Week 2

position. Prices
steady or
declining
Investment Very high-needed Massive De-emphasis on Begin gradual exit

intensity to build business expenditures to adding new and even divest

reinforce position capacity activities
Profitability Generally Moving to high Peak profits; cash Profits decline;

levels unprofitable, loads profits; cash flow is high cash flow

of cash needed negative or declining rapidly
uneven

As the industry environment approaches maturity and decline stages, cost efficiency
becomes important. It is generally difficult to find new opportunities for differentiation.
Table 2: Impact of Product Life Cycle on Source of Competitive Advantage

❖ Experience Curve- suggests that as the business organizations stay much

longer in the business or the industry, the business organization accumulates
a body of knowledge and experience that enables the firm to its business
better.

Yesterday

Cost or Today
Price per
Unit Tomorrow

Total accumulated production of units

Figure 9: Experience Curve

❖ Other Relevant Theories Influencing Strategic Management

Theories of Pitts and Lei (2000)
1. Evolution and revolution theories. This theory was theorized by Charles
Darwin, suggested that environmental change forces each species into
incremental, but continuous, mutation or transformation.
2. Industrial Organization Theory. This theory emphasizes the influence of
industry environment upon the firm.
3. Chamberlin’s Economic Theory. Theorized by Edward Chamberlin,
anchored on the context of evolutionary environmental change and he
specifically espoused that a single firm could clearly distinguish itself from its
competitors.
4. Contingency Theory. The basic premise of this theory is that higher financial
returns are associated with those firms that most closely develop a beneficial
fit with their environment.
5. Resource-based Theory. Accords more weight to the firm’s choice to be

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 Week 2

proactive capitalizing on the firm’s unique resources to comprise the key

variables that allow it to develop and sustain a competitive strategic
advantage.
6. Institution Theory. This theory holds that organizations can adapt to
changing conditions by imitating other successful environment.
7. Organization Learning Theory. It holds that organizations adjust defensively
to a changing environment and use knowledge offensively to improve the fit
between the organization and its environment
8. Transaction Cost Economics. It proposes that vertical integration is more
efficient than contracting goods and services in the marketplace when the
transaction cost of buying goods in the open market becomes too great.

❖ Challenges and Opportunities of e-Commerce/e-Business

The practice of e-Commerce embraces the broader context involving
inter-business organization concerning the use of information and communication
technology, the Internet in particular, in the conduct of trade and commerce. It
involves business organizations engaged in production and processing of goods
and services either in finished or semi-finished state.
The biggest threat and impact of e-Commerce/e-Business in the competition
aspect of the business is its capability to conduct business operations anytime of
day or on a round-the-clock and round-the-year basis and the mode of doing
anywhere where there is access to computer, it may be on ground or in the
business class of intercontinental airlines.

Chapter 3: BUSINESS COMPETITION

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 stakeholders groups associated with business
competition.

❖ Porter’s Competition Model- the model espoused by Michael Porter in

1980s. The theory advocates that other than the competition or rivalry among
business organizations producing or selling the same or similar products in
the same market sector or segment, there are other factors or forces that
drive business competition.

Substitute
Products (of
firms in other
industries)

Suppliers of Rivalry among Buyers

Key Inputs Competing Firms

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