Final answer:
Porter's Five Forces model does not require determining a firm's strategy before analysis, but focuses on understanding the industry's competitive forces. Key considerations include market power, product similarity, barrier to entry, and competition basis, which can guide the firm's strategic decisions.
Step-by-step explanation:
When analyzing an industry using Porter's Five Forces model, it is not specifically required to first determine the strategy your firm plans to use, such as market expansion, cost leadership, product differentiation, or merger and acquisition. Instead, the model is a framework for understanding the competitive forces at play in the industry. These forces include: the bargaining power of customers and suppliers, the threat of new entrants, the threat of substitute products, and the competitive rivalry within the industry.
Key factors that determine the intensity of these forces include:
- How much market power does each firm in the industry possess?
- How similar is each firm's product to the products of other firms in the industry?
- How difficult is it for new firms to enter the industry?
- Do firms compete on the basis of price, advertising, or other product differences?
Understanding the dynamics of these factors can help a firm to identify the most advantageous strategy to pursue within its industry context, whether that is to focus on cost efficiency, to differentiate its product offerings, or to consider strategic business developments like mergers and acquisitions.