5 FORCE COMPETITION MODEL Porter

Threats of new entrants:

Threat of new entrant is dependent on the challenges faces during entry into the industry
or entry barriers. The threat of new entrants in case of automobile industry is less as large
capital cost is required to set up a manufacturing plant and assembly liner. Also it takes time for
new entrants to get a place and the reputation in the minds of the consumers. (high technology,
bradn equity, strategic partnership)
Threats of substitutes:
BMW has a brand image of being powerful and luxurious. It is positioned in the exclusive
car range where there exist many substitutes for BMW like mercedes, GM and Toyoto. Thus the
threat of substitutes for BMW is high. (Environmental Awareness, Costs and health awareness,
convenience, value, and independence.)
Bargaining power of buyers:
BMW and its competitors are positioned as in exclusive product range. Here the bargaining
power of buyers is high because the consumers can decide the product according to the price
range and buy the products accordingly. Also with environmental issues hovering over the
industry the buyers have the last say with sample substitutes available. (Low switching cost,
Exclusivity, Hold on to cars for a longer period)
Bargaining power of suppliers:
BMW has good supply chain management system and had long relationship with suppliers.
The bargaining power of suppliers is high in this industry as the suppliers can dedicate the price
tag for the raw materials. Though long time associations with suppliers can prove fruitful, the
final word lies more or less with the suppliers.
Competitive rivalry
Industry has cut thoat comptetion for its products, with its products targeting the segment
and postioned in a similar way. Competitive rivalry was high in the industry with the dominant US
and European markets facing stiff competition from the Asian market.
2. Resource, Capability, and Core Competencies

RESOURCES
Every organization or a firm need and possess certain resources and competences
required to endure and thrive globally. In other words every firm has its own strategic
capability to survive against all odds (Gerry Jonhson, Kewan Scholes, Richard
Whittington, 2008).The resources consist of- :

Tangible resources underlining the physical chattels like plant, people and
finance of the organization

Intangible resources underlining non-physical chattels like information,

reputation and knowledge (Gerry Johnson, Kevin Scholes, Richard Whittington, 2008)

Resources based analysis of BMW:

3. Business Level Strategy

Cost-Leadership Strategy
An integrated set of actions taken to produce goods or services with features that are
acceptable to customers at the lowest cost, relative to that of competitors with features that are
acceptable to customers.
Relatively standardized products
Features acceptable to many customers
Lowest competitive price
Cost saving actions required by this strategy:
Building efficient scale facilities
Tightly controlling production costs and overhead
Minimizing costs of sales, R&D and service
Building efficient manufacturing facilities
Monitoring costs of activities provided by outsiders
Simplifying production processes
Rivalry.
Due to cost leaders advantageous position:
Rivals hesitate to compete on basis of price.
Lack of price competition leads to greater profits.
Mitigate buyers power by:
Driving prices far below competitors, causing them to exit, thus shifting power with
buyers back to the firm.
Mitigate Suppliers Power
Being able to absorb cost increases due to low cost position.
Being able to make very large purchases, reducing chance of supplier using power.
Can frighten off new entrants due to:
Their need to enter on a large scale in order to be cost competitive.
The time it takes to move down the learning curve.
Cost leader is well positioned to:
Make investments to be first to create substitutes.
Buy patents developed by potential substitutes.

 Lower prices in order to maintain value position.

Differentiation Strategy
An integrated set of actions taken to produce goods or services (at an acceptable cost)
that customers perceive as being different in ways that are important to them.
Focus is on nonstandardized products
Appropriate when customers value differentiated features more than they value low
cost.
Rivalry : Defends against competitors because brand loyalty to differentiated product offsets
price competition.
Buyer : Can mitigate buyers power because well differentiated products reduce customer
sensitivity to price increases.
Can mitigate suppliers power by:
Absorbing price increases due to higher margins.
Passing along higher supplier prices because buyers are loyal to differentiated
brand.
Can defend against new entrants because:
New products must surpass proven products.
New products must be at least equal to performance of proven products, but offered
at lower prices.
Well positioned relative to substitutes because:
Brand loyalty to a differentiated product tends to reduce customers testing of new
products or switching brands.
Risk
The price differential between the differentiators product and the cost leaders product
becomes too large.
Differentiation ceases to provide value for which customers are willing to pay.
Experience narrows customers perceptions of the value of differentiated features.
Counterfeit goods replicate differentiated features of the firms products.
Focus Strategy
An integrated set of actions taken to produce goods or services that serve the needs of a
particular competitive segment.
Particular buyer groupyouths or senior citizens
Different segment of a product lineprofessional craftsmen versus do-it-yourselfers
Different geographic marketsEast coast versus West coast
Types of focused strategies
Focused cost leadership strategy
Focused differentiation strategy
To implement a focus strategy, firms must be able to:
Complete various primary and support activities in a competitively superior manner,
in order to develop and sustain a competitive advantage and earn above-average
returns.
Integrated Cost-Leadership/Differentiation Strategy
A firm that successfully uses an integrated cost leadership/differentiation strategy should
be in a better position to:
Adapt quickly to environmental changes.
Learn new skills and technologies more quickly.
Effectively leverage its core competencies while competing against its rivals.

Commitment to strategic flexibility is necessary for implementation of integrated cost

leadership/differentiation strategy.
Flexible manufacturing systems (FMS)
Information networks
Total quality management (TQM) systems

4. Competitive Rivalry Strategy

Competitive Rivalry adalah sekumpulan tindakan dan respon kompetitif yang terjadi diantara
perusahaan sebagai manuver untuk mendapat posisi pasar yang menguntungkan
Competitive rivalry influences an individual firms ability to gain and sustain competitive
advantages.
Competitive Behavior (Perilaku kompetitif) sekumpulan tindakan dan respon kompetitif
yang dilakukan perusahaan untuk membangun atau melilndungi keuntungan kompetitifnya dan
untuk meningkatkan posisi pasarnya.
Competitive dynamics merujuk pada semua perilaku kompetitif, yaitu keseluruhan tindakan
dan respon yang diambil oleh semua perusahaan yang bersaing di dalam pasar.
Competitive Dynamics
Ongoing actions and responses taking place between all firms competing within a
market for advantageous positions.
Competitive Rivalry
Ongoing actions and responses taking place between an individual firm and its
competitors for advantageous market position.

Competitive Dynamics (All firms)

Market speed (slow-cycle, fast-cycle, and standard-cycle
Effects of market speed on actions and responses of all competitors in the market

Competitive Rivalry (Individual firms)

Market commonality and resource similarity
Awareness, motivation and ability
First mover incentives, size and quality

Market Commonality Pesaing cenderung untuk menyetujui tentang perbedaan karakteristik

dari pasar-pasar individu yang membentuk suatu industry. Meskipun ada perbedaan, banyak
pasar dalam industri terhubung dalam hal penggunaan teknologi atau kebutuhan kompetensi inti
untuk mengembangkan sebuah keuntungan kompetitif.
Resource Similiarity Adalah luas dimana sumber daya berwujud dan tidak berwujud
perusahaan jika dibandingkan dengan pesaingnya dalam hal jenis dan jumlah. Perusahaan
dengan tipe dan jumlah sumber daya yang sama biasanya mempunyai kekuatan dan kelemahan
yang sama dan menggunakan strategi yang sama. Contah: FedEx dan United Parcel
Services.
5. Low to High
Tingkat difersivikasi : Rendah
Bisnis tunggal
Lebih dari 95 % pendapatan datang dari bisnis tunggal
Bisnis Dominan
Antara 70% dan 95% pendapatandatang dari bisnis tunggal
Tingkat difersivikasi : moderat sampai tinggi
Berkaitan Terbatas(related constraint)
Kurang dari 70% pendapatan datang dari bisnis dominan, dan semua bisnis berbagi produk,
teknologi,
dan jaringan ditribusi
Berkaitan-Berhubungan(campuran antara berkaitan dan tidak berkaitan) mixed
related and unrelated
Kurang dari 70% pendapatan datang dari bisnis-bisnis dominan, dan terdapat hubungan terbatas
di antara bisnis-bisnis tersebut.

Tingkat Diversifikasi: Sangat Tinggi

Tidak berkaitan
Kurang dari 70% pendapatan datang dari bisnis-bisnis dominan, dan tidak ada hubungan di
antara bisnis-bisnis tersebut
Vision
A enduring picture of what the firm wants to be and, in broad terms, what it wants to
ultimately achieve.
Stretches and challenges people and evokes emotions and dreams.