PORTER’S ROOTS OF COMPETITIVE

ADVANTAGE FRAMEWORK FOR VALUE

CREATION

Done By

A.MADHURI

22BBL7003

BBALLB

SUBMITTED TO

DR. ARUNKUMAR SIVAKUMAR

Amaravathi ,Andhra Pradesh, INDIA

1.Understanding of porter’s roots of competitive advantage

Demonstrates a clear understanding of porter’s framework:

Threat of New Entrants;

When an industry becomes lucrative, it naturally attracts new players. If the entry hurdles are
low, these newcomers can easily grab a slice of the market and jeopardize existing players'
profits. These entrants often offer competitive pricing and innovative alternatives, posing a
significant threat to established businesses. A prime example of this threat occurred when Apple
ventured into the music distribution sector with its iPod. By entering this new market, Apple not
only gained a substantial market share but also revolutionized how we access and enjoy music
and audio content today. Conversely, if the barriers for entry are high, it becomes much more
challenging for new competitors to undermine the profitability of existing industry players.

According to Porter, there are seven primary factors that impact the difficulty of entering a
market:

1.Economies of Scale on the Supply Side: Existing companies benefit from low production
costs due to large-scale operations, making it challenging for new entrants to compete without
similar scale efficiencies.

2. Network Effects: As the number of buyers or sellers increases, customer willingness to

engage also rises. Loyalty to established networks deters new entrants by reducing the
willingness of buyers to switch to unfamiliar options.

3. Switching Costs: Higher expenses incurred by customers when switching from one supplier
to another create a barrier to entry. The greater the cost, the more difficult it is for new
competitors to attract customers away from existing providers.

4. Capital Requirements: New entrants often face significant financial barriers due to the
substantial investment needed to establish operations. However, if industry returns are
promising, investors may provide the necessary capital, thereby lowering the entry barrier.

Industry leaders possess distinct advantages, often related to resources that are challenging to
replicate, such as patented technology, exclusive raw material sources, a strong brand presence,
or advantageous geographical locations.

Furthermore, established players wield significant influence over distribution channels, making it
daunting for new competitors to gain access. Consequently, companies frequently innovate by
creating alternative distribution methods, exemplified by low-cost airlines directly selling tickets
on their websites, bypassing traditional channels.

Additionally, government policies play a pivotal role in either elevating or diminishing entry
barriers. For instance, licensing requirements can heighten these barriers, while subsidies can
facilitate easier market entry for new businesses inputs to industries, such as materials services.
When suppliers have significant bargaining power, they can raise prices or reduce quality
without facing consequences. However, if there are numerous suppliers to choose from, their
bargaining power is diminished, making it easier for industries to switch suppliers if necessa

2. Bargaining Power of Suppliers

Suppliers provide essential inputs to industries, such as materials and services. When suppliers
have significant bargaining power, they can raise prices or reduce quality without facing
consequences. However, if there are numerous suppliers to choose from, their bargaining power
is diminished, making it easier for industries to switch suppliers if necessary.

For instance, in the automotive sector, Volkswagen Group maintains a strong position due to its
global presence and diverse supplier base. With suppliers located worldwide and multiple backup
options for each part, Volkswagen can easily shift demand between suppliers. In contrast, many
automotive suppliers specialize in specific parts and heavily rely on the industry, giving
Volkswagen the upper hand and reducing the bargaining power of its suppliers.

When the choice of suppliers is limited, there are no alternatives for the specific supplies they
offer, or switching suppliers involves significant costs, the bargaining power of those suppliers
increases. In such cases, businesses must reconsider their strategies to cope with this lack of
flexibility.

3. Bargaining Power of Buyers;

In Porter's Five Forces framework, buyers represent the customer base of a business. Significant
buyer influence can drive down prices, create intense competition among sellers, and result in
demands for superior quality or service, all at the expense of industry profitability.

Buyer power is amplified when there are few buyers and multiple sellers available. Moreover, if
a small group of buyers contributes significantly to a seller's revenue, these buyers wield
substantial leverage. It's crucial to factor in switching costs when assessing the bargaining power
of buyers.

4. Threat of Substitute Products or Services

In any industry, companies face competition not just from within their own sector, but also from
other industries offering substitute products or services. For example, a messaging app can
replace traditional email, or an airline's website can supplant travel agents through its own
booking system.

When buyers can fulfill their needs with alternatives from different industries, it limits how much
an industry can charge. The more appealing the substitute, the tighter the constraint on industry
profits. If numerous substitutes can fulfill a similar function as a product or service, the threat of
substitutes is high. Conversely, if only a few substitutes offer the same function, the threat of
substitution is low.

5. Competitive Rivalry
The level of competitive rivalry within an industry is often the primary factor determining its
attractiveness, as it is influenced by the preceding forces. Rivals, facing the same industry
dynamics, engage in fierce competition for market share, employing strategies like price
reduction, enhancing quality, improving services, and increasing marketing expenditure.

Competition is most intense when buyers have numerous options, rivals lack significant
differentiation, and industry growth is sluggish. In such scenarios, buyers can instigate bidding
wars among competitors, leading to reduced profits. When products or services lack
distinctiveness, they are perceived as commodities, making price the primary determinant of
purchase.

In industries experiencing slow growth, existing firms fiercely fight to maintain their market
share. Utilizing tools like VRIO Analysis can help identify competitive advantages, transforming
them into sustainable strengths to navigate this competitive landscape.

Roots of competitive advantage :

1.Cost Leadership;
In the strategy of cost leadership, a company aims to be the most economical producer in its
industry. The advantages in cost can stem from several factors such as economies of scale,
exclusive technology, favorable access to raw materials, and other industry-specific elements. To
be a low-cost producer, a company must identify and capitalize on all available cost advantages.
If a company successfully maintains this cost leadership position over time and can sell its
products at or close to industry average prices, it will outperform others in the industry.

2. Differentiation
In a differentiation approach, a company strives to stand out in its industry by offering distinctive
features highly valued by customers. It identifies key attributes important to many buyers and
positions itself uniquely to fulfill those requirements. This distinctiveness allows the company to
charge a higher price, reflecting the premium customers are willing to pay for its unique
offerings.
3. Focus
The focus strategy involves narrowing the competitive scope within an industry. A company
employing this strategy chooses specific segments and tailors its approach to serve those
segments exclusively, excluding others.

There are two variations of the focus strategy:

(a) Cost Focus: This involves seeking a cost advantage within the chosen segment.

(b) Differentiation Focus: This variant aims to achieve differentiation within the selected
segment.

Both forms of the focus strategy rely on distinctions between the targeted segment and others in
the industry. The chosen segments must either have customers with unique needs or a production
and delivery system that differs from other industry segments. Cost focus capitalizes on
variations in cost behavior among segments, while differentiation focus addresses the distinct
requirements of buyers in specific segments.

2.Selection of a multinational corporation :

Amazon is one of the most influential cultural driving forces with socio-economic components
attracting all age groups. Yes, we are discussing Amazon.com, Inc. Scholars and market
researchers have referred to Amazon as the most precious brand. It is also ranked as one of
the top five American information technology firms. Jeff Bezos launched it on July 5, 1994,
in Washington, United States; it is based in Seattle and services people all over the world.
Amazon has spread its wings all across the globe, including India, where the customer base is
seemingly mammoth. Whether an Amazon Prime Video, Kindle, or Amazon Audible, every
product and service offered by Amazon has its separate advertising share and customer
base. Amazon’s online Shopping platform offers more than 10,000 products, including
lifestyle, home decor, education, and many more.

Amazon, as a company, has established a dominant market position through its extensive product
offerings, efficient supply chain management, and exceptional customer service. By continuously
expanding its product range, including electronics, books, and streaming services, Amazon caters
to diverse customer needs. Additionally, its Prime membership program and fast delivery
services have enhanced customer loyalty. Moreover, Amazon's investments in technology, like
artificial intelligence and cloud services, have bolstered its position in the e-commerce and cloud
computing sectors. Through these strategic initiatives, Amazon has solidified its status as a
global leader, shaping the way people shop online and setting new standards for the industry.

3. Application of porters framework :

Application of porter’s roots of competitive advantage framework to analyze the selected

company’s competitive strategy
1.Competition in the industry (Strong force)
Amazon operates within a highly competitive sector, with a growing number of players entering
the online retail market, including small-scale brands and startups benefiting from low switching
costs. Amazon faces fierce competition from major rivals like Walmart, Flipkart, Alibaba, and
eBay. Despite this, Amazon leverages economies of scale and substantial investment capabilities
to maintain its position in the market.

2.The threat of new entrants (weak force)

Amazon holds a dominant position in the market, supported by a powerful brand identity and
significant advantages in economies of scale, as well as extensive warehousing and delivery
infrastructure. Its status as a large-scale company is evident through substantial investments in
eCommerce solutions, customer services, logistics, and marketing. Consequently, challenging
Amazon's market presence is a formidable task for any company. Although small-scale
businesses can attract a limited customer segment due to low switching costs, Amazon's position
remains largely unthreatened. According to Porter's five forces analysis, the entry of new
competitors poses a weak force, presenting no significant obstacle for Amazon.

3. The bargaining power of suppliers(moderate force)

Suppliers play a crucial role in Amazon's eCommerce operations, influencing product
availability and providing essential equipment and hardware components for its information
systems and cloud services. In the context of Porter's five forces analysis, the bargaining power
of suppliers is moderately impactful. This influence stems from factors such as the presence of
smaller suppliers, moderate levels of forward integration, and the scale of these suppliers.
Nevertheless, Amazon holds sway over its supply chain due to its expansive business scale and
the ease with which it can switch suppliers.
4. The bargaining power of customers(Strong force)
In Porter's five forces model, the bargaining power of buyers in Amazon's case ranges from
moderate to high. Amazon's prosperity hinges on customer contentment and product excellence.
While customers face minimal switching expenses, numerous substitutes have emerged. Buyers
can easily access general information about products and services from various suppliers,
facilitating their search for alternatives.
5. Threat of substitute products or services(Weak Force)
Amazon's Porter's Five Forces Analysis highlights potential threats in the form of substitute
products and services. These threats stem from factors like minimal switching costs, a wide array
of substitutes, and the affordability of these alternatives. Low switching costs mean customers
can easily switch between retailers like Walmart and Amazon without incurring additional
expenses. Additionally, numerous smaller competitors provide low-cost alternatives, posing a
challenge for Amazon in maintaining its market dominance. However, Amazon's strong brand
reputation acts as a robust defense against these threats. Furthermore, its extensive infrastructure,
distribution networks, warehousing facilities, and high service quality create formidable barriers
for competitors to overcome.
Clearly identifies the company’s strategic focus areas ;

1. Cost leadership;
Amazon's key business strategy lies in cost leadership, which gives it a competitive edge in
terms of pricing, convenience, and product range. Despite thin profit margins, Amazon
leverages its extensive distribution network, efficient warehousing, economies of scale, and
large customer base. These elements enable Amazon to secure products with higher profit
margins. Looking ahead, Amazon plans to expand its customer base and boost sales further
through its cost leadership strategy. This approach will involve offering more deals and sales
to attract buyers.

2. Differentiation
Amazon has established its brand through a successful differentiation strategy, relying on
cutting-edge technology, skilled workforce, user-friendly websites, and cloud services to
distinguish itself. The company employs advanced software and algorithms for rapid delivery,
efficient warehousing, and comprehensive product listings. Furthermore, Amazon's services
division is a trailblazer in cloud storage products. Additionally, there is potential for enhancing
electronics and gadget production with more sophisticated products and features.

3. Focus
Amazon operates across various business avenues, such as retail eCommerce, cloud services, and
electronics gadget manufacturing. The focus strategy involves concentrating on a specific market
segment. Amazon can capitalize on this strategy by tailoring products for specific demographics
or geographic regions, catering to the needs of groups like the elderly or children.

4.Identification of competitive advantages

Competitive Advantages:

Global Infrastructure: Amazon boasts a vast network of fulfillment centers and advanced
logistics, ensuring efficient and timely deliveries to customers worldwide.

Customer-Centric Approach: Amazon prioritizes customer satisfaction, providing excellent

service, fast shipping options (through Amazon Prime), and an easy-to-use interface, enhancing
customer loyalty.

Diverse Product Portfolio: Amazon offers a wide range of products, from electronics to
groceries, catering to diverse customer needs and preferences, creating a comprehensive
shopping destination.

Innovative Technology: Amazon invests in cutting-edge technologies, like AI and machine

learning, for data-driven insights and personalized recommendations, enhancing the user
experience.
Amazon Web Services (AWS): As a leading cloud services provider, AWS not only supports
Amazon's operations but also generates substantial revenue, offering a competitive advantage in
cloud computing.

Competitive Disadvantages:

Low Profit Margins: Amazon's focus on growth often leads to slim profit margins, impacting
short-term profitability and investor expectations.

Labor Practices: Amazon has faced scrutiny regarding working conditions in its warehouses,
leading to negative publicity and potential impact on its brand image.

Counterfeit Products: The platform struggles with counterfeit items, posing a threat to customer
trust and potentially affecting sales of genuine products.

Regulatory Challenges: Amazon faces regulatory scrutiny concerning antitrust issues and
taxation policies, which might lead to legal complications and operational constraints.

Environmental Impact: Amazon's extensive shipping operations contribute to environmental

concerns, including carbon emissions and packaging waste, which may affect its reputation
among environmentally conscious consumers.

5. Recommendations for Enhancement :

Offers well –reasoned recommendations for enhancing the company’s competitive

advantage based on the analysis :

Focus on Customer-Centric Innovation: Continue investing in innovative solutions that directly

address customer needs. Develop new technologies and services that enhance the shopping
experience, such as virtual reality shopping, voice-activated shopping assistants, or augmented
reality features.

Enhance Supply Chain Efficiency: Further optimize the supply chain by investing in advanced
technologies like IoT sensors and blockchain for real-time tracking and transparency. Efficient
supply chain management ensures timely deliveries and reduces operational costs.

Sustainable Practices: Intensify efforts toward sustainability. Implement eco-friendly packaging,

invest in renewable energy sources, and work towards achieving carbon neutrality.
Demonstrating a commitment to environmental responsibility can enhance Amazon's reputation
and attract environmentally conscious customers.

Leverage Big Data and AI: Capitalize on big data analytics and artificial intelligence to gain
actionable insights into customer behavior. Personalize product recommendations, pricing
strategies, and marketing efforts based on data-driven analysis, providing a tailored experience
for each customer.

Expand Prime Benefits: Continue to enrich the Amazon Prime membership program with exclusive
offerings such as early access to deals, additional streaming content, and special discounts on partner
services. Enhancing Prime benefits increases customer retention and attracts new subscribers.

Invest in Employee Development: Prioritize employee training and development programs. Well-trained
and motivated staff can provide superior customer service, contributing to positive customer
experiences. Happy employees translate into satisfied customers.

Global Expansion and Localization: Strategically expand into emerging markets with a focus on localizing
services. Understanding regional preferences and tailoring offerings accordingly can increase acceptance
and trust among diverse customer bases.

Diversify Product and Service Portfolio: Explore new product categories and services to diversify revenue
streams. This can include expanding into healthcare services, educational platforms, or financial services,
leveraging Amazon's existing customer base and expertise.

Forge Strategic Partnerships: Collaborate with other businesses, especially startups and innovative tech
companies, to co-create new solutions. Partnering with tech disruptors can introduce novel services,
keeping Amazon at the forefront of innovation.

Considers potential opportunities and threats in the company’s competitive environment .

Potential Opportunities:

Global Market Expansion: Amazon can continue its global expansion, tapping into emerging
markets in Asia, Latin America, and Africa, where e-commerce adoption is on the rise.

Diversification of Services: Exploring new services like healthcare, fintech, or education can
diversify revenue streams and cater to evolving customer needs.

Innovation in Technology: Investing in emerging technologies such as blockchain, quantum

computing, and augmented reality can open up new possibilities for Amazon’s services and
products.

Sustainable Practices: Embracing sustainable practices in packaging, energy usage, and supply
chain operations can attract environmentally conscious consumers and bolster the company’s
reputation.

Partnerships and Acquisitions: Strategic partnerships and acquisitions in sectors like artificial
intelligence, robotics, or entertainment can enhance Amazon’s technological capabilities and
service offerings.
E-commerce Integration: Strengthening integration between online and offline retail, enhancing
the omnichannel experience for customers, and leveraging Amazon Go technology in more retail
locations.

Potential Threats:

Regulatory Scrutiny: Increasing regulatory scrutiny related to antitrust concerns, data privacy,
and taxation can pose legal challenges and impact business operations.

Competition: Fierce competition from tech giants like Google, Alibaba, and local e-commerce
players in various regions can erode market share and margins.

Supply Chain Disruptions: Disruptions in the supply chain due to geopolitical tensions, natural
disasters, or global events like pandemics can impact inventory and delivery schedules.

Counterfeit Products: The proliferation of counterfeit products on the platform can harm
Amazon's reputation and lead to legal issues.

Labor Issues: Labor disputes, strikes, or dissatisfaction among employees can disrupt operations
and affect customer service.

Technological Challenges: Rapid advancements in technology require continuous investments;

failure to keep up can result in outdated services and decreased competitiveness.

Changing Consumer Preferences: Shifts in consumer preferences, especially related to ethical

sourcing, sustainable products, and socially responsible practices, might necessitate adjustments
in supply chain and product offerings.

Cybersecurity Threats: Cyber-attacks and data breaches pose risks to customer data, potentially
damaging trust and resulting in financial losses.

Understanding these opportunities and threats is crucial for Amazon to formulate robust
strategies, mitigate risks, and capitalize on emerging trends in the competitive landscape.

Invest in Cybersecurity: Strengthen cybersecurity measures to safeguard customer data and

privacy. Building a robust defense against cyber threats ensures customer trust and protects the
company’s reputation.

Community Engagement: Deepen engagement with local communities through philanthropic

initiatives. Investing in community development projects and supporting local businesses fosters
goodwill and strengthens Amazon’s image as a socially responsible corporation.

Anticipate Regulatory Changes: Stay ahead of regulatory changes related to e-commerce, data
privacy, and environmental standards. Proactively adapt policies and practices to comply with
evolving regulations, avoiding legal challenges and ensuring public trust.
By implementing these recommendations, Amazon can further solidify its competitive
advantage, foster customer loyalty, and sustain its position as a global industry leader.

References:

www.geeksforgeeks.org

www.edrawmax.com

smallbusiness.chron.com

www.ifm.eng.cam.ac.uk

www.cascade.app

vide essential inputs to industries, such as materianificant bargaining power, they can raise prices or
reducacing consequences. However, if there are numerous suppliers to choose from, their bargaining
power is diminished, making it easier for industries to switch suppliers if necessary.

For instance, in the automotive sector, Volkswagen Group maintains a

strong position due to its global presence and diverse supplier base.
With suppliers located worldwide and multiple backup options for each
part, Volkswagen can easily shift demand between suppliers. In contrast,
many automotive suppliers specialize in specific parts and heavily rely
on the industry, giving Volkswagen the upper hand and reducing the
bargaining power of its suppliers.pliers provide essential inputs to
industries, such as materials and services suppliers have significant
bargaining power, they can raise prices or reduce quality without facing
consequences. However, if there are numerous suppliers to choose
from, their bargaining power is diminished, making it easier for
industries to switch suppliers if necessaryautomotive suppliers
specialize in specific parwagen the upper hand and reducing the
bargaining power of its suppliersFor instance, in the automotive sector,
Volkswagen Group maintains a strong position due to its global
presence and diverse supplier base. With suppliers located worldwide
and multiple backup options for each part, Volkswagen can easily shift
demand between suppliers. In contrast, many automotive suppliers
specialize in specific parts and heavily rely on the industry, giving
Volkswagen the upper hand and reducing the bargainirovide essential
inputs to industries, such as materials and services. When suppliers
have significant bargaining power, they quali However, if there are
numerous suppliers to choose from, their bargaining power is
diminished, making it easier for industries to switch suppliers if
necessary.

For instance, in the automotive sector, Volkswagen Group maintains a

strong position due to its global presence and diverse supplier base.
With suppliers located worldwide and multiple backup options for each
part, Volkswagen can easily shift demand between suppliers. In contrast,
many automotive suppliers specialize in specific parts and heavily rely
on the industry, giving Volkswagen the upper hand and reducing the
bargaining power of its suppliers.