2 UNDERSTANDING COMPETITION IN MY INDUSTRY What is driving Competition in my Industry?What Actions are Competitors likely to take?What is the best way to respond?How will my Industry evolve?How can my firm be best positioned to compete in the long run?
3 FRAMEWORK FOR ANALYZING THE STRUCTURE OF INDUSTRY What are the Competitive Forces acting on an Industry?What are the Implications of these Forces?What are the techniques for Analyzing Competitors and their Moves?
4 WHEEL OF COMPETITIVE STRATEGY Competitive Strategy is a combination of the Ends (Goals) for which the firm is striving and the Means (Policies) by which is it seeking to get there
5 WHEEL OF COMPETITIVE STRATEGY GOALS form the hub of the wheelThe objectives of the firm- profitability, growth in sales, market share, social responsiveness, etc.The SPOKES of the wheel are the policies which radiate from and reflect the goals
7 FACTORS DETERMINING COMPETITIVE STRATEGY Internal FactorsCompany’s Strengths & WeaknessesIts Assets & Skills relative to CompetitorsFinancial ResourcesTechnological PostureBrand IdentificationPersonal Values of the OrganizationMotivation & Needs of Key Executives and other Personnel
8 FACTORS DETERMINING COMPETITIVE STRATEGY External FactorsIndustry Opportunities & ThreatsCompetitive EnvironmentIts Risks and Potential RewardsSocietal ExpectationsImpact of Government PoliciesImpact of Social Concerns
9 UNDERSTANDING 5 FORCES DRIVING INDUSTRY COMPETITION Essence of formulating a Competitive Strategy is relating a company to its environmentThe environment for a company is the industry in which it operatesCompetition in industry depends on 5 basic forcesCollective strength of these forces determines the profit potential in the industryProfit is determined by long term return on invested capitalEffective competitive strategy involves finding an ideal position in the industry where the company can best defend against these forces or influence them in its favor
10 UNDERSTANDING 5 FORCES DRIVING INDUSTRY COMPETITION POTENTIALENTRANTSThreat of new entrantsINDUSTRYCOMPETITORSRivalry amongexisting firmsBargaining powerof suppliersBargaining powerof buyersSUPPLIERSBUYERSThreat of new substitute products & servicesSUBSTITUES
11 UNDERSTANDING 5 FORCES DRIVING INDUSTRY COMPETITION All 5 forces jointly determine the intensity of industry competitionAssessing these forces helps in:Understanding strengths & weaknesses of the companyIdentifying areas where strategic changes yield greatest payoffHighlighting areas where industry trends promise to hold greatest significance as opportunities or threatsConsidering areas for diversification
12 THREAT OF NEW ENTRANTS Threat of new entrants depends on : Economies of ScaleProduct DifferentiationCapital RequirementsSwitching CostsAccess to Distribution ChannelsCost Disadvantages independent of ScaleGovernment PolicyExpected RetaliationEntry deterring Price
13 RIVALRY AMONG EXISTING COMPETITORS Intensity of rivalry among existing competitors depends on:Numerous or few equally balanced competitorsSlow industrial growthHigh fixed or storage costsLack of product differentiationOver capacityDiverse competitorsHigh strategic stakesHigh exit barriers
14 THREAT OF NEW SUBSTITUTES Substitutes limit the potential returns of an industry in terms of profitsSubstitutes limit the ability of the company to charge higher pricesIt is crucial to identify substitute products that can perform same or similar functions
15 BARGAINING POWER OF BUYERS Bargaining Power of Buyers depends on :Large volumes of purchases relative to sellers’ salesProducts purchased represent a substantial proportion of the buyers’ overall purchasing costsProducts purchased are standard or undifferentiatedSwitching costs are lowBuyers’ profits are low
16 BARGAINING POWER OF BUYERS Buyers pose a credible threat of backward integrationProducts purchased are not critically important to the quality of the final productsBuyers are knowledgeable about demand, market price & supply costsRetailers can influence the purchasersGovernment policies are in favor of buyers
17 BARGAINING POWER OF SUPPLIERS A supplier group is powerful if:It is dominated by a few companiesCompetition from substitutes is marginalThe buyer groups are not critical customers of suppliersInputs supplied are critical to the buyersSuppliers’ products are differentiated and have high switching costsSuppliers pose threats of forward integrationGovernment policies favor suppliers
18 EFFECTIVE COMPETITIVE STRATEGY Competitive strategy must place the firm in a defendable position against all the five forcesThis entails:Positioning the firm in the best defense or most favorable position i.e. matching company’s strengths and weaknesses to the structure of the industryInfluencing the balance of forces through strategic moves – altering the forces through innovative marketing and production techniquesAnticipating shifts in the factors affecting the forces and responding to them - responding effectively to changes in growth rates, vertical integration, maturity of markets, etc.
19 GENERIC COMPETITIVE STRATEGIES Creating a defendable position in the industry means coping effectively with the five competitive forcesThree approaches to successful competitive strategy ;Overall cost leadership – Low cost relative to competitorsProduct differentiation – through innovative technologies, design or brand imageFocus – Serving a particular target market, geographical location or product line more effectively than competitors