Q&a: Competitive Advantage
QUESTIONS AND ANSWERS ~ COMPETITIVE ADVANTAGE
1. Using Porter’s five-forces framework, discuss why profitability in the European textile industry is lower than that in book publishing.
Porter’s five-forces model of competitive industry structure proposes that the determinants of industry attractiveness and long-run profitability are the threat of new entrants, the threat of substitutes, the bargaining power of buyers and suppliers, and the rivalry between existing competitors. Using these forces we shall examine the European textile and book publishing industries:
Threat of new entrants: many newly industrialized countries develop a textile industry since the skills and technology are relatively easy to acquire. Book publishing relies more on commissioning authors with the skills to write best sellers: it is easier to make a shirt than a book in Hong Kong that will sell in Europe. The threat of new entrants is likely to be lower for book publishing than textiles.
Bargaining power of suppliers and buyers: it is difficult to distinguish between two industries on these bases. Suppliers of basic textile commodities (such as wool and cotton) are unlikely to have a great deal of power; authors (unless already proven winners) certainly do not. In both industries large retail outlets dominate sales to consumers. However, where retail price maintenance is practised there may be less pressure on producers to trim prices.
Threat of substitutes: the key to understanding differences in profit levels does not lie in this area. It is difficult to imagine clothes not being made from textiles; television, the cinema, video cassettes, and computers are alternatives ways of communicating a story, but the different experience of reading a book makes them distant substitutes at present.
Industry competitors: it is in this area that key differences lie. The textile industry is faced with intense competition from Far Eastern companies with low cost bases. Many textile
1. Using Porter’s five-forces framework, discuss why profitability in the European textile industry is lower than that in book publishing.
Porter’s five-forces model of competitive industry structure proposes that the determinants of industry attractiveness and long-run profitability are the threat of new entrants, the threat of substitutes, the bargaining power of buyers and suppliers, and the rivalry between existing competitors. Using these forces we shall examine the European textile and book publishing industries:
Threat of new entrants: many newly industrialized countries develop a textile industry since the skills and technology are relatively easy to acquire. Book publishing relies more on commissioning authors with the skills to write best sellers: it is easier to make a shirt than a book in Hong Kong that will sell in Europe. The threat of new entrants is likely to be lower for book publishing than textiles.
Bargaining power of suppliers and buyers: it is difficult to distinguish between two industries on these bases. Suppliers of basic textile commodities (such as wool and cotton) are unlikely to have a great deal of power; authors (unless already proven winners) certainly do not. In both industries large retail outlets dominate sales to consumers. However, where retail price maintenance is practised there may be less pressure on producers to trim prices.
Threat of substitutes: the key to understanding differences in profit levels does not lie in this area. It is difficult to imagine clothes not being made from textiles; television, the cinema, video cassettes, and computers are alternatives ways of communicating a story, but the different experience of reading a book makes them distant substitutes at present.
Industry competitors: it is in this area that key differences lie. The textile industry is faced with intense competition from Far Eastern companies with low cost bases. Many textile