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Ä Intense forces:-
airline, textile

Ä Benign forces:-
software, soft drinks

Ä Understanding competitive forces:-


 

4 ˜orces that shape competition


4 Threats of substitutes and rivalry among existing
competitors
4 ˜actors, not forces
4 Changes in industry structure
4 Implications for strategy
4 Position of the company
4 Defining the relevant industry
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Rivalry among existing competitors

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˜actors not forces
Ä By considering all the five forces, a strategist keep
overall structure in mind instead of gravitating to any
one element.
Ä It is especially important to avoid the common pitfall of
mistaking certain visible attributes of an industry for its
underlying structure. Consider the following:-
Ä Industry growth rate.
Ä Technology and innovation.
Ä Government.
Ä Complementary products and services.
˜actors not forces
Ä Industry growth rate:-
rate:-
Ä A common mistake is to assume that fast-
fast-growing
industries are always attractive.
Ä ˜ast growth can put suppliers in a powerful position, and
high growth with low entry barriers with draw in
entrants.

Ä Technology and innovation:-


innovation:-
Ä advance technology or innovations are not by themselves
enough to make an industry structurally attractive.
˜actors, Not forces

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Waleed Chawla
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Shift in structure may emanate from outside and industry or


from within they can boost the industry profit potential or also
reduce it they may be caused by changes in technology
changes in customer needs or other events.
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˜irm in an industry try to keep the number of new entrants low by


erecting barriers to new entry.
(Barrier) to entry is a condition that creates a disincentive for a new
firm to enter an industry. e.g.
 capital requirement
 government and legal barriers
e.g. such as wall Mart, K Mart begin to adopt new
procurements, distributions and inventory control
technologies with large fix costs including automated
distribution centers, bar-
bar-coding and point of sale terminals.
These investments increased economic of scale and made
it more difficult for small retailers to enter the business.
40 

  


  
Suppliers can suppress the profitability of the industries to which
they sell by raising prices and reducing the quality of component
they required.
If supplier reduces quality of component the quality of finished
goods also suffers and manufacturer will eventually have to low its
price.
˜actors that have an impact on ability of suppliers to exert
pressured on buyers.
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When there are only few suppliers that supply a critical product to a
large number of buyers the supplier has an advantage
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It is a fixed cost that buyers encountered when switching or
changing from one supplier to other and if switching cost are
high a buyer will be less likely to switch supplier.
40 




 
Buyer can also suppress the profitability of the industries which they
purchase by demanding price concession or increase in quality
e.g. automobile industry is dominated by a handful of large
competition that buy products from thousand of suppliers in
different industries this allows the automakers to suppress the
profitability of the industries from which they buy the demanding
price reductions
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When there are only a few large buyer and they buy from a large
number of suppliers they can pressure the supplier to lower cost.
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The power of buyer enhanced if there is a credible threat that buyer
might enter the suppliers industry.
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The most common reason is the substitutes become more or


less threatening overtime is that advances in technology
creates new substitutes or shift price performance comparison
in one direction or the other.
Earliest microwave ovens were large and priced about 2000
dollars making them poor substitutes for conventional ovens
with technological advances, they become serious substitutes.
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In most industries the major determinant of industry profitability is


the level of competition among existing firms

The nature of rivalry in an industry is altered by mergers and


acquisitions that introduces new capabilities and also ways of
competing. Or technology innovation can reshape rivalry.

In some industries, companies turns to merger and consolidation


not to improve cost and quality but to attempt to stop intense
competition.
Sajab khan
Strategy:
The objective of a strategic plan is to set
the direction of a business and create its
shape so that the products and services it
provides meet the overall business
objectives..
objectives

Strategy Implementation:
A process by which strategies and
policies are put into action through the
development of programs, budgets,
and procedures.
Why I need:
ƠA strategy, simply defined, is a plan, or series
of plans, for obtaining a specific goalƦ
goalƦ nothing
more, nothing lessơ
The implementation is aggregated Gap :
Structure
System
Culture
Ethics
Leaderships
Which is more important
Strategy makes at initial Stages
for an organization
ÎDeveloping strategy
ÎCompany strength & weakness
ÎCreate a new industry structure who is the most
favorable
ÎAverage profitability
Normally there are three steps taken it
Salman Ahmad
ÎPosition of the company

ÎExploiting Industrial changes

ÎShaping Industry structure


Position of the company:
Positioning opportunities
Built the regulate standard
Provide the best carriage services
Economic dependence on the
product
Exploiting Industrial change:

ÎNew strategy position


ÎExchange of promotion of new artists
ÎStructural change open up new needs
and new ways to serve existing
needs
Shaping Industry structure:

ÎRedividing profitability in favor of incumbents

ÎExpanding the profit

ÎCurrently constrain industry profitability

ÎStrong management
Mirza ˜urqan Baig
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ƠThe industry in which competition actually takes


place is important for good industry analysis, not to
mention for developing strategy and setting
business unit boundariesơ
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Defining it too broadly or too narrowly.


Ä Defining it too broadly obscures differences among
products, customers or geo and graphic regions
that are important to competition, strategic
positioning and profitability.

Ä Defining the industry too narrowly overlooks


commonalities and linkages across related products
or geographic markets that are crucial to
competitive advantage.

Strategists must be sensitive to the


possibility that industry boundaries
can shift.
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The five forces are the basic tool to resolve
these questions.

Ä If industry structure for two products is the same


or very similar (that is, if they have the same
buyers, suppliers, barriers to entry, and so forth),
then the products are best treated as being part
of the same industry.

Ä If the industry structure differs markedly,


however, the two products may be best
understood as separate industry.
4 In lubricants, the oil used in cars is similar or even
identical to the oil used in trucks,
But the similarity largely ends there.

4 Automotive motor oil is sold


4 to fragmented , generally unsophisticated
customers
4 through powerful channels,
4 using extensive advertising.
4 Truck and power generation lubricants are sold
4 to different buyers
4 using a separate supply chain.

4 Industry structure (buyers power, barriers to entry,


and so forth) is substantially different.

Ä Automotive oil is thus a distinct industry from oil


for truck and stationary engine uses.

Ä Industry profitability will differ in these two cases,


and lubricant company will need a separate
strategy for competing each area.
4 If an industry has a similar structure
4 the presumption is that competition is global.

Ä A single global strategy is needed.

Ä If an industry has different structures in different


geographic regions, however, each region may will
be a distinct industry.
A rule of thumb is that where the differences
in any one force are large, and where the
differences involve more than one force,
distinct industries may well be present.
Î In the early days of the personal computer
industry, for instance, IBM tried to make up for its
late entry by offering an open architecture that
would set industry standards and attract
complementary makers of application software and
peripherals.

Î In the process, it give ownership of the critical


components of the PC __the operating systems and the
microprocessor___ to Microsoft and Intel.
Î By standardizing PCs, it encouraged price based
rivalry and shifted power of suppliers.
Consequently, IBM became the temporarily
dominant firm in an industry with unattractive
structure.
Conclusion
.+#++
Ä Overall demand grows
Ä Industryƞs quality level is high
Ä intrinsic costs are reduced

e.g. soft drink producers rationalized their bottler networks to make


efficient and effective , both the soft drink companies and the
bottler benefited.

The most successful companies are those that expand the industry
profit pool in ways by keeping view the competitive forces that allow
them to share disproportionately in the benefits.
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