BUSINESS COMPETITION

y Traditional concept of business competition o Players within the industry and direct competitors are very much concerned with how to outdo or to outwit each other and be market leaders in their territory. Porter s Competition Model o Introduced by Michael Porter in 1980 s o known as the Porter s Five Forces Competition Model which includes: rivalry among competing sellers, suppliers of key inputs, substitutes, buyers and potential new entrants o it was revised or expanded in 1988 which includes the sixth major component known as stakeholders group o revised name: Forces Driving Industry Competitiveness-The Revised Porter s Model o becomes a popular theory in business management and general and in the field of strategic management in particular o it states that there are other factors or forces that drive business competition o it goes beyond the domain of price, kind and quality aspects as dominant factors in competition

Porter s Five Forces of Model Competition

Substitute of Products (Of firms in the other industries)

Suppliers of Key

Rivalry Among Competing

Buyers

inputs Sellers

Potential New Entrants

Forces Driving Industry Competitiveness-The Revised Porter s Model

Potential Entrants Relative power of Unions, Governments, etc. Other Stakeholders Threat of new entrants Industry Competitors Bargaining power Of Buyers

Buyers

Suppliers
Bargaining power Of suppliers

Rivalry Among existing Firms Threats of substitute Products or services

Substitutes

Rivalry among Competing Sellers

Constitutes the traditional view of business competition Positioned in the middle block in Porter s competition model which refers to the key players or direct competitors within the industry or sector offering the same or similar products or services o For strategic management purposes, it is the most powerful and important aspect of Porter s competition model Issues/Concern according to Thompson and Strickland a) Is price competition vigorous? b) Active efforts to improve quality; c) Are rivals racing to offer better performance features; d) Are rivals racing to offer better customer service; e) A lot of advertising/ sales promotions; f) Active efforts to build a stronger dealer network; g) Active product innovation; and h) Active use of other weapons of rivalry. o o What causes rivalry to be stronger? a) Active jockeying for position among rivals and frequent launches of new offensives to gain sales and market share; b) A number of firms that are relatively equal in size and capability; c) Slow market growth; d) Industry in conditions tempt some firms to go on the offensive to boost volume and market share; e) Customers have low costs in switching to rival brands; f) A successful strategic move carries a big payoff; g) Costs more to get out of business than to stay in; and h) Firms have diverse strategies, corporate priorities, resources, and countries of origin.

Determinants of Rivalry (by: Pitts and Lei) a) The level of industry s growth; b) Fixed (or storage) cost/value added; c) Intermittent overcapacity; d) Product differences; e) Brand identity; f) Switching costs; and g) Concentration and balance.

Suppliers of Key Inputs

o o o group of business organizations outside the middle box of Porter s competition because they do not pose as direct threat to competition this group includes the suppliers of raw materials and other inputs to products and services in a monopolistic or cartelized situation suppliers can manipulate prices to achieve profit goals or favor some of their clients Situations wherein there are considered strong competitive force of supplier a) Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality; b) It is costly for buyers to switch suppliers; c) They have good reputations and growing demand; d) They can supply a component cheaper than industry members can make it themselves; e) They do not have to contend with substitutes; and f) Buying firms are not important customers.

Determinants of supplier power (by: Pitts and Lei)

a) b) c) d) e) f) g) Differences in inputs; Switching costs of suppliers and firms in the industry; Presence of substitute inputs; Supplier concentration; Importance of volume to supplier; Cost relative to total purchase in the industry; and Impact of inputs on costs or differentiation.

Factors affecting suppliers bargaining power

a) Rival sellers are forming long-term strategic partnerships with selected suppliers to promote just-in-time deliveries and reduced inventory and logistic costs i. Speed availability of next-generation components ii. Enhance quality parts being supplied iii. Reduced supplier s costs which pave way for lower prics on items supplied b) Competitive advantage potential may accrue to industry rivals doing the best job of managing-supply chain relationships.

Prepared and reported by: Ryzlyn F. Gapuz