Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following is NOT one of Porter's Five Forces?

1. The threat of new entrants

2. The threat of substitute products

3. The bargaining power of customers

4. The technological advantage of firms

The correct answer is: The technological advantage of firms

Porter's Five Forces framework is a tool used to analyze the competitive forces within an industry and determine its attractiveness or profitability. The forces identified by Michael Porter include: 1. The threat of new entrants, which refers to the potential for new companies to enter the market and increase competition. 2. The threat of substitute products, which looks at the likelihood of customers finding alternative products that fulfill their needs. 3. The bargaining power of customers, which assesses how much influence customers have on pricing and quality. 4. The bargaining power of suppliers, which examines how much control suppliers have on the price of inputs. 5. Industry rivalry, which relates to the extent of competition among existing companies within the industry. The correct answer, which is the technological advantage of firms, is not one of these forces. While technology can influence a company’s competitive position, it does not represent one of the systemic competitive pressures that affect every firm in the market. Instead, the technological advantage could be a result of strategic positioning within these forces rather than being a force itself. This distinction is crucial for understanding how to analyze an industry within the Porter's framework effectively.