the influence of political and social factors on market dynamics, and the limitations of static management models.
What is the primary goal of the research?
The primary goal is to determine if Porter's Five Forces model is sufficient for making investment decisions and how the model can be improved to better address modern business complexities.
Which scientific methodology is utilized?
The report utilizes a qualitative case study approach, applying a standardized theoretical framework (Porter’s P5F) to real-world empirical data from the Vietnamese garment industry.
What does the main body address?
The main body evaluates the individual competitive forces in Vietnam, analyzes the validity of Porter’s original claims, and discusses the necessity of integrating external factors like government policy and technological shifts into the analysis.
Which keywords best characterize this work?
Key terms include Five Forces, Vietnam, Textile Industry, Strategic Management, Competitive Advantage, and Market Analysis.
Why does the author argue that the government should be considered a "force" in Vietnam?
The author argues this because, in a transition economy like Vietnam, government policies such as "doi moi" and its role as an industry participant have a direct and powerful influence that goes beyond mere background conditions.
What is the significance of the "Cut make and trim" (CMT) principle mentioned?
The CMT principle is significant because it shifts raw material and design responsibilities to the buyer, thereby mitigating the impact of supplier power on the production costs and overall profitability of Vietnamese textile firms.
- Citation du texte
- Johannes Walder (Auteur), 2012, A critical evaluation of Michael Porter’s five forces framework. Case study of the Vietnamese textile industry, Munich, GRIN Verlag, https://www.grin.com/document/212377
