BUSINESS

COMPETITION
Chapter 3
 After reading and studying the chapter, the
learner should 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;
BUSINESS 3. Analyzed and contextualize the role of
COMPETITION 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.
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  Amidst a variety of theories and
principles that drive business
managers and strategists to be
creative, innovative and skillful in
BUSINESS terms of outcompeting or edging
COMPETITION out its rival in the business, some
of the them stand out than the
rest.

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  The traditional concept of
business competition whereby
players within the industry and
direct competitors are very
much concerned on how to
outdo or outwit each other to be
BUSINESS market leaders in the territory
COMPETITION remans to be a concern of
business managers.

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 Business competion
PORTER’S model Originally
COMPETITION c o m e s i n t h e fi v e
major forces
MODEL

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  Rivalry among competing
PORTER’S FIVE sellers.

FORCES MODEL  Suppliers of key inputs

 Substitutes
 Buyers
 Potential new entrants

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 Substitute Products (of
firms in other industries)

Rivalry among
Suppliers of key
competing Buyers
Points
sellers

Potential New Entrants

Figure 14. Porter’s Five Forces Model Of Competition

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 Potential entrants

Relative power Threats of new

of Union, entrants
Governments,
etc. Bargaining
Other stakeholders Industry
Competitors power of
Buyers
Buyers
Suppliers Rivalry among
Bargaining
existing firms
power of
Suppliers Threats of
substitutes
products of
services
Substitutes

Figure 15. Forces Driving industry Competitiveness –

The Revised Porter’s Model
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 • TOr producers
c o n s ti t u t e s t h e
traditional view of
RIVALRY business competition

AMONG  The middle block in

Porter’s business
COMPETING competition model
refers the key players
SELLERS or direct competitors.

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 Thompson and Strickland identified the
matters of utmost concern; in this group
are the following concern issues:
RIVALRY
• Is price competition vigorous
AMONG • Active efforts to improve quality
COMPETITORS • Are rivals racing to offer better
performance features
SELLERS • Are rivals racing to offer better customer
service
• A lo t of advertising /sales promotions
• Active efforts to build a stronger dealer
network
• Active product innovation
• Active use of other weapons of rivalry

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 WHAT CAUSES
THE LIBRARY TO
BE STRONGER?

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Factors that results to strong or
active rivalry and competition
among businesses engaged in
similar products or services are as
follows:
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• Active jockeying for position amo
frequent launches of new offensiv
market share;
• A number of firms that are relativ
capability
• Slow market growth
• Industry conditions tempt some fi
offensive to boost volume and ma
• Customer have low costs in switc
• A successful strategic move carri
• Cost more to get out of business
• Firms have diverse strategies, co
resources, and countries of origin
 DETERMINANTS
OF RIVALRY

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  The level of industry’s growth

 Fixed (or storage) cost/value added

PITTS AND LEI (2000) have identified  Intermittent overcapacity

determinants to rivalries within the sector
such as the following:  Product differences

 Brand indentity

 Switching costs; and

 Concentration and balance

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Suppliers of Key Inputs
TITLE Competitive force of
suppliers

• Suppliers are considered strong

competitive force when the
• The role Suppliers is to
following situation prevails:
provide or doing
a) Items make up large portion of
supportive role to the
products costs, is crucial to
key players among
production process, and /or
belonging to the middle significantly affects product
box who are competing quality.
with one another. b) It is costly for buyers to switch
to suppliers .
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 Determinants of supplier
Competitive force of power
suppliers
Pitts and Lei (2000) identified its role
c) Hey have good reputation and growing as a threat to competition given the
demand; presence or existence of the following

d) They can supply a component cheaper situation:

than industry members can make it
themselves
e) They do not have to contend with
substitutes; and
f) Buying firms are not important
customers
a) Differences in inputs
b) Switching costs of suppliers and
firms in the industry
c) Presence of substitute inputs
d) Supplier concentration
e) Importance of volume to supplier
f) Cost relative to total purchase in the
industry; and
g) Impacts of inputs on cost or
differentiation.

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 FACTORS AFFECTING SUPPLIER BARGAINING POWER

a) Rival sellers are forming long-term strategic partnership with select suppliers
to promote just-in time deliveries and reduced inventory and logistic costs
i. speed availability of next-generation components
ii. enhance quality of parts being supplied
iii. reduced suppliers’ costs which pave way to lower prices on items supplied
b) Competitive advantage potential may rescue to industry rivals doing the best
job of managing supply-chain relationships

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 SUBSTITUTE

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 Substitutes
TITLE

• Refer to products or services which

prospective buyers can buy or source

• substitutes exert pressure in the

market in that product switching ( i.e.,
by buying a substitute) can lessen the
demand for the product

• There is a constant of product

switching at various levels or type of
market.

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 FACTORS AFFECTING COMPETITION FROM SUBSTITUTES

The following scenarios will indicate whether or not substitute

products are a strong force and hence should be given due
consideration:
a) Sales of substitutes are growing rapidly
b) Producers of substitutes products add new capacities
c) Profits of substitutes products are up; and
d) Popularity of substitutes products is growing.

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 DETERMINANTS OF
SUBSTITUTION THREATS
The extent of threats of products substitutions is
indicated by the following developments:
a) Relative price of the substitutes
b) Performance of the substitutes in the industry
c) Switching costs involved in the act substitions
d) Buyer’s propensity or penchant for substitutes
e) Regulatory or other factors that tend to
promote product substitution
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SWITCHING COST
• Refers to the amount the buyers can save
or forego in exchange for buying the other
products or services they used to
patronized.
• the product or service being offered is a direct
substitute and the price comparatively high but
the promise of immediate or short and long-
term benefits is much more
• There is switching cost or additional expense in
acquiring a product
• Involved (e.i., the price difference between the
old and the new product being offered).
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 ROLE OF
BUYERS

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 ROLE OF BUYERS
 Buyers are objects of desire of business competing in the same
segment or industry.

 simply considered as target market for business organization.

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COMPETITIVE FORCE OF THE
BUYERS
a) They buy in large quantities
b) They can integrate backward
c) Industry product is standardized
d) Their costs in switching to
substitutes or other brands are low
e) They can purchase from several
sellers
f) They have high purchase power
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g) Bargaining leverage
h) Buyer concentration versus firm
concertation
i) Buyer switching cost relative to
firms switching costs
j) Buyer information
k) Availability of substitute
products
l) Price sensitivity
m) Product difference
n) Brand identity
o) Impact on quantity and
performance
p) Buyer profits and
q) Decision-maker incentives
 WHEN IS BARGAINING POWER OF BUYERS WEAK ?
a) Buyer switching costs to competing brands
are high
b) There is a surge in buyer demand and
c) Seller-buyer collaboration or partnering
provides attractive win-win opportunities

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 DEALING WITH COMPETITIVE FORCE OF BUYING

a) The price buyers have to pay for the product - make it affordable
b) The quality of the product sold to buyers - make it acceptable to their
standards and expectations
c) Service buyers can expect from the business – be sure after sales
services are available whenever needed; and
d) Other conditions of the sale – make sure that there are other
attractive conditions that come with the selling effort.

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 POTENTIAL AND
NEW ENTRANTS

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 Refer to the
business
POTENTIALS o r g a n i z a ti o n s
AND NEW a tt e m p ti n g t o
ENTRANTS or have now
joined the
m a r ket
o r g a n i z a ti o n a s
a whole.
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 TITLE
BARRIERS TO NEW
ENTRANTS f) Lack of experience in
carrying operational activities
a) Economies of scale
leading to learning gaps,
b) Access to secret producing cost disadvantages
technology ( patented
g) High customer switching
and not patented)
costs
c) Brand recognition
h) access to low cost inputs
d) Capital cost entry (e.i., labor) and
e) Access to distribution i) Legislative barriers entry
channels
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  The stakeholder group.is a sector of
the economy or society which
may be considered an indirect
THE player in the business arena
unlike the five major components
STAKEHOLDERS of Porter business competition
model but may have bearing upon
the business as a whole.

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 THANK YOU

Group 3
Sinayon
Funtanar
Dano

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