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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Calderon Motors, a regional car maker, uses Porter's Five Forces to assess its industry. A board member notes that the analysis ignores the fact that many rivals are in fact cooperating with suppliers and distributors through joint ventures to create new products. Which limitation of the Five Forces model does this best illustrate?

The model assumes adversarial, zero-sum relations between a firm and its suppliers, buyers and rivals. It therefore underplays collaboration such as joint ventures and alliances, which create value jointly. That is the limitation shown when rivals cooperate with suppliers and distributors to develop new products.

  1. AThe model treats relationships among players as purely adversarial and underplays collaborationCorrect
  2. BThe model gives too much weight to government regulation
  3. CThe model focuses on internal resources rather than the external environment
  4. DThe model cannot be applied to manufacturing industries

Explanation

Five Forces assumes firms compete against suppliers, buyers and rivals in a zero-sum way. In practice partnerships, alliances and joint ventures create value jointly, which the model underplays. The model is external, not internal, and applies to manufacturing too.

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