1 Network for Quality, Productivity & Competitiveness - Nepal Presentation on Competitiveness February 13, 2005 By Saroj Rai Solar Energy Component Coordinator Energy Sector Assistance Programme (ESAP) Alternative Energy Promotion Centre (AEPC) Dhobighat, Lalitpur, Nepal Tel: / Fax: Website:

2 Presentation Overview Concept of Competitiveness Personal Competitiveness Defining Competitiveness in Business Competitive Analysis: Michael E Porter’s 5-Force Model Competitive Advantages Remaining Topics on Competitiveness

3 Concept of Competitiveness Competitiveness is the ultimate virtue of being able to compete, contest, or strive to survive, better perform or outperform, etc. in long run it is survival of the fittest – Darwinism Competitiveness at Different Levels Person -> Family -> Community -> Nation Person -> Organisation -> (Industry) Cluster -> Nation -> Region -> Globe

4 Concept of Competitiveness (continued) Factors of Competitiveness Physical, mental/educational, psychological, spiritual/religious, Cultural, socio-economic, political Competitiveness at higher levels also depend on that of the lower levels e.g. family competitiveness depends that of individual members and so on. Some Bases of Competitiveness Resources & Sizes Quality, Productivity, Innovation, Improvements Bargaining Power over Suppliers, Buyers, etc. Strategy, Focus, Specialisation, etc.

5 Concept of Competitiveness (continued) Driving Forces of Competitiveness Sense of urgency for survival Vision, leadership Competitive environment Customers’ sophistication Quality/competitiveness of support services Policy and structural frameworks, etc.

6 Personal Competitiveness Foundation of all levels’ competitiveness Competing with others is not enough – compete with yourself! Strategic career advancement and competitiveness Some not-so-conventional personal management and development frameworks or tools Seven Habits of Highly Successful People – Stephen R. Covey Lord Buddha’s Astangik Marga You Can Win – Shiv Khera Art of living, yoga, meditation, exercise, etc.

7 Defining Competitiveness in Business Conventional definition – too narrow race among the players in the industry or sector to improve your bottom line Whoever hurts your business. Broader definition Whoever and whatever hurt your business! Because, Profit = Volume X Unit Price – (Fixed Cost + Volume X Unit Cost)

8 Five-Force Model of Competitive Analysis and Business Profitability Prof. Michael E Porter of Harvard B School redefined competitiveness in business in his 5-Force Model for Competitive Analysis in his book (Competitive Strategy, 1980) He argues that besides rivalry among the industry players, there 4 competitive forces which determine profitability.

9 Five-Force Model of Competitive Analysis

10 Competitive Analysis: Threat of New Entrants Entry Barriers to Address the Threats Economies of scale Product differentiation Capital requirements Switching costs Government policy and regulation Expected retaliation Entry-deterring price

11 Competitive Analysis: Bargaining Power of Suppliers Suppliers (of materials, equipment, labour, capital, etc.) are powerful if: The supplier group is dominated by a few companies and is more concentrated than the industry itself Suppliers face no threat from substitutes The industry is not an important customer of the supplier group The suppliers’ product is an important input to the industry’s business Suppliers’ products are differentiated or have built up switching costs Suppliers pose a credible threat of forward integration.

12 Competitive Analysis: Bargaining Power of Buyers Buyers are powerful when: They are more concentrated than the seller They purchase in large volumes They have low switching costs They possess much info about the seller and the product They have ability to integrate backward There are good substitute products The product is standard or undifferentiated The product makes little impact on quality of buyers’ products.

13 Competitive Analysis: Threat of Substitute Products Substitute products pose a threat when There is an attractive price-performance alternative They could improve performance They are produced by industries earning high profits They require none or few switching costs Buyers have a high propensity to substitute

14 Competitive Analysis: Rivalry Among Existing Firms Rivalry is stronger when: There are many equally able competitors There is slow industry growth There are high fixed or storage costs There are no product differentiation or no little switching costs Capacity is built up in large increments There are competitors of diverse interests, origins, background, etc. High strategic interests are involved Exit barriers are high.

15 Competitive Advantage vis-à-vis Other Players Prof. Michael E Porter adds in his 2 nd book (Competitive Advantage, 1985) that competitive advantage of a firm as the other determinant of profitability. Competitive advantages (against others in the industry) result in above-average profitability Small-but-hard-to-emulate competitive advantages are sustainable (kaizen is useful to be a “moving target”) Value chain analysis is very useful to look for sustainable and spread out competitive advantages.

16 Remaining Topics on Competitiveness Competitiveness of an industry/sector The Diamond Model Competitiveness Advantage of a Nation Prof. Michael E Porter wrote his 3 rd book called Competitive Advantage of Nations published in Competitiveness of a Cluster Transforming Porter’s competitive framework to economic development (thro’ private sector) (Michael E Porter’s 4 th Book) Thank you.