Competitive forces

Date: 2015-10-07; view: 944.

Competition

Competition

Think ahead

Think about your organisation or one you would like to work for. Who are its fiercest competitors? Why are they a threat?

Text 9.1Read the text and do the tasks in the concept check section.

The main conpetitors in a particular industry are its key players. Smaller competitors may be referred to as minor players. Competition in an industry can be cut-throat, intense, keen, stiff, ferocious, fierce, or tough. The usual pattern for a new industry is to have a large number of competitors: there may be start-ups (completely new companies), and there may be companies already established in other sectors that also want to get into the industry, perhaps, by setting up a new subsidiary or business unit.

An important strategic thinker Michael Porter in his books, Competitive Strategy (1980), and Competitive Advantage (1985), argues that growth and diversification alone do not guarantee a company's long-term success and that size alone guarantees nothing: industry leadership is an effect of competitive advantage, which derives from the value a company creates. Porter outlines the five competitive forces at work in any industry: (1) rivalry among existing firms, as inter-firm competition affects prices, advertising and sales budgets, and so on; (2) the threat of new entrants and new competitors in an industry as it limits the prices a company can charge, and often results in expensive investment designed as a deterrent; (3) the threat of substitutes as the possibility of consumers switching to cheaper substitute products limits prices; (4) the bargaining power of buyers because the power of large buyers such as retail chains also limits prices, and (5) the bargaining power of suppliers as powerful suppliers determine the cost of raw materials.