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The Five Forces model is a business framework for industry analysis and business strategy development. The model was coined by Michael E. Porter of Harvard Business School in and dates back to the year 1979 (Hax, 2009). The model draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. The business environment should be attractive so that the players in the market can do their business fairly. An unattractive business environment is one in which the combination of these five forces acts to drive down overall profitability.
According to Jones, G. and Hill, C. (Hill, 2009), the model sites five forces that help shape the business environment in any society. The forces are either internal or external and the five forces sited this model includes:
- The threat of an entry of new competitors
- The intensity of competitive rivalry
- The threat from substitute products or services
- Bargaining power of customers who are the buyers
- The bargaining power of suppliers.
This theory by Porter helps business managers solve the problem they will face immediately they define their business boundaries. This is the challenge of analyzing competitive forces and identifying the opportunities and threats to the business (Hill, 2009). This paper intends to look at the effects of the five forces model and specifically will look at small business in the United Arab Emirates; this is the Al Qassemi Group. The Al Qassemi Group is a Local Real Estate, Local Insurance and Investment, Industrial and Construction, Travel and Tourism, Advertising, Events, Transport, Irrigation Services, Oil, Finance, Restaurants, and Furniture Business. It is Located at Sharjah, United Arab Emirates the business started up as an industrial and Construction Company. As at present, the Al Qassemi Group is now almost into any kind of business and this can be attributed to the effects it suffered because of the five forces model.
The five forces model affects businesses in various ways and a look at Al Qassemi Group of companies gives a clear indication of how the five forces model can really shape up business. The group has been forced to re-evaluate its position in the market due to the threat from its competitors. Given that the business environment is open and everybody can easily start their own business, there have been so many player attracted to the United Arab Emirates market. The presence of and the increasing dominance of international brands in markets such as the UAE means that traditional trading groups have been forced to re-evaluate their position in the market (Emap Limited, 2011).
Secondly it is very evident that the Al Qassemi Group of insurance has to really think wider because of another force that has been described by the five forces model. Due to presence of international competition the small businesses are really having rough times to make it up to the competition in the market. The Al Qassemi Group of Insurance is finding it tough to exist amidst the international insurance companies that have now invaded the market; there is hardly any room available for companies that wish to compete with international brands in Arabia.
According to the United States Bureau of the Census report of 2006, the International companies that offer most competition bring international standards products, most important, they offer transparency and corporate governance unlike the traditional family companies. Therefore the small companies such as the Al Qassemi Group of insurance which have operated for decades in a 'bubble' of limited competition, must now re-evaluate their market offering. This therefore means that with the presence of greater International investors in insurance in the United Arab Emirates, the Al Qassemi Group of Insurers have to face the challenge.
In response to the threats, the Al Qassemi Group has moved from traditional small business to include businesses of international standards in their activities like manufacturing, financial and insurance markets. The Group has also been forced to spearhead the development of 'newer' industries. This is because their main focus is not in these industries but elsewhere. The Al Qassemi Group now has spearheaded industries such as such as the real estate, tourism and travel industries in the Emirates alongside its multi-faceted retailing enterprises in order to counter the challenge that is brought by there competitors (Emap Limited, 2011).
The Al Qassemi Group is also faced with the now very unwilling buyers. Their customers bargaining power has been made so low. Looking at the world economic crisis that emerged towards 2008-2009 fiscal year, the customers have been weakened financially. This has drastically reduced the number of customers to the Al Qassemi Group. The customers' needs have been so diversified and as stated above it forced this group to actually diversify so that they can keep hold to the market.
The other threat that seems to have really made the Al Qassemi Group to widen their kind of business is the threat from internal players in the market. While they were offering the initial services, other companies also did offer the same. This meant that they had to struggle and compete for customers. On realizing this, the owner, Sheikh Faisal Al Qassemi, decided that the only way they could succeed was through product diversification in 2000.
Porter's five forces model have to some extent helped many businesses shape up there market standards; this has been experienced from the case of the Al Qassemi Group of companies case discussed above. Therefore, any business that needs to survive should be aware of the five forces that play an important decision making consideration.