competitive forces

Topics: Strategic management, Porter five forces analysis, Barriers to entry Pages: 6 (1523 words) Published: April 23, 2015
Introduction
The Michael Porter’s competitive forces are used to analyse competition in an industry and help anticipate marketers and business owners to analyse competition in their industry and know how to compete in an industry and also aid them to identify completion and their competitors. Loewen (1999:110) said that focusing on competition is a good spur to keep you going but it is not what will carry you victory. But by focusing on the client, the firm will get the victory. “Strategy is first and foremost about your customer. Yet ‘how do I beat my competition?’ is typically what most people think a strategy is about, and is the ‘most frequently cited concern’ of the majority of business leaders. Beating your competition is the outcome of a good strategy.” Porter (2002:34) competitive strategy must grow out of a sophisticated understanding of the structure of the industry and how it is changing.

Michael porter has demonstrated that, although the competitive pressures in various industries are never precise, the competitive process work similarly enough to use a common analytical framework, in gauging the nature and intensity of competitive forces. The state of competition in an industry is a composite of the five competitive forces according to Porter (in Thompson & Strickland 2002:80). Whether it is a domestic or international, the nature of competition is embodied in in these competitive forces, namely:

· The threat of new potential competitors
· The threat of substitutes products
· The bargaining power of buyers
· The bargaining power of suppliers
· The rivalry between existing competitors in the industry

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The five forces model determine industry profitability because they shape the prices businesses can charge, the costs businesses have to bear, and the investment required to compete in an industry. The threat of new entrants limits the overall profit potential in the industry, because new entrants bring new capacity and seek market share, pushing down margins. Powerful buyers or suppliers bargain away to the profits for themselves. Fierce competitive rivalry erodes profits by requiring higher costs of competing or by passing on profits to customers in the form of lower prices. The presence of close substitute products limits the price competitors can charge without inducing substitution and eroding industry volume.

According to Porter (1976:137-145), the five model forces is “…a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is.” It is argued by Thompson & Strickland (2001:80) the forces model is not only the most widely used technique for competition analysis, but also relatively easy to understand and apply. The collective strength of these forces determines the competitiveness in the industry and therefore its profitability (Smit & Cronje (1999:73). According to Pearce & David (1997:109) content that, every industry

has underlying structures that give rise to these five

competitive forces. A business wanting to cope best with its industry environment in its favour must learn what makes the environment tick. The threat of new entrants
Competitive forces coming from the threat entry of new rivals. A segment’s attractiveness varies with the height of entry and exit barriers. The most attractive segment is one which entry barriers are high and exit barriers are low. This depicts that few new firms can enter the industry because it is expensive and firms that perform poorly can easily exit Lamb et al

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(2010:121). So to Mr Dickson in this industry of kitchen utensils and cutlery, since his specialising plastic cutlery he faces a lot competition regarding new potential entrants since there are no barriers of entry and exit, which means new firms could enter and leave the...
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