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REINTERPRETATION OF INDUSTRUCT AND M. E. PORTER’S FIVE FORCES MODEL: EMPIRICAL EVIDENCE
FROM CROATIAN BUSINESS PRACTICE
Anthony PECOTICH, The University of Western Australia, Australia
Nataša RENKO, University of Zagreb, Croatia
Jurica PAVIČIĆ, University of Zagreb, Croatia
[email protected] ABSTRACT: Since the 1980s, M. E. Porter has been considered as the ultimate and indispensable author for any systematic analysis of the general, marketing and managerial aspects of competition. However, his works dealing with the analysis of competition in industry have come under the scrutiny of numerous studies and critiques. Some of the more recent critiques of M. E. Porter’s postulates relate to the fact that they have rarely been empirically confirmed and that they rely mostly on the analysis of relevant cases from business practice. For this very reason, Pecotich, Huttie and Peng Low have in 1999 in their work “Development of INDUSTRUCT: Scale for the measurement of perceptions of industry structure”, presented the Industruct model as an instrument which would provide strong scientific foundations for the evaluation of the content and relevant relationships among stakeholders during the specific analysis of industry structure. In the present paper, the authors attempt a theoretical reinterpretation of the basic postulates of two models/concepts and the context in which they emerged and on the basis of empirical research conducted on the sample of 150 SMEs in Croatia, show the validity of the proposed structural variables in determining the intensity and structural competition in the new economic context which until now has been insufficiently elaborated. KEYWORDS: M. E. Porter, INDUSTRUCT, competition, five forces model INTRODUCTION M. E. Porter (1979, 1980, 1983, 1985) is one of the principle authors representing the “positioning school” of competitive advantage. Porter’s relevance has been confirmed by many practical and educational applications (Enright, 1994). His work is partly derived from the conceptions of Industrial Organization (IO), hypothesizing that the enterprise performance primarily depends on its conduct, which is, in turn, based on the fundamental features of the industrial structure - this approach is sometimes referred to as the SCP: Structure-Conduct-Performance model. (Tirole, 1988).The most widely accepted basis for “industry structure” definition and measurement emerges from Porter`s (1980) “five forces model”. Although the theoretical disputes of some of the key concepts of Porter’s, theory (i. e. the concept of being “stuck in the middle”- Porter 1980, 1985) and “five forces model” (with dilemma that there are less or more than five forces) have not yet been solved, strong theoretical interest for his
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work still exists, both on the topic of competitive strategy/advantage (Porter, 1998; Rumelt, Schendel, Teece, 1995; Magreta, 1999; Amato, L. H; Amato, C. H., 2003), as well as the other Porter’s theories (Öz, 2002). The continuing interest for Porter’s work leads to the acute need for developing relevant methodologies of empirical research, based on Porter’s constructs. This would be helpful to confirm the applicability and validity of Porter’s theory that have already been accepted as a standard, both in the business and in the academic community. The purpose of this study is to address the issue of empirical validation of one of the fundamental Porter’s constructs – the industrial structure. One of the first attempts to develop and validate the measure of industry structure encompassing Porter’s (1980) five competitive forces, has been a contribution by Pecotich, Hattie and Peng Low (1999). As almost five years have passed from this seminal Australian attempt, the need for a similar research has arised. Furthermore, the significance of a different context in which the new research has been conducted, could be considered as a justification of the authors’ attempt to expand the original methodology (Pecotich et al, 1999) as well as to apply to a wide range of different business situations. CONCEPTUAL BACKGROUND The five competitive forces model has been the first attempt to “build up” the IO1 economists’ partial models and obtain a complex model of firms’ behavior, encompassing more than a single economic variable (as it was the case with the early IO models). Porter’s model consists of five complex variables which describe the industry structure, i.e. its inherent characteristics leading to the overall profit level in a particular industry. In such a manner, as pointed out by Pecotich et al. (1999), Porter constructs a model which takes into account both the competitive behavior of the firm and the basic characteristics of its environment. The forces singled out by Porter (1979, 1980, 1983) include: (a) threat of entry of new competitors into the industry, (b) the threat of substitute/competitive products, (c) the bargaining power of buyers/customers, implying the influence of customers to the firms’ profitability, (d) the bargaining power of suppliers – which can be explained in pretty much the same manner and (e) the intensity of rivalry, describing the “jockeying for advantage” in the marketplace. METHODOLOGICAL BACKGROUND The “initial methodological trigger” for the research is methodology of scale development formulated by Pecotich, Hattie & Panglow (1999); Anderson (1988), Hattie (1981) and Nunnally (1978). The seven step procedure was implemented. The first step involved a review of the literature in order to define conceptual framework for the elements of industry structure. Therefore the “five forces model” is analyzed through 126 items. They provided/defined the complete covering of each force – according to Porter (1980, 1985). In the second step, a sample of 15 experts in strategic marketing evaluated the accuracy of the items to reflect the five factors. These were faculty professors at the University of Western Australia who were familiar with Porter’s theory through teaching, consulting and research. There was 100% agreement on the classification of 41% of the items and the lowest percentage allowed for every item included in the instrument was 86.7%. As a result of this procedure, the number of items included in the initial version of the measurement instrument
1 Industrial Organization
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was reduced to 55, and each competitive force was consequently represented by at least 10 items. In the Croatian study a sample of 10 experts in strategic marketing were used. These were also faculty professors at the University of Zagreb – Faculty of Economics. They were examined in order to analyze the items in the best possible manner of describing the Porter’s model. There was almost 100% agreement on all the items included in the final instrument. Therefore, practically identical questionnaire as it was used in “Australian research” was used in “Croatian” research. Each competitive force was consequently represented by at least 10 items. In the third step the instrument was tested and translated in Croatian language prior to the administration to the sample. The questionnaire consisted of three parts using different scales (Pecotich et al, 1999): (a) a measure of industry factors to which the respondents were responding by using a five-point Likert scale, ranging from “To no extent” to “Very great extent”; (b) a five-point scale and (c) the open-ended format – the respondents were asked to directly state the number of substitutes for their products within the industry. In the fourth step, the final questionnaire was administered to a sample of executives. These executives were all involved in top-level strategic decision-making in their organization. They were familiar with the environment of the industry in which their firms operated. Altogether six hundred questionnaires were distributed and accompanied by a cover letter explaining the research and assuring confidentiality of individual responses. Additionally, phone calls to respondents were maid, in order to ensure successful participation in the survey. The number of respondents turned out to be 151, which amounted to the response rate of 25.17%. Such a result can be considered as satisfactory regarding the hierarchical level of the respondents and the nature of the study (Groves, 1985; Pecotich et al, 1999). The data collection method in Croatian study was the personal interview. Collected data were processed by using SPSS 10 for Windows. The utilized method of data collection seems to have several significant advantages over the other available methods in terms of data quality (Groves, 1989; Groves, 2002). Sykes (1990, pp. 289-328) points out the “flexible and responsive interaction which is possible between interviewer and respondents, which allows meaning to be probed, topics to be covered from the variety angles and questions made clear to respondents”. Interviewers who participated in the data collection were specially trained and instructed due to the complexity of the topics. A total of 150 questionnaires were distributed, including a cover letter asking for cooperation and providing assurance of confidentiality and instructions for filling in the questionnaire. Each executive was additionally contacted by phone and asked to provide assistance to the researchers by participating in the survey and personal interviews. The final number of respondents was 137. This represents a response rate of 90%, which can be considered satisfactory, as well as comparable to similar surveys (Groves, 1989). The executives came from a wide range of industries. The responding companies were considered as the most successful small and medium-sized (SMEs) companies, according to the “Privredni vjesnik” (2002), one of the most reliable Croatian sources for the company performance data. The fifth and sixth step involved the factor analysis of the items within individual scales. The methods of statistical computations have been comparable to the “Australian” study (Pecotich et al, 1999). The final step included an attempt to assure (although on a preliminary basis) predictive validity of the model provided, which is being derived from Porter’s (1980, 1985) original discussion. Namely, Porter believes that the firms in an individual industry differ according to the influence exerted by the competitive forces upon them. Therefore, enterprises can be grouped according to the influence of certain competitive force(s) to their competitive
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behavior. E.g. there might be enterprises grouped according to either high, or a very low influence of suppliers’ bargaining power to their behavior. RESULTS OF THE AUSTRALIAN STUDY In the Australian study, the data processing has been based on the basis of 42 items that were unambiguous in their loadings. The number of factors had been obvious (five factors), on the basis of the utilized theoretical model. Table 1 depicts the summarized results of the study. It should be noted that the zero in the matrix represents a particular loading restricted to zero, instead of being freely estimated. The overall fit of data to the model can be proved by the ratio of the empirical chi square and degrees of freedom, amounting to 1,64. Values of the other relevant statistical indicators (such as the Tucker-Lewis, Bentler-Bonnet, McDonald, etc. indices) also prove that the data can be described as excellently fitting the model (for details, see Pecotich et al, 1999). The intercorellations between the factors show that the entry has either low or nonexistent correlation with suppliers. The other intercorrelations are between 0,3 and 0,6. This proves that those share some common variance, but not sufficient in order to justify the introduction of new factors. Table 1. Items and factor loadings and for the five factors in the “Australian” study Item I
Rivalry II Suppliers
III Entry
IV Substitutes
V. Buyers
1. Firms in our industry compete intensely to hold and/or increase their market share
.70 0 0 0 0
2. There is a diversity of competitors in our industry (i.e. competitors may be diverse in strategies, origins, personality and relationships to their parent companies)
.31 0 0 0 0
3. In our industry, competitive moves from one firm have noticeable effects on other competing firms and thus incite retaliation and counter moves
.65 0 0 0 0
4. In our industry, advertising battles occur frequently and are highly intense
.51 0 0 0 0
5. In our industry, price competition is highly intense (i.e. price cuts are quickly and easily matched)
.86 0 0 0 0
6. Price cutting is a common competitive action in our industry
.76 0 0 0 0
7. Appropriate terms used to describe competition in our industry are “warlike”, “bitter”, or “cut-throat”
.71 0 0 0 0
8. In our industry, firms have the resources for vigorous and sustained competitive action and for retaliation against competitors
.61 0 0 0 0
9. In our industry, foreign firms play an important role in industry competition
.45 0 0 0 0
10. The suppliers’ product can affect the final quality of this industry’s product
0 .56 0 0 0
11. The suppliers’ product is an important input into our industry
0 .69 0 0 0
12. The products provided by our suppliers and used in our production process cannot be stored for any length of time
0 .36 0 0 0
13. Suppliers of products to our industry could integrate our production process into their operations
0 .60 0 0 0
14. The suppliers to our industry can raise their prices easily or threaten to reduce the quality of their products
0 .59 0 0 0
15. In our industry, supplier or supplier 0 .81 0 0 0
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groups are powerful 16. The suppliers of raw and other materials to our industry can and do demand, and gain concessions
0 .67 0 0 0 (Continued)
Table 1. – Continued Item
I Rivalry
II Suppliers
III Entry
IV Substitutes
V. Buyers
17. Firms in our industry are not well informed about their suppliers’ demand/sales figures, profitability and cost structures
0 .34 0 0 0
18. There exist a small number of suppliers who contribute to a large proportion of our industry’s inputs
0 .70 0 0 0
19. In our industry, new competitors have to enter at a highly visible large scale and risk strong reaction from existing firms
0 0 .65 0 0
20. Established firms in our industry have substantial resources which may be used to prevent the entry of new competitors
0 0 .50 0 0
21. New firms entering our industry must spend a large amount of capital on risky and unrecoverable up-front advertising and/or for Research and Development (R&D)
0 0 .55 0 0
22. Retaliation by established firms towards new entrants into our industry is and has been strong
0 0 .61 0 0
23. New entrants into our industry have to spend heavily to build up their brand names and to overcome existing brand loyalities
0 0 .50 0 0
24. New entrant firms in our industry will find it difficult to persuade distribution channels to accept their products
0 0 .47 0 0
25. New firms entering this industry as small scale operators must accept a considerable cost disadvantage
0 0 .63 0 0
26. Large capital and/or financial resources are required for entry into our industry
0 0 .45 0 0
27. New firms entering our industry will face cost disadvantages if they do not control successive stages in the production and/or distribution of this industry’s product (Cost disadvantages arise when new and unintegrated firms have to purchase inputs at market prices while established firms produce their own inputs at lower prices)
0 0 0 .74 0
28. In our industry, there is considerable pressure from cheaper substitutes
0 0 0 .49 0
29. It is difficult to find replacements for the suppliers’ product in this industry
0 0 0 .68 0
30. All firms in our industry are aware of the strong competition from substitutes
0 0 0 .75 0 (Continued)
Table 1. - Continued Item
I Rivalry
II Suppliers
III Entry
IV Substitutes
V. Buyers
31. The availability of substitute products limits the potential returns in our industry
0 0 0 .51 0
32. Substitute products limit the profitability of this industry
0 0 0 .51 0
33. Our industry’s products serve functions which may be easily served by many other products
0 0 0 .62 0
34. The needs which our industry’s products satisfy may be easily satisfied by products from many other sources
0 0 0 .37 0
35. The products of the industry in which we compete have intrinistic characteristics for which it is difficult to find substitutes
0 0 0 .72 0
36. Our industry makes products for which there are a large number of substitutes
0 0 0 .35 0
37. In our industry, buyers are highly concentrated (i.e. buyers purchase large
0 0 0 0 .48
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volumes relative to a firm’s sales) 38. The products from our industry are sold to buyers in industries which make low profits
0 0 0 0 .37
39. The buyers of products from our industry are mainly wholesalers and retailers who can influence the final consumers’ purchase decisions
0 0 0 0 .58
40. In our industry, buyers or buyer groups are powerful
0 0 0 0 .57
41. The buyers or our industry’s products are in a position to demand concessions
0 0 0 0 .73
42. There are a small number of buyers who form a large proportion of this industry’s sales
0 0 0 0 .52
Source: Pecotich, A.; Hattie, J.; Peng Low, L. (1999), p. 414-416 (adapted) The obtained data for the “Australian” study also demonstrate that each of the five factors (which are identical to Porter’s forces) can be found in the sample. The most significant force had been the rivalry (with the mean score of 3,18 – corrected for the influence of the number of items), followed by the threat of new entry (2,93), bargaining power of buyers (2,71), suppliers’ bargaining power (2,59) and with the threat of the substitutes as the least significant factor/competitive force (2,49). RESULTS OF THE CROATIAN STUDY Results of the factor analysis for the Croatian survey are shown by Table 2. Table 2. Items and factor loadings for the five factors in the “Croatian” study Item I
Entry II Rivalry
III Substitues
IV Suppliers
V. Buyers
19. In our industry, new competitors have to enter at a highly visible large scale and risk strong reaction from existing firms
.819 7.267E-02 6.336E-02 -9.11E-02 .202
42. Large capital and/or financial resources are required for entry into our industry
.623 -.110 -.121 9.754E-02 .113
10. New firms entering our industry must spend a large amount of capital on risky and unrecoverable up-front advertising and/or for Research and Development (R&D)
.615 -.114 1.499E-02 3.942E-02 .142
53. New firms entering our industry will face cost disadvantages if they do not control successive stages in the production and/or distribution of this industry’s product (Cost disadvantages arise when new and unintegrated firms have to purchase inputs at market prices while established firms produce their own inputs at lower prices)
.613 1.635E-02 -8.34E-02 .182 8.14E-02
15. Retaliation by established firms towards new entrants into our industry is and has been strong
.474 .339 .109 -1.71E-02 -7.8E-02
29. New entrant firms in our industry will find it difficult to persuade distribution channels to accept their products
.460 7.462E-02 3.695E-02 -2.90E-02 3.38E-02
1. In our industry, new competitors have to enter at a highly visible large scale and risk strong reaction from existing firms
.450 .181 8.132E-02 4.542E-02 .285
37. New firms entering this industry as small scale operators must accept a considerable cost disadvantage
.400 .143 8.637E-02 .286 .210
5. Established firms in our industry have substantial resources which may be used to prevent the entry of new competitors
.365 2.939E-02 -.108 .242 -.134
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41. Appropriate terms used to describe competition in our industry are “warlike”, “bitter”, or “cut-throat”
.165 .708 7.843E-02 -9.95E-02 7.17E-02
18. In our industry, competitive moves from one firm have noticeable effects on other competing firms and thus incite retaliation and counter moves
.385 .688 6.443E-02 7.862E-02 -.101
35. Price cutting is a common competitive action in our industry
-.252 .648 5.768E-02 .121 .232
27. In our industry, price competition is highly intense (i.e. price cuts are quickly and easily mathched)
-.148 .602 5.811E-03 -.114 .100 (Continued)
Table 2. – Continued 23. In our industry, advertising battles occur frequently and are highly intense
I Entry .426
II Rivalry .567
III Substitutes .243
IV Suppliers -.131
V. Buyers -4.7E-02
45. In our industry, firms have the resources for vigorous and sustained competitive action and for retaliation against competitors
.119 .476 9.721E-02 .167 -.165
8. Firms in our industry compete intensely to hold and/or increase their market share
.197 .464 .154 2.920E-02 .422
13. There is a diversity of competitors in our industry
-.202 .447 -1.12E-03 .142 5.03E-02
34. The buyers of products from our industry are mainly wholesalers and retailers who can influence the final consumers’ purchase decisions
.188 .361 -2.18E-03 -3.75E-02 -2.6E-02
25. Our industry’s products serve functions which may be easily served by many other products
6.174E-03 .349 .284 .122 -1.4E-02
20. Substitute products limit the profitability of this industry
2.687E-02 1.054E-02 .787 -.200 8.68E-02
16. The availability of substitute products limits the potential returns in our industry
9.311E-02 -9.02E-02 .777 .127 6.16E-03
38. The products of the industry in which we compete have intrinistic characteristics for which it is easy to find substitutes
-.141 .219 .658 -.223 -2.5E-02
48. Our industry makes products for which there are a large number of substitutes
2.842E-02 .147 .587 .282 .255
2. In our industry, there is considerable pressure from cheaper substitutes
-.135 .446 .570 .114 .193
11. All firms in our industry are aware of the strong competition from substitutes
.256 7.727E-02 .488 -2.31E-03 .481
30. The needs which our industry’s products satisfy may be easily satisfied by products from many other sources
.106 9.833E-02 .416 -.189 -.125
9. It is difficult to find replacements for the suppliers’ product in this industry
-.240 -7.31E-03 .360 -.340 -.160
17. The products from our industry are sold to buyers in industries which make low profits
-1.81E-02 4.283E-02 .283 -.118 -.229
54. There are a small number of buyers who form a large proportion of this industry’s sales
8.723E-02 -.118 -.117 .560 .381
46. The suppliers of raw and other materials to our industry can and do demand and gain concessions
.217 .203 -.148 .553 -.157
40. In our industry, supplier or supplier groups are powerful
.156 .103 9.728E-02 .487 7.25E-02
50. Firms in our industry are not well informed about their suppliers’ demand/sales figures, profitability and cost structures
-.327 -6.26E-02 -4.66E-02 .451 -5.1E-02 (Continued)
Table 2. – Continued 28. The suppliers’ product is an important input into our industry
I Entry -.142
II Rivalry 7.507E-02
III Substitutes .154
IV Suppliers .451
V. Buyers -.329
55. There exist a small number of suppliers who contribute to a large proportion of our industry’s input
.262 -.146 .129 .448 -7.6E-02
33. Suppliers of products to our industry could integrate our production process into their operations
-7.60E-02 -.146 -1.15E-02 .438 .119
22. The supplier’s product can affect the final quality of this industry’s product
-3.63E-02 9.192E-02 .265 .418 4.01E-02
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44. The buyers of our industry’s products are in a position to demand concessions
-.102 .242 -.183 .410 .169
32. The products provided by our suppliers and used in our production process cannot be stored for any length of time
.153 5.350E-02 -1.05E-02 .314 1.71E-02
39. In our industry, buyers or buyer groups are powerful
.115 4.184E-02 -5.26E-02 .101 .700
36. The suppliers to our industry can raise their prices easily or threaten to reduce the quality of their products
-.144 -.356 -.167 -.345 .524
52. In our industry, foreign firms play an important role in industry competition
.241 .176 .138 -3.15E-03 .449
3. In our industry, buyers are highly concentrated (i.e. buyers purchase large volumes relative to a firm’s sales)
.208 2.551E-02 5.847E-02 .199 .315
Review and comparison of results of the “Australian” and the “Croatian” study (summarized by Tables 1 and 2) demonstrate that the fundamental findings for both countries are relatively comparable. Naturally, some differences are present, which could be expected as the industrial environments of these countries differ significantly. The detailed discussion of each competitive force and the obtained results follows. Threat of new entry Items related to the threat of new entry as a competitive force in M. E. Porter’s model (1980, 1985) are practically identical for both studied countries. The only difference can be found in the case of item 53 in the Croatian survey can be found as the item 27 in the Australian study, belonging to the item group (factor) that described the “threat of substitute products”2. In Croatia, the production of own inputs is treated as a threat to the entry of new competitors, who need to obtain them by paying the market price. At the other hand, the vertically integrated Australian companies (which are, therefore, the “old” players in the industry) perceive the production of own inputs in terms of substitutes, increasing the costs for the entrants not possessing the own inputs. The data analysis for Croatia has shown the high correlation coefficient between the item 53 and the items 19, 37, 42, 29 and 10. This demonstrates that the managers of successful Croatian SMEs believe that the entry of new competitive products is, indeed, a difficult task, but, to a certain extent, a challenge less difficult than in the Australian case (with the market being already saturated). Intensity of rivalry This group of items also possesses eight common items for both Croatia, and Australia. The differences can be found in items 253 and 344. For the Australian case, the item 25 is grouped into the group 4 - item 33 (threat of substitutes), while, in the Croatian survey, it can be found in two groups (mostly in group 2 - the intensity of rivalry, but also, to a smaller extent, in group 3 – the threat of substitutes). This can be interpreted in terms of the Australian
2 This questionnaire item is formulated as follows: “New companies entering our industry will face the increased costs if they do not control all the stages of production and/or distribution of the product provided by the industry. (The increased costs appear when new and un-integrated companies have to pay market price for the inputs, while the old companies produce their own, cheaper inputs)”. 3 This item is formulated as follows: “Products of our industry perform functions that can be performed by many other products”. 4 The item is formulated in the following manner: « The Buyers of products from our industry are mainly wholesalers and retailers who can influence the final consumers purchase decisions».
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respondents perceiving the discussed item in terms of the substitution process. At the other hand, the Croatian SME managers mostly perceive this item as means of increasing the rivalry within their industry. In the Australian study, item 34 belongs to the group 5 - item 39 (bargaining power of the buyers), while, in Croatia, it can be found in group 2 – item 34 (intensity of rivalry). Taking into account a very low value of the intercorrelation coefficient, this difference can not be considered a significant finding. Threat of substitute products This group is also characterized by the eight factors common for both the Croatian and the Australian case. Beside the already discussed differences, other results of both studies are comparable. Bargaining power of suppliers Even for this factor, eight common items have been found when comparing the Croatian and Australian study. Item 445 (in the Croatian study), from the theoretical perspective, can be classified as one of the variables describing the bargaining power of the suppliers. In the Australian study, this item (41) has been classified in the group related to the bargaining power of the buyers. At the other hand, the same item belongs to the “theoretically correct” factor. The same situation can be attributed to item 546 (in the Croatian study), which has been classified as a variable of buyers’ bargaining power (item 42 in the Australian study), while the Croatian SME managers perceive it in terms of suppliers’ bargaining power. Bargaining power of buyers Only two items are common in both, the Croatian and Australian study. Item 347 of the Croatian study has been classified as a part of the “intensity of rivalry” instead of the “bargaining power of buyers”, which can be explained by the Croatian SME managers perception of both the wholesalers and the retailers in terms of “competitors”, instead of “buyers”. The item 528 is perceived by the Croatian respondents as a part of the “bargaining power of buyers”, instead of belonging to the “intensity of rivalry”. This means the perception of the foreign companies in terms of “buyers” (instead of “competitors”) possessing high bargaining power. Results of the study conducted in Croatia demonstrate that each of the “competitive powers”, described by M. E. Porter (1980, 1985 ) exists in the sample of the study. The intensity of the individual forces, calculated on the basis of the average values of all the responses, has been ranked as follows: (1) entry of new competitors (3,5); (2) bargaining power of the buyers (3,3); (3) intensity of rivalry (3,2); (4) bargaining power of suppliers (3,0); (5) threat from the substitutes (2,9). 5 It is formulated as follows: «Our buyers can ask for concessions.» 6 The formulation of this item is: «A small amount of buyers makes up a prevailing amount of our sales». 7 Its formulation is: «Buyers of our industry products are mostly the wholesalers and retailers, who can exert significan influence to the end customer behavior». 8 Its formulation is the following: «Foreign companies have a significant role in our industry».
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CONCLUSIONS The Industruct methodology is one of initial steps in constructing and validating perception-based measures of Porter’s (1980) model of five competitive forces. The obtained results seem to conclude the Porter’s conception of the industry structure, both in Australia and Croatia. However, the five competitive forces are differently ranked in the two countries, depending on their specific business environments, as illustrated below. Australia Croatia 1-rivalry-3.18 1-entry-3.5 2-entry-2.93 2-buyers-3.3 3-buyers-2.71 3-rivalry-3.2 4-suppliers-2.59 4-suppliers-3.0 5-substitute-2.49 5-substitues-2.9 Rivalry is the most significant competitive force in Australia, while the threat of new entrance represents the most important structural determinant of Croatian industries. This can be explained by the fact that competition is more developed in Australia than in Croatia. At the other hand, new entrance as the most significant competitive force in the Croatian environment could be interpreted by the underdeveloped Croatian economy, characterized by either not existing, or low entrance barriers. The same force is ranked as the second most significant in Australia, which illustrates its importance as a potential threat to industry profitability. However, the entrance barriers seem to be much higher than in Croatia. The perception of other forces is more-less balanced in both countries. While the bargaining power of buyers is the third most significant force in Australia, the corresponding rank for the case of Croatia belongs to the rivalry of the existing competitors. The fourth and fifth rank, in both cases, belong to the bargaining power of suppliers and competitive strength of substitute products/services. The results obtained are related to the Australian and Croatian economy in general, while the more elaborated results could be obtained by detailed comparative analysis of each industry. LITERATURE: Amato, L. H., Amato, C. H. ( 2003.), Firm Size, Strategic Advantage and Profit Rates in US
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