How Competitive Forces Change Strategy

Abstract

All industries have a major goal of attaining profits. In their day to day activities of reaching out to their short term goals which include satisfying their customers, improving their products and achieving better positions in their various markets, they are all faced with competition. Five major variables can be used to assess competition in different industries. According to Michael E. Porter, the five major forces are the threat of new entrants, bargaining power of buyers, the threat of substitute products or services, bargaining power of suppliers and rivalry among existing competitors. 

Keywords: Profits, Competition, Markets.Firstly, competitive rivalry is determined by the sizes and number of firms available in the industry. If a company is large, it’s likely to enjoy the economies of scale while few companies in the sector are likely to be oligopoly in nature whereby they control the price of products and services in the market, (Allanis Business Academy, 2013)

Secondly, barriers to market entry are also a competitive aspect in the industry. The barriers include capital expenditures, cost advantages and brand loyalty (Allanis Business Academy, 2013).  Capital expenditures (conforming to certain regulations and licensing fees) are high even before any revenue is earned for new firms in the market. Cost advantages, on the other hand, favors large firms example being Wal-Mart since it purchases items at massive quantities averting suppliers to what they can charge while with brand loyalty, customers have preferences on where to shop.

Thirdly, there’s the threat from substitute products. When substitute products gain entry to the market, they come to serve the same need to the customers, and this makes the existing products lack customers. The substitutes come with cheaper price tags in some cases and these results to stiff competition among the industries.

Fourthly, there’s the buyer ability to control power. If the number of buyers is high, buyers are likely to determine the market price of goods and services. This buyer’s ability makes the competition stiff in the market as prices rise.

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Lastly, the suppliers have control over the markets when they are few. They will be the ones to determine prices of their supplies, and as a result, the consumer is left with a choice of getting his/her products at places that prices are friendly. To the industries, competition will arise “if there are high switching costs associated with a move to another supplier if they can integrate forward or begin producing the product themselves if they have particular expertise or technology needed to manufacture goods and if their product is highly differentiated.”(Martin 2014). It is the overall goal of any firm to gain profits and therefore “The collective strength of these forces determines the ultimate profit potential of an industry” (Porter, 1979)

In conclusion, for a firm to have the ability to compete, it has to gain a competitive edge. This competitiveness includes, having a good market position, enough resources to either start or continue with business and lastly search and evaluate business opportunities widely.