Thanks for the summary, Paul. I remember studying Porter’s 5-forces model when I was doing my MBA many years ago, and thinking that it omitted some key factors, one very obvious one being regulatory conditions. There are a great many places in the world (the USA being among them) where government action significantly shapes the competitive landscape, either through explicit controls or via regulation aimed at providing benefit to a sub-sector of the industry. These effects can totally outweigh any of the nominal forces in Porter’s model. A simple example is the business of making aircraft: the power of suppliers and customers, the competition within the industry, and all other factors are far less relevant than government support, which manifests itself in a large number of ways beginning with outright subsidy all the way through to tax breaks for “buying the national champion’s products” to the classification of certain materials as “strategic” and thus subject to special policies.

Perhaps it’s best to see the 5-forces model as a very simplified view of the world, a kind of “beginner’s guide” or “competitive analysis 101” upon which a more sophisticated and complete picture can ultimately be assembled. If we simply stop there, or add in a couple of generic adjuncts, it remains woefully inadequate to handle most real-world scenarios.

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