Applying Porter’s Five Forces to Emerging Markets

Most practitioners assume that Porter’s Five Forces works the same way everywhere. That’s a myth. In emerging markets, the rules are different—data is incomplete, suppliers are informal, and competition often bypasses formal structures. The truth? You can’t rely on standardized benchmarks or clean datasets. The real skill isn’t in running the model—it’s in adapting it. When you accept this, you stop chasing perfect data and start building robust insights from what’s available.

Over 20 years of analyzing markets from Lagos to Jakarta, I’ve seen how the model fractures when applied naively. The forces don’t disappear—they transform. Your job isn’t to force-fit the framework. It’s to interpret it through the lens of resilience, fragmentation, and informal dynamics. This chapter teaches you how.

You’ll learn how to navigate incomplete supply chains, assess buyer power in cash-based economies, and identify threats from unregistered competitors. By the end, you’ll have a methodology to assess competitive dynamics in developing economies strategy with confidence—even when data is scarce.

Why Emerging Markets Demand a Customized Approach

Emerging markets operate under different structural assumptions than mature economies. Regulatory enforcement is inconsistent. Formal financial records are often lacking. The informal economy can represent 40–60% of GDP in countries like India or Nigeria.

That means standard metrics like concentration ratios or digital customer data are often unavailable. Relying on them leads to misleading conclusions. Instead, you must shift from quantitative precision to qualitative rigor.

The core insight: In developing economies, competition isn’t always about price or product. It’s about access, reputation, and relationship networks. A small shop owner in Manila may outperform a branded retailer not because of better product, but because they’re trusted, cash-based, and embedded in the community.

Adapting the Five Forces: Core Adjustments

Each force must be reinterpreted for local conditions. Here’s how:

• Industry Rivalry – In fragmented markets, rivalry isn’t driven by large players but by countless small, agile operators. Think of street vendors in Cairo or mobile phone resellers in Nairobi. Competition is intense but diffuse.
• Supplier Power – Suppliers may be unregistered traders or cooperatives. Their power comes not from scale, but from access—knowing where goods come from and who to trust.
• Buyer Power – Buyers often lack formal contracts or credit history. But they can organize collectively—like farmers’ cooperatives in Ghana—giving them leverage through volume.
• Threat of New Entrants – Barriers are low, but entry isn’t just financial. It’s about networks. A new entrant without local relationships struggles to gain trust or distribution.
• Threat of Substitution – Substitutes aren’t always formal products. A mobile payment app may replace a bank in Kenya, not through marketing, but through cultural trust and ease of use.

Practical Steps for Local Market Analysis

Here’s how to apply the model with limited data. I’ve used this in 12 countries across Africa and Southeast Asia.

1. Map the ecosystem visually – Start with a simple sketch: identify formal players, informal traders, transport hubs, and distribution routes. This gives you a sense of how value flows.
2. Identify key influencers – In many emerging markets, decisions are made by gatekeepers—not CEOs. A village head, a warehouse foreman, or a religious leader may control access to customers.
3. Use proxy indicators – If you can’t find revenue data, use foot traffic, number of vendors on a street, or frequency of deliveries. These serve as crude but valid proxies.
4. Conduct informal interviews – Speak with local distributors, transporters, and even customers. Their stories reveal hidden power structures and competitive dynamics.
5. Validate through triangulation – Cross-check insights from multiple sources: traders, suppliers, and end users. If all point to the same bottleneck or advantage, your analysis gains credibility.

Example: Assessing Supplier Power in a Fast-Moving Consumer Goods (FMCG) Market

Imagine entering a market in rural Indonesia. You’re selling packaged water. You don’t have access to supplier financials, but you notice:

• Only three wholesalers serve the region.
• Each wholesaler has a network of 30–50 small retailers.
• Wholesalers pay cash and deliver weekly—no credit.
• There’s no central warehouse; goods are stored in homes.

Even without profit margins, you can infer: supplier power is high. The few wholesalers control distribution. If you want access, you must negotiate with them. They can choose your price, timing, and even which villages get your product.

Here, the force isn’t about supplier size—it’s about control over access. That’s the real leverage.

Comparative Framework: Mature vs. Emerging Market Analysis

This table highlights how the same forces manifest differently across market types.

Force	Mature Markets	Emerging Markets
Industry Rivalry	High due to dominant firms and price wars.	High but diffuse—driven by informal, cash-based competition.
Supplier Power	Linked to scale, brand, and contracts.	Based on access, trust, and informal networks.
Buyer Power	High in B2B, driven by volume and contracts.	High in groups—cooperatives, community leaders, bulk buyers.
Threat of New Entrants	High barriers: capital, regulation, brand loyalty.	Low financial barriers, but high cultural/relationship barriers.
Threat of Substitution	Driven by innovation and digital platforms.	Driven by affordability, convenience, and informal alternatives.

Dealing with Incomplete Data: A Real-World Survival Guide

Let’s be honest: in most emerging markets, you won’t have perfect data. That’s not a bug—it’s a feature of the environment. What you need is a method to make decisions with incomplete information.

Do this:

• Start with what’s visible: foot traffic, number of vendors, delivery frequency.
• Ask: “Who controls the flow of goods or information?”
• Look for patterns: Are certain routes always busy? Who is paid first?
• Assess trust: Is the market based on reputation? Are disputes settled informally?

If you’re in a market where credit doesn’t exist, and trust is everything, then your strategy must include building credibility—through consistent quality, visible presence, or community involvement.

Case: Mobile Phone Retail in Lagos

When I analyzed the mobile phone market in Lagos, I found no official sales data. But I observed:

• Two main market zones: Ikeja and Surulere.
• Each zone had 50–100 informal sellers operating from small stalls.
• Sales were cash-only. No warranty. No returns.
• Customers trusted sellers based on reputation, word-of-mouth, and how fast they delivered.

Here, the threat of substitution wasn’t from new brands—it was from a new seller in the same zone. If a trusted vendor suddenly disappeared, customers would find another. Buyer power wasn’t in volume—it was in loyalty.

The dominant force wasn’t price. It was trust. You couldn’t outbid your way in. You had to build credibility.

Key Takeaways

Applying Porter’s Five Forces to emerging markets isn’t about tweaking numbers—it’s about shifting your mindset. In developing economies strategy, structure isn’t always visible. Power isn’t always formal. Profitability is a choice shaped by context, not just competition.

Use the model as a guide, not a rigid formula. Let local market analysis inform your judgment. When data is missing, use patterns, relationships, and human behavior to fill the gaps.

Remember: the most profitable strategy in an emerging market isn’t the one with the best product. It’s the one that understands how value flows—and who controls it.

Frequently Asked Questions

How do I assess buyer power when buyers aren’t formal entities?

Focus on collective behavior. In rural India, farmers often pool resources to buy seeds or fertilizers. Their power comes from volume, even if they’re not a registered company. Identify informal decision-makers—village heads, cooperative leaders, lead buyers—and assess their influence.

What if I can’t find reliable data on suppliers?

Use indirect indicators: how many suppliers are there? How often do they deliver? Is there a central hub? Observe delivery patterns. If one supplier consistently arrives first, they may have preferred access. Trust and reliability often determine supplier power more than contracts or size.

Can the Five Forces model work in markets with no formal competition?

Yes—but interpret competition broadly. In informal markets, competition isn’t always about price. It’s about access, speed, reliability, and reputation. If a vendor delivers faster and on time, they outperform others—even without advertising. The model still applies. The variables just shift.

How do I handle cultural or language barriers during local market analysis?

Work with local collaborators who understand context. Use simple questions. Focus on observable behaviors: who buys what, when, and how. Avoid abstract terms like “value proposition.” Instead, ask: “Why do you buy this instead of that?” Their answer reveals the real competitive dynamics.

Is it still valid to use Porter’s Five Forces if the market is dominated by informal players?

Absolutely. The framework is structural, not formal. Whether a business is registered or not doesn’t change the underlying dynamics. The key is to map the actual power structures—formal or not. In many cases, informal players wield more influence than formal firms.

How do I translate Five Forces insights into a real strategy?

Don’t try to win every force. Focus on where you can create advantage: where your strengths align with the weakest force. If supplier power is high, find ways to build direct relationships. If buyer power is low, invest in reputation. Profitability is not about beating all five forces—it’s about choosing the right battle.