Strategy is derived from the vision and mission of an organisation. Having a strategy allows the organisation to gain competitive advantage against its competitor and assist them to adapt themselves in the changing market. Therefore, the determinants of strategy are an important aspect to consider as they influence the type of strategy a firm adopts in different levels; corporate, business and functional of the organisation. There are many determinants that can affect the type of strategy an organisation adopts, but there are three important ones which firms emphasize heavily on in the strategic management process. The three determinants are the competition they face in the micro environment, the resource of an organisation as well as the mission and objectives of the organisation in the internal environment. Organisations have control over these determinants as they are closely related to the organisation. By identifying and understanding the determinants of strategy, this will allow the organisation to plan and implement strategies to ensure long-term growth and survival. A competitive advantage is an advantage over the competitor, gained by offering consumers greater value. In a business an organisation operates, the strategies they implement are mostly driven by competition (Porter, 2008). Competitions are seen as threats, which hinder an organisation's growth, profit and position in the market. In the article of Porter's five forces that will shape strategy, three of them refers to competition from external sources, which Porter (2008) refers to as the micro environment. They are the threat of new entrant, threat of substitute products or services and rivalry among competing organisation, which will be discussed. The other two forces that are bargaining power of customers and suppliers. Porter's five forces theory emphasizes on the external impact on strategy formulation and advises organisations to evaluate these forces in an industry to position themselves in the market. This theory is generally used in the analysis of an industry and development of business strategy. It also suggests that, in the corporate level, the objective of the corporate strategy should be superior profitability and manage these forces to improve the position of the organisation in the market. Profitable markets that yield high returns will attract new entrants who pose as a threat to existing competitors in the market. The reason is that when there are more competitions, the increased in production capacity without a concurrent increase in consumer demand will cause a decrease in the overall market profitability. Existing firms in the market will have their position and market share threaten, directly impact on their profitability. These new entrants will try to enter the market, bringing new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete (Porter, 2008). An example of this situation was when Aldi, a German owned company entered the grocery market with a low-price strategy, they gained a market share about 6% thus putting pressure on the existing company like Coles and Woolworth. The entry barrier thus became an important factor to consider as a low entry barrier will make it easier for new firms to enter the market and vice versa. To counter the threat of new entrants, managers from the corporate and business level has to adopt strategies to prevent them from entering the market. The strategy option they may adopt in the business level might be a differential strategy which is to differentiate their product or a cost leadership strategy which is lowering their product cost to raise the entry barrier. The threat of substitute products and services according to Porter (2008) are not competitors' similar products or services but are entirely different. For example, Pepsi in this case is not considered a substitute for Coca-Cola but for water, milk or tea. The...
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