1 hrly eb ch 02 competitive advantage

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  • A firm can survive in the long run if it successfully develops strategies to confront five generic competitive forces that operate in the firm's relevant environment. What are some of these competitive forces?
    Threat of New Entrants. Many threats to long-term survival come from companies that do not yet exist or have a presence in a given industry or market. The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors.
    Teaching Tip: This is especially true as the effects of globalization increase the likelihood that previously "domestic only" competition will encounter new international competitors.
    Bargaining Power of Suppliers. Suppliers with access to key or limited resources, or who dominate their industries, may exert undue influence on the firm. Many firms seek to reduce their dependence on a single firm to limit the suppliers' bargaining power.
    Rivalry Among Existing Firms. In mature industries, existing competitors are not much of a threat: typically each firm has found its "niche". However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long-term survival from existing firms.
    Teaching Tip: For example, the airline industry faces serious threats from airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt.
    Bargaining Power of Customers. Customers can grow large and powerful as a result of their market share. For example, Wal-Mart is the largest customer for consumer package goods and often dictates terms to the makers of those goods -- even a giant like Procter & Gamble.
    Threat of Substitutes. To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists.
    Teaching Tips
    This slide relates to the material on p. 50.


  • 1. Chapter 2 Competitive Advantage
  • 2. Agenda • • • • • Introduction Competitive advantage Porter ’s Model Competitive advantage using e-commerce Summary
  • 3. The Competitive Environment Threat of New Entrants Bargaining Power of Suppliers Rivalry Among Existing Competitors Threat of Substitutes Bargaining Power of Customers
  • 4. Competitive Strategy? • To survive requires the competitive positions not less than the other company within its market sector. • Technology can change the way businesses compete.
  • 5. Strategic Information Systems • Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.
  • 6. Porter’s Competitive Forces Model To survive and succeed, a business must develop and implement strategies to effectively counter the: – Rivalry of competitors within its industry – Threat of new entrants into an industry and its markets – Threat posed by substitute products which might capture market share – Bargaining power of customers – Bargaining power of suppliers
  • 7. Porter’s Model of Competitive Forces
  • 8. Porter’s Five Forces Model of Competition Threat of Threat of New New Entrants Entrants Bargaining Power of Suppliers Rivalry Among Competing Firms in Industry Threat of Substitute Products Bargaining Power of Buyers
  • 9. Threat of New Entrants • The ease with which a new company or a company in a different product area can enter a given trade sector. • Barrier to entry into market include the need of capital, knowledge and skills. • IT can be barrier to entry to a given market. Ether existing players in the sector are well or the converse is that development of IT may leave existing players. • Examples: Internet bookshops like amazon.com compare to traditional bookshops, Internet banks compare to branch bank.
  • 10. Threat of substitution • It’s a threat to a existing players where a new product becomes available that supplies the same function as the existing product or services. • Example: replacing of glass bottles by plastic alternative in packaging industry. • IT industry has itself substituted of many products. • Example: replacement of typewriter by the word processor, downloaded music from the artist’s web site being substitute for conventional supply chains. •
  • 11. Bargaining power of buyers • There are number of competitors in the market or a surplus of supply the buyer is in a strong position to bargain for a low price. • The braded products are defensive that the store will feel obliged to stock because customers expect it. Example: KFC • ICT facilitate a level of service that will keep the customer loyal. • Examples: short cycle times, quick response supply, and reliable services enabled by E-commerce technology.
  • 12. Bargaining power of Suppliers • E-commerce used to reshape the supply chain. • Organization directly deal with small trade and members of the public using e-commerce that replacing the intermediaries. • Competitive advantage, in all three categories, can be achieved using e-commerce for direct sale. • This process of disintermediarisation can save cost of distribution, allow an organization to differentiate its products or focus its attention on selected segments of the market.
  • 13. Bargaining power of supply • The organization always trying to get adequate price from its buyer will be looking to get favorable terms from its own suppliers at the nest stage along the value chain. • For supplier, the strategies of price and differentiation such as branding or quality of services give a strong competitive position. • Trade electronically is the factor in the quality of service and now it’s the requirement from the buyer organization.
  • 14. Competition between Existing Players • The competition is to get the buyers and to trade at a price that produces an acceptable profit. • Competition won by the generic competitive advantage of price, differentiation or focus. • The use of E-commerce: – To reduces the administration costs of trading. – To reduce stockholding cause to increase logistic efficiency and greater reliability of supply. – To meet the requirements of trading partner that trade is conducting electronically. – To differentiate the product or services from the competitors. – To disintermediarisation. – To provide new market or service.
  • 15. E-commerce for competitive advantage Force System Competitive Advantage New Entrants/ Substitution Internet E-Commerce •Reduces entry cost •New sales channel •New service opportunity Suppliers (& Trading Buyers) E-commerce Logistics (EDI) •Cost reductions •Quick response •Lockin Buyers (Consumers) Internet E-commerce •New sales channel •Disintermediarisation •Customer Information Competitive Revelry E-commerce •Cost leadership •Differentiation •Focus
  • 16. Review • • • • Competitive environment Competitive Strategy Strategic Information system Porter competitive Forces 16