Competition is at core of success or failure of firm
Competitive strategy is "the search for a favorable competitive position in an industry" Competitive strategy aims to establish profitable and sustainable position against forces that determine industry competition 2 central questions underlie choice of competitive strategy: 1. Attractiveness of industry for long-term profitability and factors that determine it 2. Determinants of relative competitive position within an industry Industry attractiveness and competitive position are dynamic - they change Even long periods of stability can be abruptly ended by competitive moves Both industry attractiveness and competitive position can be shaped by firm Competitive strategy not only respond to environment but also attempts to shape it in firm's favor
The Structural Analysis of Industries
1st fundamental determinant of firm's profitability is industry attractiveness Rules of competition are embedded in 5 competitive forces:
Entry of new competitors
Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Rivalry among existing competitors
Collective strength of these 5 determines firm's ability to earn ROI in excess of cost of capital 5 forces determine profitability because they influence prices, costs and required investment - which are elements of ROI Buyer power and substitution threat influence prices that firms can charge Bargaining power of suppliers determines costs of raw materials Intensity of rivalry influences prices and costs of competing in product development, advertising, and sales force Threat of entry places limit on prices
Firms can influence 5 forces with their strategies, they are not prisoners of the industry 5 Forces Framework aims to raise odds of discovering desirable strategic innovation In tobacco industry, generic cigarettes are a threat.
They increase price sensitivity of buyer -> trigger price competition...
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