The Five Forces that Affect Firm's Competiveness

Presented by Angelica Repe

c. Capital Requirements
is needed for the firm to enter a new market. Investments in terms of resources,
manpower skills, and new technology needed huge investments and the risk of
overcoming those in the market is great. The market opportunity may be attractive but
the risk is greater as it will require a new system of marketing, promotional strategies,
and newness in product features and innovation. To compete with an existing industry,
some organization buy out existing firms and develop new strategies to compete
competitively by introducing system and more efficient manufacturing and marketing
strategy.
d. Access to Distribution Channel
Access to Distribution channel is the path used to get a product from the
manufacturer or creator to the end user. In other words, how the customer
gets their product after purchase, which often include intermediaries.
Distribution channels can be long or short, direct or indirect. In general, the
more complex, the higher the cost to both the business and consumers.

e. Government Regulations
The Government policy on licensing and permit requirement can also control new
entrants to an industry. This could be true in industry where franchising regulations
is required like operating transport business especially in saturated routes.
The government regulations on quality service and the capital requirements would
discourage new entrants. For new entrants to enter this market, they need to buy
existing lines, franchise and improve their facilities and service which will require
huge investment.
2. The Power of the Suppliers
The suppliers of material inputs in the production of goods are determinants of quality products. Suppliers can
exert power to the industry to increase their prices that will affect the firm's profitability. Increase in material
inputs would mean adjustments in price that will affect the competitiveness of the firm.

The power of the supplier is powerful under the following:

a. When it is dominated by a few large companies
b. When they are more concentrated than the industry it sells
c. When there is no substitute available
d. When the industry is not a significant customer for the supplier
e. When the supplier's goods are critical to the firm's success
f. When it poses threat to integrate forward into the buyers' industry
3. The Buyers' Bargaining Power

The firm's objective is to maximize returns on their invested capital as business operates for the desired profit.
On the other hand, buyers would like to maximize the value of their hard earn money by bargaining for the
lowest price possible. To maintain the equitable balance, the firm has to adjust to the buyer's bargaining power
and satisfy customer needs as substitute products could be available in the market.

The consumers group has bargaining power under the following:

• When they purchase a large volume of the firm's output
• When there are available substitute of similar quality
• When the sales is a significant portion of the firm's sales volume
• When the buyer or dealer can be a threat for backward intergration
4. The Threat of Substitute Product
The industrial world is full of innovations and firms seek new opportunities. There are many firms looking for
new products to make business by studying substitutes for existing products in the market. Firms that do not
innovate will lose their market as innovation is the byword of the industry. Consumers are looking for new and
innovative products and their level of satisfaction is limitless.

The consumers group has bargaining power under the following:

a. When the substitute product is priced lower

b. When the quality is better than the existing product
c. When the product is immediately availabe in the market
d. When service is available
5. The Power of Competition
The actions taken by one company invite counter reaction by the other frim, competitive response is an active
reaction that forces the company to make innovations. Competitive rivalry intensifies when a firm is
challenged by a competitor's actions and an opportunity to improve its market position is recognized. Firms
differ in resources and capabilities, and seek to differentiate themselves from their competitors as they rarely
homogeneously. The visible competitive strategy is on price, quality, innovation and service.

Factors that intensify the power of competition

• The presence of balance competitors
• The slow industrial growth in some sectors
• Higher fixed cost of some firms
• High storage cost of some products
• Low product differentiation and switching cost
 Industrial Analyses and Strategic Actions

The five forces of competition are guidelines for firms to develop insights required to determine the firm's attractiveness in
terms of its potential to earn adequate return on their investments. The environment of business conditions that interplay in
the competitiveness of the firm must be analyzed in terms in data available to the firm Globalization and the international
market for product and services have changed greatly the landscape of business. Firms compete not only with multinational
corporations but also with new entrants and small players. The country's barriers no longer restrict structures as well as the
well-established firms.

Implications for strategic analyses

• Firms supply and service the same kind of customers
• The strength of the five industry forces affecting the firm
• The similarities of strategies develop greater rivarly among firms
 Analysis of the Industry Competition

The competitors' environment is the final stage in the analysis as it directly affects the firm's position in the
industry. The intense rivalry creates a strong need to understand the moves of the competitors. The firm must
be able to develop counteraction and strategy in order to remain afloat in the industry. Critical to an effective
analysis of the competitor's moves is the gathering of data and information that can help the firm understand its
competitor's intention and actions.

The firm must be able to seek the following information:

• The competitors' future objectives

• The competitors' current strategic actions
• The competitors' assumptions about the industry
• The competitors' strength and capabilities or their weaknesses
• The Government policy for the global market