Porter – Competition shapes strategy

Competition Shapes strategy

  1. Threat of Entry

    Six major barriers for entry

    1. Economies of Scale
    2. Product Differentiation
    3. Capital Requirement
    4. Cost Disadvantage independent of size
      1. Learning curve
      2. Proprietary technology
      3. Access to best raw material sources
      4. Assets purchased at preinflation prices
      5. Government subsidies
      6. Favorable Location
    5. Access to distribution channel
    6. Government Policy


  2. Bargaining power of supplier
    1. IT is dominated by few suppliers
    2. Product is unique
    3. Not obliged to content with other products for sale to the industry
    4. Credible threat of integrating forward into industry’s business
    5. Industry is not important customer of the supplier
  3. Bargaining power of Customers
    1. Concentrated or purchase in volume
    2. Standard or Undifferentiated products
    3. If product is significant portion of the cost for customers
    4. If customers earn low profits forcing lower purchase prices
    5. Industries product is unimportant to buyers products or services
    6. Industries product does not save buyer money
    7. Self manufacture or backward integration
  4. Substitute products

    Most attention should be paid to

    1. Subject to trends improving their price -performance trade off with industry’s products
    2. Produced by industries earning high profits.


  5. The Industry – Jockeying for Position

    Intense competition causes price competition, product introduction, ad slugfests

    Intense rivalries are caused because

    1. Many competitors or of same size
    2. Industry growth is slow
    3. Lack of differentiation
    4. Fixed costs are high or products are perishible
    5. Capacity is augmented in large incrments
    6. Exit barriers are high
    7. Rivals are diverse in strategies, origins and personalities



Formulation of Strategy

  • Positioning the Company
  • Influencing the balance
  • Exploiting industry change






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