LABORATORY EXERCISE 8
Competitive Strategies of Domestic and Global Enterprise
MGT 1 X-2L
Alonzo, Angela Ruth
Badon, Laurene Mae
Layones, Donna Jan
Prof. Faustino Arrienda
February 9, 2012
Porter’s 5 forces
-factors affecting the 5 forces (commonly)
-relate to airline industry
Effect of globalization on airline industry
>what is globalization
In the Philippines, there are approximately 30 airlines which can be classified into three main categories: scheduled commercial, charter, and cargo airlines. There are five competing commercial airlines that have domestic and international routes. These are the airlines which are ranked according to their market share: (1) Cebu Pacific, (2) Philippine Airlines / AirPhil Express, (3) Zest Airways, (4) SEAir,and (5) Spirit of Manila Airlines.
The most influential analytical model for assessing the nature of competition in an industry is Michael Porter’s Five Forces Model. Porter, a Professor from Harvard University, explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five “competitive forces” are: (1) threat of entry of new competitors (or new entrants); (2) threat of substitutes; (3) bargaining power of buyers; (4) bargaining power of suppliers; and (5) degree of rivalry between existing competitors.
Figure 8.1. Diagram of Porter’s Five Forces.
THREAT OF NEW ENTRANTS
The threat of new entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries whereas other industries are very easy to enter. The key barriers to entry include: economies of scale, capital or investment requirements, customer switching costs, access to industry distribution channels, and the likelihood of retaliation from industry of existing players.
Airline Industry is a business which requires huge setup thus large investment, in old times this industry might have a very less threat but today banks has increased possibilities of new entrants through offering long term loans on less interest to business sectors which obviously increased the threat of new entrants for the existing airlines. There is always possibility that another airline will be formed to service the existing market. The likeliness of another airlines being formed, will depend so much on the barrier to entry and the lucrativeness of the business
In relation to Philippines’ airline industry, Zest Airways is the newcomer that is currently competing with the two airline giants – Cebu Pacific and Philippine Airlines (PAL). As a starting company in this business, they offer low rates to the passengers. They also have promos to attract more clients. The unique strategy of Zest Air from the other airlines is that it offers tour packages wherein tourists can set their travel plans-more affordable and very convenient because they do not have to go to travel agencies.
BARGAINING POWER OF SUPPLIERS
Suppliers are the businesses that supply materials and other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company’s profitability. If suppliers have high bargaining power over a company, then the company’s industry is less attractive. The bargaining power of suppliers will be high when: there are many buyers and few dominant suppliers, there are undifferentiated and highly valued products, suppliers threaten to integrate forward into the industry, buyers do not threaten to integrate backwards into supply, and the industry is not a key customer group to the suppliers. In short, suppliers, if powerful, can exert an influence on the producing industry, such...
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