TO THE CHAPTER-3-BUSINESS-COMPETITON.pptx

Business Competition

1. BUSINESS COMPETITION CHAPTER 3

2. Background Amidst a variety of theories and principle that drive business managers and strategies to be creative, innovative and skillful in terms of outcompeting or edging out its rivals in the business, some of them stand out than the rest. And if there is any other theory and framework that has somehow greatly influenced the popularization of the concept of strategic management, one of them or if not the most dominant of them all, is that Michael Porter’s business completion model introduced in the 1980s.

3. Porter’s Competition Model Michaels Porter has made substantial contribution in the field of strategic management via his business completion model which originally comes in five major forces; called Porter’s Five Forces Competition Model. The theory advocates that other than the completion or rivalry among business organizations producing or selling the same or similar products in the same market sector or segments, there are other factors or forces that drive business competition.

4. The kind of completion expounded by Michael Porter goes beyond the domain of price, kind, and quality aspects as dominant factors in competition. When it was introduced to the model include five major forces but has been expanded to include another important force lumped into what is called the stakeholder group.

5. The Porter’s Five forces Model referred to include rivalry among competing seller, suppliers of key inputs, substitutes, buyers and potential new entrants. Recently, the said business competition model comes with a sixth major component known as stakeholder.

6. Rivalry among competing sellers Rivalry among competing sellers or producers constitutes the traditional view of business competition and this is positioned in the middle block n Porter’s completion model. The middle block in Porter’s business competition model refers to the key players or direct competitors within the industry or sector offering the same or similar products or services.

7. Thompson and Strickland identified the matters of 0utmost concern in this are following issues: Is price completion vigorous Active efforts to improve quality Are rivals racing to offer better performance features. Are rival racing to offer better customer service A lot of advertising/sales promotion Active efforts to build a stronger dealer network Active product innovation Active use of other weapons of rivalry

8. What causes of rivalry to be stronger? Active jockeying for position among rivals and frequent launches of new offensive to gain sale and market share. A number of firms that are relatively equal in size and capability Slow market growth Industry conditions tempt some firms to go on the offensive to boost and market share Customers have low cost in switching to rival brands A successful more to get out of business than to stay in Firms have diverse strategies, corporate priorities, resources, and countries of origin

9. Determinants of rivalry The level of industry’s growth Fixed (or storage) cost/value added Intermitted overcapacity Brand identify Switching costs Concentration and balance

10. Suppliers of Key Inputs This includes another group of business organization outside the middle box of Porter’s competition model in the sense that they do not pose as direct threat to competition. In a sense, the role of Suppliers is to provide inputs or doing supportive role of players belonging to the middle box who are competing with one another. This group includes suppliers of raw materials and other inputs to products and services offered by the key players in the market to the rivals identified in the middle block of the Porte model.

11. Competitive force of supplier Item makes up large portion of product costs, is crucial to production process, and or significantly affects product quality It is costly for buyers to switch suppliers They have good reputations and growing demand The can supply a component cheaper than industry members can make it themselves. They do not have to contend with substitutes Buying firms are not important customers.

12. Determinants of supplier power Pitts and Lie (200) identified its role as a threat to competition given the presence of existence of the following situation: Differences in inputs Switching cost 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 Impact to inputs on costs differentiation

13. Factors affecting supplier bargaining power A. Rival seller are forming long-term strategic partnerships wit select suppliers to promote jus-in-time deliveries and reduced inventory and logistics costs . Speed availability of next generation component Enhance quality of parts being supplied Reduce supplier costs which pave way for lower prices on items supplied B. Competitive advantage potential may curve accrue to industry rivals doing the best job of managing supply chain relations

14. Substitutes Substitutes generally refer to products or services which prospective buyers can buy or source elsewhere whose utility, function and/or use is similar (or can act as substitute) to a desired product for lesser price or other reasons. Substitutes exert pressure in the market in that Product switching (i.e. by buying a substitute) can lessen the demand for the product, detrimental to the competing players as a whole.

15. Factors affecting competition from substitution Product could be either weak or strong and they may or may not be a matter that should bother strategies. However substitutions come in strong or threaten the company or the industry as a whole, this is something that should be seriously looked into.

16. The following scenarios will indicate whether or not substitute product are a strong force and hence should be given due consideration: Sales substitute are growing rapidly Producers of substitutes products add new capacities Profits of substitute product are up Popularity of substitute products is growing

17. Determinant of substitution threats Business organization should regularly monitor technology development in the industry or sector they are operating as this situation can lead to developing new products or service that can threaten the very existence of the business.

18. The extent of threats of product substitution is indicated by the following developments: Relative price of the substitutes Performance of the substitutes in the industry Switching costs involved in the act of substitution Buyer’s propensity or penchant for substitutes Regulatory of other factors that tend to promote product substitution.

19. Switching cost Switching cost is a factor that leads prospective customers to entertaining or considering the idea of busying or patronizing other products for the variety of reasons. Switching cost refers to the amount the buyers can save or forego in exchange for buying other products or services they used to patronize.

20. In some cases, the product or service being offered is a direct substitutes and the price is competitively high but the promise of immediate or short and long-term benefits is such more. In this case, there is switching cost or additional expense in acquiring a product ( may it be direct or indirect substitute) that would somehow scare the prospective buyer but the amount (or the deferential price) involved and the benefits it promises are matters that are inviting the prospective buyer to further think about it.

21. Role of the buyers Buyers are objects of desire of business competing in the same segment or industry. They refer to prospective clients, buyers users and consumers of the product service whose varying purchasing power and desire to bargain for a price or terms of payment can affect competitive of certain players in the market.

22. Competitive a force of the buyers Buyer are considered a strong competitive force in a variety of ways. This is particularly true when the market is characterized by the so-called buyer’s market condition. (i.e. buyers influence price levels in a particular market). Buyers are a strong competitive force when they comprise a large portions of the demand and purchase a sizable percentage of industry product.

23. The driving forces brought about by buyers concerns are as fallow: They buy in large quantities They are integrate backward Industry's product is standardized Their cost in switching to substitutes or other brands are low They can purchase from several sellers They have high purchasing power Bargaining leverage Buyer concentration versus firm concentration

24. i . Buyer switching cost relative to firm switching cost j. Buyer information k. Availability of substitute products l. Price sensitivity m. Product difference n. Brand identity o. Impact on quality and performance p. Buyers profits q. Decision – maker incentives

25. When is bargaining power of buyers weak? Bargaining power of buyers relates to the ability of the prospective buyers to seek discounts or better deals and price given certain condition favorable to them. This is particularly true in the Asian market where bargaining and quest for discount is prevalent even with the tag price indicated on the product.

26. considered weak under the following scenarios or situations: Buyers switching cost to competing brands are high There is a surge in buyer demand Seller- buyer collaboration or partnering provides attractive win –win opportunities

27. Dealing with the competitive force buyers As buyers appear to be smart seeking for an advantageous price that somehow affects and profit levels od suppliers or producers, entrepreneurs have to learn and live with this dilemma. While there are many reasons why investors put up a business, business organizations are established precisely to serve the market or buyers in particular with profits in mind.

28. There are a variety of options to take in dealing the buyers. The price buyers to pay for the product – make it affordable The quality of the product sold to buyers – make it acceptable to their standards and expectation Services buyers can expect from the business – be sure after sales service are available whenever needed Other conditions of the sale – make sure that there are other attractive conditions that come with the selling effort.

29. Potential and New Entrants Potential and new entrants may not be considered active players but I Porter’s business competition model, they are considered threat to existing business corners. Potential and new entrants – refers to business organization attempting to or have now joined the market trying hard to make a name for their product and the business organization as a whole.

30. Barriers to New Entrant New entrants in the industry bring in extra capacity to the industry and any increase in demand can be an opportunity for new entrants. William, Jenkins et. Al. (2004) cited that if the new entrants have similar product features and benefits to that of existing providers, then the new entrant threat is by imitation.

31. The new entrants face the following entry barriers ( William Jenkins’ et.al) Economic of scale Access to secret technology (patented and not patented) Brand recognition Capital cost entry Access to distribution channels Lack of experience in carrying operational activities leading to learning gaps, producing cost disadvantage High customer switching costs Access to low cost inputs ( eg . Labor) Legislative barriers entry

32. The stakeholders Stakeholders emerged in the late 1900s and become widely popular by the early 2000. an outgrowth of consumerism and intrusion of progressive minds in the business sector, the stakeholder group is a sector of the economy or society which may be considered an indirect player in the business arena unlike the other five major components 0f Porter business competition model but may have bearing upon the business as a whole.