High costs of switching companies Government restrictions or legislation Power of Suppliers - This is how much pressure suppliers can place on a business.
Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.
The Concentration Ratio CR is one such measure. A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is less competitive closer to a monopoly.
A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.
If rivalry among firms in an industry is low, the industry is considered to be disciplined. Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market.
When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies.
In pursuing an advantage over its rivals, a firm can choose from several competitive moves: Changing prices - raising or lowering prices to gain a temporary advantage.
Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself. Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel to the industry.
For example, with high-end jewelry stores reluctant to carry its watches, Timex moved into drugstores and other non-traditional outlets and cornered the low to mid-price watch market.
Sears set high quality standards and required suppliers to meet its demands for product specifications and price. The intensity of rivalry is influenced by the following industry characteristics: A larger number of firms increases rivalry because more firms must compete for the same customers and resources.
The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership. Slow market growth causes firms to fight for market share.
In a growing market, firms are able to improve revenues simply because of the expanding market.
High fixed costs result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry.
High storage costs or highly perishable products cause a producer to sell goods as soon as possible.
If other producers are attempting to unload at the same time, competition for customers intensifies. Low switching costs increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers. Low levels of product differentiation is associated with higher levels of rivalry.
Brand identification, on the other hand, tends to constrain rivalry. Strategic stakes are high when a firm is losing market position or has potential for great gains. High exit barriers place a high cost on abandoning the product. The firm must compete.
High exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A common exit barrier is asset specificity. When the plant and equipment required for manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in another industry.
But when the Vietnam war ended, defense spending declined and Litton saw a sudden decline in its earnings. As the firm restructured, divesting from the shipbuilding plant was not feasible since such a large and highly specialized investment could not be sold easily, and Litton was forced to stay in a declining shipbuilding market.Management Research Library The top resource for free Management research, white papers, reports, case studies, magazines, and eBooks.
Strategic tools such as PESTEL, Porter’s Five Forces, SWOT and Value Chain analysis were used to analyse Supermarket industry using TESCO as a case study. Strategic tools such as PESTEL, Porter’s Five Forces, SWOT and Value Chain analysis were used to analyse Supermarket industry using TESCO as a case study Model answer.
Report . force’s industry analysis. soon and will be used to fulfil the demand o f Bangladesh Petroleum. The Netherlands Indiatsy et al, The Application of Porter's Five Forces Model on. Porter (, p) identifies five forces that can be used to analyse the competitiveness of a company’s industry of operation.
The forces include the threat of new entrants, threat of substitutes, bargaining power of suppliers . 17 | P a g e Michael Porter’s Five-Forces Model The model identifies and analyzes 5 competitive forces that shape and help companies to determine their industry’s degree of competitiveness and therefore helping the companies to develop their strategies.
Porter 5 force r-bridal.com huge size was an essential requirement in the petroleum industry.
independent refiners such as Valero in the US grew as the majors sold off downstream assets. have greater potential to outperform competition and create differentiated value. 22 In gas the situation was different. and storage to link production to 4/4(4).