Professor: GENEVIEVE ONDOY-TORINO, DBM

INDUSTRY/BUSINESS
COMPETITION
At the end of the topic, the students will be able to:

1. Discuss the nature and context of business

competition.
2. Explain and appreciate Porter’s Five Forces Model
related to business competition.
3. Analyze and contextualize the role of various forces or
factors forming part of Porter’s business competition
model.
4. Illustrate why product substitutes are vital threat to
competition; and
5. Explain the role played by stakeholder groups
associated with business competition.
 KEY TERMS:

Barriers of Entry - are obstacles to entering an industry,

including economies of scale, brand identity and product
differentiation, capital requirements, switching costs,
access to distribution channels, cost, costs disadvantages
independent of size and government policy.

Critical Success Factors (CSFs) –elements of the strategy

that are essential for success among most or all
competitors among a given industry.

Exit Barriers – economic, strategic, or emotional

obstacles to leaving an industry.
 KEY TERMS:

Hypercompetition - the notion that industries emerge,

develop and evolve so rapidly that identifying the
current life cycle stages must be neither possible or
worthwhile .

Industry – business that operates among a group of

rivals that produce competing products or services.

Industry Life Cycle – The stages (introduction, growth,

shakeout, maturity and decline) through which industries
are believed to pass.

Market share – the percentage of total market sales

attributed to one competitor (i.e. firm sales divided by
total market sales)
 KEY TERMS:

Substitute Products – alternative offerings produced by

firms in another industry that satisfy similar consumer
needs

Switching Costs – one-time costs that buyers of an

industry’s outputs incur as they switch from one
company’s products or services to another’s.
INTRODUCTION GROWTH SHAKEOUT

MATURITY DECLINE

INDUSTRY LIFE CYCLE STAGES

Introduction Stage – the young industry is beginning to form

Growth Stage – customer demand begins to rise and some of the

industry’s weaker competitors may go out of business in this stage

Shakeout Stage - occurs when industry growth is no longer rapid

enough to support the increasing number of competitors

Maturity Stage – is reached when the market demand for the

industry’s outputs is becoming saturated

Decline Stage – occurs when demand for an industry’s products

and services decreases and often begins when consumers begin to
turn to more convenient, safer, or higher quality offerings from
firms in substitute industries

INDUSTRY LIFE CYCLE STAGES

 INDUSTRY STRUCTURE

PORTER’S FIVE FORCES MODEL

- By Michael Porter
- A systematic means of analyzing the potential
profitability of firms in an industry

Five Basic Competitive Forces according to Michael Porter:

1. The intensity of rivalry among incumbent firms

2. The threat of new competitors entering the industry
3. The threat of substitute products or services
4. The bargaining power of buyers
5. The bargaining power of suppliers

• These factors combine to form the industry structure and

suggest profitability prospects for firms that operate in
the industry. Each of the factors will be discussed in
greater detail.
PORTER’S FIVE FORCES MODEL

BARRIERS OF
ENTRY

BARGAINING BARGAINING
POWER OF EXISTING RIVALRY POWER OF
SUPPLIERS BUYERS

THREAT OF
SUBSTITUTES
 PORTER’S FIVE FORCES MODEL

1. RIVALRY AMONG INCUMBENT FIRMS/COMPETING

SELLERS
- Key players or direct competitors within the industry or
sector offering the same or similar products or services.
- The business organizations trying to outdo each other
and eyeing for a share in the market.
- The most powerful and important aspect of Porter’s
Competition Model.
- Determinants of Rivalry:
- a. level of industry’s growth
- B. fixed (or storage) cost/value added
- C. intermittent overcapacity
- D. product differences
- E. brand identity
- F. switching costs
- G. concentration and balance
 PORTER’S FIVE FORCES MODEL

2. THE THREAT OF NEW COMPETITORS ENTERING THE

INDUSTRY

- Potential and new entrants refer to business

organizations attempting to or have now joined the
market trying hard to make a name for their product and
the business organization as a whole.

- Barriers of New Entrants are a. economies of scale; b.

access to secret technology; c. brand recognition; d.
capital cost entry; e. access to distribution channels; f.
lack of experience in carrying operational activities
leading to learning gaps, producing cost disadvantage; g.
high customer switching costs; h. access to low inputs;
and i. legislative barriers entry.
 PORTER’S FIVE FORCES MODEL

3. The threat of substitute products or services

- Substitutes 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 a lesser price or
other reasons.

- Factors affecting competition from substitutes

a. Sales of substitutes are growing rapidly.
b. Producers of substitute products add new capacities.
c. Profits of substitute products are up.
d. Popularity of substitute products are growing.
 PORTER’S FIVE FORCES MODEL

4. The bargaining power of buyers

- Buyers refer to prospective clients, buyers, users and

consumers of the product or service whose varying
purchasing power and desire to bargain for a price or
terms of payment can affect competitiveness of certain
players in the market.

- Buyers also refer to object of desire of businesses

competing in the same segment or industry.
 PORTER’S FIVE FORCES MODEL

4. The bargaining power of suppliers

- Suppliers provide input or doing supportive role to the

key players who are competing with one another.

- Determinants of Supplier Power

- 1.difference in inputs
- 2. switching cost of suppliers and firms in the industry
- 3. presence of substitute inputs
- 4. supplier concentration
- 5. importance of volume to supplier
- 6.cost relative to total purchase in the industry
- 7. impact of inputs on costs or differentiation
INSTRUCTIONS:

Read more on the topic Business /Industry Competition. A

comprehensive discussion of the topics can be found in the
learning material which I will be uploading as your reference.

Additional Reference:

Orcullo (2011). Fundamentals of Strategic Management . Rex

Printing Company, Inc.
Thank you and
God bless!!!