FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

ABSTRACT For thirty years, the five-force model of Michael Porter has been used as a standard tool to analyze and determine industry attractiveness. In a recent interview to mark thirty years of the theoretical framework, Porter reaffirmed his faith in the model, quoting examples from the airline and steel industries. The model along with the others that Porter has developed, such as the value chain, strategic groups and national competitive advantage, continue to influence strategic thinking in profound ways. And yet, one cannot help observing that perhaps the time has come to re-examine these models in the light of empirical evidence. This paper attempts to argue that the usefulness of the five-force model is limited in emerging economies as compared to mature markets. A longitudinal study of the IT Enabled Services Industry in India demonstrates that with low entry barriers, a high degree of competition (industry rivalry), bargaining power of buyers (Fortune 100 companies), bargaining power of suppliers (large manufacturers of hardware who force technological up gradation at regular intervals), and the absence of clear differentiators (or close substitutes being offered), the industry should have been very unattractive according to the five-force model. On a practical level though, the paper shows that the major players in the industry have all been able to turn in stellar performances year after year. With this apparent dichotomy between theory and practice, the paper questions the usefulness of depending on one model for all situations. INTRODUCTION: The five-force model of competition was first introduced by Porter in 1980 in his book on Competitive Strategy. For 30 years since the concept was first outlined, the model has been considered an important tool in understanding industry structures and analyzing industry attractiveness. In a recent video interview, Porter has emphasized his faith in the model and has provided examples from the airline and steel industries to argue that the model is universal. The model is an integral part of books on management in general and on strategy in particular. Thus, the five-force model can be seen as a torch-bearer of robust theory. The question however arises as to whether the model is equally applicable in all situations. Should managers use this as the ultimate tool in formulating strategy? To understand the practical implications, the author has studied a number of industries from an emerging economy, India. For many years, India has shown a robust growth of 9% per year and even in the midst of a global recession, has managed a decent growth of about 6%. Against this scenario, an attempt has been made to test the efficacy of the five-force model on a variety of industries. This is a work-in-progress and the results from one industry are presented in this paper. The initial results seem to indicate that managers need to exercise caution while using the model. Particularly in the context of emerging economies, the results obtained so far seem to suggest that a re-thinking of the model may be necessary. This interesting but paradoxical intersection of strategy theory and strategy practice is the focus of this paper. Obviously, a lot more needs to be done in terms of gathering data not only from the Indian context but also from other economies notably China, Korea, Brazil, Russia, and the ASEAN countries before more forceful conclusions can be drawn. The authors hope is that the findings would stimulate objective discussion on the scope of interpreting theoretical frameworks in practical situations. THE MODEL IN BRIEF:

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

The five forces identified by Porter are: Threat of new entrants Industry rivalry (consolidated vs. fragmented industries) Bargaining power of buyers Bargaining power of suppliers Threat of substitutes Some experts have sought to introduce a sixth force complementors while others have argued in favor of including the government. Since the focus of this paper is the five-force model, the embellishments suggested have not been considered. Considerable details are available on each of the forces and their possible impact on an industry. It would be redundant to reproduce all the myriad dimensions. Merely as illustrations, the bargaining power of suppliers is supposed to be high when the industry is dominated by a few large suppliers, the customers are small and fragmented, there are no substitutes for the product being supplied, switching costs are high, and suppliers have the capability to integrate forwards. The bargaining power of buyers is a mirror image of the bargaining power of suppliers. The threat of new entrants is a function of entry barriers. Porter has cited the example of the airline industry as being extremely unattractive and the aerospace industry as attractive precisely due to the low and high entry barriers of these industries. Initial investments, scale economies, brand loyalty, scarcity of critical resources and the extent of access to raw materials and distribution channels have all been identified under the threat of new entrants and entry barriers. The threat of substitutes is high when alternatives are available with similar functions but a lower price, or better functions at the same price. When technology drives markets, the threat of substitutes is perennial and imminent. Industry rivalry is generally plotted on a continuum from consolidated (a few, large companies) to fragmented (a large number of small companies). Consolidated industries are considered to be relatively immune from cyclical fluctuations while fragmented industries are portrayed typically as going through boom-and-bust cycles. USES OF THE MODEL: Commentators are agreed that the model has uses for strategic planners in one or more of three aspects of the planning process: Statistical Analysis decisions relating to entry into or exit from an industry or even market segment; comparison with competitors; impact analysis of decisions by organization or by competitors. Dynamic Analysis Combined with an environmental analysis, the model can be used to forecast the potential future attractiveness of an industry; alternate scenarios can be built and their outcomes can be extrapolated. Analysis of Options With the knowledge available from the first two types of analyses, organizations can determine which of the options to follow to derive competitive advantage. The five-force model is steeped in microeconomics. It considers factors like supply and demand, complementary products and substitutes, relationship between volumes and costs, and market structures such as monopoly, oligopoly or perfect competition. Suggestions have also been made to mitigate the effect of the forces. Buyer or Supplier bargaining power can be reduced through partnering, elimination of intermediaries and increased dependency. New entrants can be blocked through scale and scope economies, brand loyalty and tie up with other players of the value system. Rivalry can be reduced by avoiding price competition, looking for new ways to differentiate, and by having a constant dialogue with competitors. The threat of substitutes can be reduced by increasing switching costs, buying out potential substitutes and by accentuating differences (real or perceived). CRITICISMS:

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

Major criticisms of the model include the following: From an economic standpoint, the model assumes a classic perfect market, something that may not exist in the real world The model is most useful for analyzing simple market structures. A comprehensive analysis of all the forces in complex industries with interrelationships is very difficult if not impossible for managers The model assumes static market structures. In todays dynamic structures with rapid technological change, with consequent irrelevance of one or more of the forces, the model may not provide sufficient insights for preventive action The model assumes competition as a driving force with organizations trying to derive an advantage at the expense of others. This is hardly the case today with coopetition often holding the key, strategic alliances becoming ever more popular, and virtual networks being a reality. Specifically, Porters model represents the classical view. The Resource Based View identifies a firms internal competencies as being critical to success. Rumelt (1991) has shown that industry factors can explain only 9 16% of variations in profit. Teece (1997) has further extended the argument to emphasize the dynamic nature of industries and the futility of applying static industry structures. Porter (1996) has defended the model and argued that good positioning still matters. In contrast, Hax (2002) has shown with the Delta Model that there is more to strategy than positioning. Whittington (2001) has pointed out how Porter (1980) blithely relegates his assumption of profit objectives to a footnote, and concentrates his industry analysis on five sets of economic forces amongst which government and labor are almost completely lost. THE INDIAN SCENARIO: The Indian economy was subject to extensive and elaborate regulation till 1991. Forced by a neardefault situation, the then government introduced some bold initiatives that have since been popularized as the LPG model Liberalization, Privatization, and Globalization. Foreign investment was permitted in several sectors. Many industries were taken out of the purview of licensing. Private players were allowed into areas that were till then the monopoly of the government. Incentives were provided for Indian industry to be competitive globally. In particular, import duties were reduced and export incentives were enhanced. Bank credit was made available in a relatively easier manner. Policies were simplified. Greenfield areas like IT were given a special thrust with infrastructure being provided at subsidized prices and tax holidays. The results have been significant. Between 1947 when the country became independent and 1990, the average annual growth rate was a measly 2.3%. After liberalization, it started moving up to 5 6%. For almost a decade, 1999 2008, the growth has been impressive between 7 and 9%. In particular, the new economy comprising of sectors like IT, BT and Telecom have shown remarkable growth and resilience. The IT Enabled Services industry has become a benchmark to measure success. BT has made rapid strides with many ground-breaking innovations. India today has nearly 350 million mobile subscribers something that could not have been imagined even a decade back. The acronym BRIC has become synonymous with emerging economies. THE IT ENABLED SERVICES INDUSTRY: The industry presents a fascinating picture of imagination and innovation. INFOSYS, established in 1982 with a capital of less than $1000/- is today an icon in the IT industry. It has crossed $4 billion in revenues and has created a number of Rupee millionaires and billionaires, and a few dollar billionaires as well. Similar is the case with the two other leading companies, TCS and WIPRO. TCS was a consulting company that entered IT looking at the opportunity and is today the #1 IT Company in India. The vision of TCS is to be a $10 billion company by 2010. WIPRO started off making vegetable oils and forayed into IT mainly to exploit the opportunity.

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

INDIAN ITES AND THE FIVE-FORCE MODEL: When the model is applied to the IT Enabled Services industry in India, the following points emerge: The industry has low entry barriers. When INFOSYS could be started with less than $1000/- this factor becomes evident. With a surplus of talented engineers and scientists (the most critical resource), anyone can enter the industry with a few computers, a rented office space and an internet connection. This is precisely what has happened. Thousands of companies have come up in the last two decades. WIPRO alone has spawned more than 200 entrepreneurs. According to the model, the industry could be termed fragmented. Price competition is high. The bargaining power of buyers is very high. The buyers or clients of the industry are large companies in the developed world. The clients of TCS, INFOSYS and WIPRO are the FORTUNE 100 Companies. Many of these companies have IT departmental budgets that are more than the revenues of the supplying companies. Thus, the CTO of the client company may be more powerful than the CEO of the service-providing company. The clients can play one service provider against another, drive down prices, introduce stiff penalty clauses, insist on quick delivery and render maintenance into a low-cost or no-cost proposition. The bargaining power of suppliers is also very high. The suppliers are the hardware giants like IBM, HP, DELL, CISCO and others. With rapid changes in technology, suppliers can force the buying companies to adapt to new technologies. Sometimes, this can happen every year. The buying companies have no choice. If they do not adapt, they will be wiped out. They have to listen to the suppliers of hardware. Industry rivalry is high. With players of all hues and sizes, price competition is rampant. As an example, when medical transcription first came to India, the price was $15 per module (of about 45 minutes). Today, the price is 75 cents per module. Companies are forced to look at new ways of reducing costs or be cast into oblivion. Since all players provide what in essence are similar services, they are inherent substitutes for each other. Every large and some medium sized organizations too claim to provide end-to-end solutions. The major players have a presence in all horizontals and verticals. Differentiation is practically non-existent. In that sense, this force can also be considered to be very high. Thus, with low entry barriers, high bargaining power of buyers and suppliers, intense rivalry, and the services on offer being close substitutes, the industry would be termed extremely unattractive from the viewpoint of the five-force model. Organizations should be fighting for survival, profits should be low or absent, and many organizations should be extinct every day. That is what the model would suggest. What is the reality? EMPIRICAL ANALYSIS OF THE PORTER FIVE-FORCE MODEL FOR THE INDIAN IT/ITES INDUSTRY: In order to analyze Porters five-force model empirically, quarterly data for the years 2006 - 2009 for the following variables was collected from the Capitaline database: 1. Net profit was used to measure industry attractiveness, 2. Average market capitalization was used to measure entry barriers, 3. IT hardware industry sales was used to measure supplier bargaining power, 4. IT software industry sales was used to measure buyer bargaining power, and 5. The number of listed IT companies was used to measure substitution/industry competitiveness ANALYSIS 1: The effect of the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) on industry attractiveness was analyzed in absolute terms.

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

Correlations av. mkt. capitalization .732(**) .001 14 .732(**) .001 14 .904(**) .000 14 .999(**) .000 14 -.928(**) .000 14 14 .709(**) .002 14 .707(**) .002 14 -.538(*) .024 14 14 .890(**) .000 14 -.701(**) .003 14 14 -.942(**) .000 14 14 14 1

net profit net profit Pearson Correlation Sig. (1-tailed) N av. mkt. capitalization Pearson Correlation Sig. (1-tailed) N IT HW sales Pearson Correlation Sig. (1-tailed) N IT SW sales Pearson Correlation Sig. (1-tailed) N no. of cos. Pearson Correlation Sig. (1-tailed) N 1

IT HW sales .904(**) .000 14 .709(**) .002 14 1

IT SW sales .999(**) .000 14 .707(**) .002 14 .890(**) .000 14 1

no. of cos. -.928(**) .000 14 -.538(*) .024 14 -.701(**) .003 14 -.942(**) .000 14 1

** Correlation is significant at the 0.01 level (1-tailed). * Correlation is significant at the 0.05 level (1-tailed).

The correlation between net profit (industry attractiveness) and the independent variables of average market capitalization (entry barriers), IT hardware sales (supplier bargaining power), IT software sales (buyer bargaining power), and number of listed IT companies (substitution/industry competitiveness) was found to be statistically significant. Further, industry attractiveness was positively correlated with entry barriers, supplier bargaining power, and buyer bargaining power, and negatively correlated with substitution/industry competitiveness. The positive correlation of net profit (industry attractiveness) with the variables (except for with substitution/industry competitiveness) seems to contradict the predictions of Porters five-force model. The effect of the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) on industry attractiveness was next analyzed using multiple linear regression. Regression

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

Model Summary Model 1 R 1.000(a) R Square 1.000 Adjusted R Square 1.000 Std. Error of the Estimate 12.03914

a Predictors: (Constant), no. of cos. , av. mkt. capitalization, IT HW sales, IT SW sales ANOVA (b) Model Regression Sum of Squares 247835006.314 df 4 Mean Square 61958751.578 F 427476.330 Sig. .000(a)

Residual

1304.467

144.941

Total

247836310.781

13

a Predictors: (Constant), no. of cos. , av. mkt. capitalization, IT HW sales, IT SW sales b Dependent Variable: net profit Coefficients (a) Unstandardized Coefficients B (Constant) av. mkt. capitalization 1 IT HW sales IT SW sales no. of cos. a Dependent Variable: net profit .118 .728 1.831 .020 .009 .414 .030 .979 .035 5.909 76.846 4.422 .000 .000 .002 -1308.032 20.646 Std. Error 269.292 .950 .037 Standardized Coefficients Beta -4.857 21.742 .001 .000

Model

Sig.

The results of the regression analysis indicated that industry attractiveness was strongly influenced jointly by the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness). Further, the partial regression coefficients of all the independent variables were positive, again contradicting the predictions of Porters five-force model. ANALYSIS 2: The effect of the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) on industry attractiveness was analyzed in terms of differences/quarterly changes.

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

Correlations change av. mkt. capitalization .319 .144 13 .319 .144 13 .922(**) .000 13 .964(**) .000 13 .402 .087 13 13 -.019 .476 13 .081 .397 13 .348 .122 13 13 .944(**) .000 13 .449 .062 13 13 .237 .218 13 13 13 1

change net profit

change net profit

change IT HW sales .922(**) .000 13 -.019 .476 13 1

change IT SW sales .964(**) .000 13 .081 .397 13 .944(**) .000 13 1

change no. of cos. .402 .087 13 .348 .122 13 .449 .062 13 .237 .218 13 1

Pearson Correlation Sig. (1-tailed) N

change av. mkt. capitalization

Pearson Correlation Sig. (1-tailed) N

change IT HW sales

Pearson Correlation Sig. (1-tailed) N

change IT SW sales

Pearson Correlation Sig. (1-tailed) N

change no. of cos.

Pearson Correlation Sig. (1-tailed) N

** Correlation is significant at the 0.01 level (1-tailed).

The correlation between change in net profit (industry attractiveness) and the independent variables of change in IT hardware sales (supplier bargaining power) and change in IT software sales (buyer bargaining power) were found to be statistically significant and were highly positive, while the correlation between change in net profit and change in average market capitalization and change in the number of listed IT companies was positive, but not statistically significant. Again, the positive correlations seemed to contradict the predictions of Porters five-force model. The effect of the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) on industry attractiveness was next analyzed using multiple linear regression. Regression

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

Model Summary Model 1 R 1.000(a) R Square .999 Adjusted R Square .999 Std. Error of the Estimate 10.88028

a Predictors: (Constant), change no. of cos. , change IT SW sales, change av. mkt. capitalization, change IT HW sales ANOVA (b) Model Regression Sum of Squares 1752562.549 df 4 Mean Square 438140.637 F 3701.125 Sig. .000(a)

Residual

947.043

118.380

Total

1753509.592

12

a Predictors: (Constant), change no. of cos. , change IT SW sales, change av. mkt. capitalization, change IT HW sales b Dependent Variable: change net profit Coefficients (a) Unstandardized Coefficients B (Constant) 116.183 Std. Error 44.373 Standardized Coefficients Beta 2.618 .031

Model

Sig.

change av. mkt. capitalization 1 change IT HW sales

21.715

1.169

.262

18.576

.000

.247

.048

.288

5.148

.001

change IT SW sales

.605

.046

.665

13.241

.000

change no. of cos. a Dependent Variable: change net profit

.636

.506

.024

1.257

.244

The results of the regression analysis indicated that industry attractiveness was strongly influenced jointly by the independent variables (entry barriers, supplier bargaining power, and buyer bargaining power), but the influence of substitution/industry competitiveness on industry attractiveness was not statistically significant. Further, the partial regression coefficients of all the independent variables

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

were positive, again contradicting the predictions of Porters five-force model. ANALYSIS 3: The effect of the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) on industry attractiveness was analyzed in terms of percentage growth/change.
Correlations % change av. mkt. capitalization .350 .120 13 .350 .120 13 .957(**) .000 13 .994(**) .000 13 .572(*) .021 13 13 .085 .392 13 .248 .207 13 .462 .056 13 13 .981(**) .000 13 .438 .067 13 13 .535(*) .030 13 13 13 1

% change net profit % change net profit Pearson Correlation Sig. (1-tailed) N % change av. mkt. capitalization Pearson Correlation Sig. (1-tailed) N % change IT HW sales Pearson Correlation Sig. (1-tailed) N % change IT SW sales Pearson Correlation Sig. (1-tailed) N % change no. of cos. Pearson Correlation Sig. (1-tailed) N 1

% change IT HW sales .957(**) .000 13 .085 .392 13 1

% change IT SW sales .994(**) .000 13 .248 .207 13 .981(**) .000 13 1

% change no. of cos. .572(*) .021 13 .462 .056 13 .438 .067 13 .535(*) .030 13 1

** Correlation is significant at the 0.01 level (1-tailed). * Correlation is significant at the 0.05 level (1-tailed).

The correlation between percentage change in net profit (industry attractiveness) and the independent variables of percentage change in IT hardware sales (supplier bargaining power), percentage change in IT software sales (buyer bargaining power), and percentage change in number of listed companies (substitution/industry competitiveness) were found to be statistically significant and were highly positive, while the correlation between percentage change in net profit and change in average market capitalization was positive, but not statistically significant. Again, the positive correlations seemed to contradict the predictions of Porters five-force model. The effect of the independent variables (entry barriers, supplier bargaining power, buyer bargaining

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

power, and substitution/industry competitiveness) on industry attractiveness was next analyzed using multiple linear regression. Regression
Model Summary Model 1 R 1.000(a) R Square 1.000 Adjusted R Square 1.000 Std. Error of the Estimate .00034

a Predictors: (Constant), % change no. of cos. , % change IT HW sales, % change av. mkt. capitalization, % change IT SW sales ANOVA (b) Model Regression Sum of Squares .019 df 4 Mean Square .005 F 40896.520 Sig. .000(a)

Residual

.000

.000

Total

.019

12

a Predictors: (Constant), % change no. of cos. , % change IT HW sales, % change av. mkt. capitalization, % change IT SW sales b Dependent Variable: % change net profit Coefficients (a) Unstandardized Coefficients B (Constant) % change av. mkt. capitalization 1 % change IT HW sales % change IT SW sales % change no. of cos. a Dependent Variable: % change net profit .001 .004 .004 .161 .876 -.012 .023 Std. Error .002 .001 .109 Standardized Coefficients Beta -6.800 23.138 .000 .000

Model

Sig.

1.173

.032

.960

36.248

.000

.003

.002

.005

1.451

.185

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

The results of the regression analysis indicated that industry attractiveness was strongly influenced jointly by the independent variables (entry barriers, buyer bargaining power, and substitution/industry competitiveness), but the influence of supplier bargaining power on industry attractiveness was not statistically significant. Further, the partial regression coefficients of all the independent variables were positive, again contradicting the predictions of Porters five-force model. CONCLUSION From the above analyses it can be concluded that the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) have a positive impact on industry attractiveness in emerging economies. Since what appears at first sight to be a very unattractive industry has turned in stellar performance year after year, perhaps there is more to profitability and competitiveness than the industry structure suggested by the five-force model. A preliminary analysis of the fast food industry in India suggests that industry structure does not explain more than 18 20% of the profitability while a firms internal dynamics leadership, organizational culture, and competencies developed diligently account for 45 55% of the profitability with the remaining being determined by environmental factors like government regulation. A third analysis with the consumer electronics industry which has seen many global players entering the Indian market in the last decade has shown that industry structure could explain only 12 14% of the profitability while internal dynamic capabilities were responsible for 63 68% of profitability. Given this compelling empirical evidence, perhaps the time has come to re-visit the model to make it useful to managers. LIMITATIONS AND SCOPE FOR FURTHER STUDY The analyses above have only considered specific variables to represent each of the dimensions (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness). In fact, there are further components of each of these dimensions which were not considered in the analyses. Thus, the results are only partially indicative of the impact of the independent variables (entry barriers, supplier bargaining power, buyer bargaining power, and substitution/industry competitiveness) on industry attractiveness. Further, we are currently working on a model to quantify the overall impact of all the forces impacting an industry and this should give us a better perspective than the present study. We are also studying data available from other emerging economies to find points of convergence or otherwise with our findings. REFERENCES: Hax, A. C. and Wilde, D. L. (2002). The Delta Model - Toward a Unified Framework of Strategy. MIT Sloan Working Paper No.4261-02. Available at SSRN: http://ssrn.com/abstract=344580 Linneman, R. E. and Klein, H. E. (1985). Using Scenarios in Decision Making. Business Horizons, 28(1) McGahan, A. and Porter, M. E. (1997). How Much Does Industry Matter, Really? Strategic Management Journal, 18, Summer Special Issue, 15-30 Porter, M. E. (1979). How Competitive Forces Shape Strategy. Harvard Business Review, March/April Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Firms, New York: Free Press

 FIVE FORCE MODEL IN THEORY AND PRACTICE: ANALYSIS FROM AN EMERGING ECONOMY

Rumelt, R. (1991). How Much Does Industry Matter? Strategic Management Journal, 12(3), 167-85 Teece, D., Pisano, G., and Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18(7), 509-34 Thomas, A. A. and Strickland III, A. J. (2006). Strategic Management, McGrawHill Whittington, R. (2001). What is Strategy - and does it matter? Cengage Learning EMEA Zahra, A. S. and Chaples, S. S. (1993). Blind Spots in Competitive Analysis. Academy of Management Executive, 7(2)