The forces driving the competition and the intensity of the competition in an industry, are due to its principal economic structure and the behavior of the competitors (Porter, 1998). Therefore, the state of competition as shown in Figure 1 depends on five competitive factors such as industry competitors - rivalry, potential entrants, buyers, suppliers, and substitutes. As Porter(1998) states “ the collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long terms of long run return on invested capital.” Therefore, this chapter will focus on the strengths of the competitive forces that drive the organization towards industry profitability by the identification of the structural features of the industry. 1.1.1 Rivalry - Industry Competitors When analyzing the market, it is understood that the customer plays a huge role and that there is a very low switching cost for the customer due to the very low number of competitors. Even though this is an opportunity to the company at times this opportunity can be a threat to the company. The threat is prevented by gaining the information regarding the customer’s needs and assuring the customer the products that are purchased are safe and ethical. Safety of products are an absolute requirement and that as Hayleys PLC(2012) states “every one of our customers knows that buying a Hayleys product means they are choosing to buy the most optimal combination of safety and efficiency.” The main communication method used to reach the customer is through advertisements and this reaches the customer in the most efficient manner that reaches the customers concerns. The competiti... ... middle of paper ... ...s Five Forces), 24 July, [Online], Available: http://strategiccfo.com/wikicfo/threat-of-substitutes-one-of-porters-five-forces/ [21 December 2013]. PLC, Hayleys (2008) Business Superbrands, [Online], Available: www.superbrands.com/lkb1/pdf/hayleys.pdf [10 December 2013]. Porter, M. (1998) Competitive Strategy: Techniques for Analyzing Industries and Competitors, 1st edition, New York: The Free Press. Porter, M. (2008) 'The Five Competitive Forces That Shape Strategy', Harvard Business Review, January, pp. 1-17. Rubinfeld (2000) 'Market Definition With Differentiated Products: The Post/ Nabisco Cereal Merger', Antitrust Law Journal, vol. 68, no. 1, pp. 1-10. Wilkinson, J. (2013) Buyer Bargaining Power (one of Porter’s Five Forces), 23 July, [Online], Available: http://strategiccfo.com/wikicfo/buyer-bargaining-power-one-of-porters-five-forces/ [20 December 2013].
Michael Porter's Five Forces analyze the external and internal environment of a company to increase the awareness of threats and structure of the industry that company competes within. Thus, the Five Forces is an ideal tool which can help companies to maintain their competitiveness with a higher profitability.
1. Hitt, Ireland and Hoskisson (2005), Strategic Management : Competitiveness and Globalisation, 6th Edition, Thompson & South-Western.
Pearce II, J. A., & Robinson, R. B. (2011). Strategic Management 12th Ed. New York: McGraw-Hill/Irwin.
Arthur, A., Thompson, Margaret, A., Peteraf, John, E. Gamble, A., J., Strickland III. (2014). Crafting & Executing Strategy: The Quest for Competitive Advantage 19e: Concepts & Cases. C6-C25.
Thompson, Arthur, John Gamble, John Gamble, A. III, and Alonzo Strickland. Strategy. McGraw-Hill/Irwin, 2005. 299. Print.
Bargaining power of suppliers analyzes how much power a business 's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business 's profitability. (Arline, 2015).
The model of the Five Competitive Forces was developed by Michael E. Porter in his book "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes.
Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2008). Crafting & executing strategy: The quest for competitive advantage (16th ed.). New York: McGraw-Hill Irwin.
Because the subject matter of strategic management is so inherently complex and because each one of us brings his own personal biases to the analysis, it was suggested early on that virtually all case material in the field be analyzed from the perspective of more than one methodology. Profit theory and industrial chains were selected as the first of a number of viable approaches to the analytical process. It would have been equally correct to select the Five Competitive Forces analysis refined by Michael Porter, one of the major figures in the field of strategic management. This methodology addresses the same issues but differs only in the language that they use to describe corporate behavior. The five forces are:
In a world of free trade, growing competition and accessibility to foreign markets, the need for methodical market analysis and assumptions is steadily rising in today’s business environment. It is just a normal way of thinking to primarily intent to eliminate the financial before entering a new and foreign market. This suggests that enterprises have to develop an overall strategy for their business in order to gain competitive advantage and consequently market share. With the words of Michael E. Porter, professor at Harvard University and leading authority on competitive strategy, this desirable market success is indirectly linked to the individual structure of a market. The unique structure of a single market influences the strategic behaviour and the development of a competitive strategy within a firm. The competitive strategy finally decides whether a company performs successfully on the market or not. Referring to this interpretation of business success, M. E. Porter established his five forces framework that enables directives to gather useful information about the business environment and the competitive forces in industries.
Thompson, A.A., Strickland, A.J., & Gamble, J. E. (2010). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases: 2009 custom edition (17th ed.). New York: McGraw-Hill-Irwin
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Both Porter and Miles and Snow’s strategy typologies are based on the concept of strategic equifinality, or the ability for firms to be successful via differing managerial strategies (Hambrick, 2003, p. 116). Porter 's strategy is more generic while Miles and Snow’s is more specific in nature. Porter’s generic strategy typology is based on economic factors centering on the source of a firm’s competitive advantage and the scope of a firm’s target market (González-Benito & Suárez-González, 2010). Porter’s typology emphasizes a firm’s cost, product differentiation or non-differentiation and market focus. When utilizing Porter’s strategy typology, a firm must first decide to target its products toward the mass market versus a market niche or focus. Secondly, a firm will determine if it wishes to minimize costs or differentiate its products with differentiation meaning that firms will most likely forego lower costs (Parnell, 2014, p. 184). This can lead a firm to develop a myriad of strategies between these options. Strategies which may have or not have focus, may or not be differentiated, may or not be low cost or any combination of strategies. In contrast to Porter, Miles and Snow’s typology is more specific in nature.
Hendersern and Stern 2000, ‘Untangling the origins of competitive advantage’,Strategic Management Journal, Vol. 21, pp. 1123-1145.
Porter’s five forces is a framework for analyzing an industry and business strategy development. It looks at forces that determine the competitive intensity of an industry and hence the overall attractiveness of that industry. The configuration of the five forces differs by industry. Understanding the competitive forces and their underlying causes reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition over time.