A company can survive and succeed in the long run only if
it successfully develop strategies to confront five
competitive forces that shapes the structure of competition
in the industry.
In Michael Porter’s classic model of competitive strategy ,
any business that wants to survive and succeed must
develop and implement strategies to effectively counter
The rivalry of competitors within its industry
The threat of new entrants into an industry and its
The threat posed by substitute products which might
capture market shares
The bargaining power of customers
The bargaining power of suppliers
Competitors share a natural ,and often healthy ,rivalry. This rivalry encourages and sometime requires a
constant effort to gain competitive advantage in the market place.
The threat of new entrants also expends significant organizational resources. Not only do firms need to compete
with the other firm in the market place, but they must also work to create significant barriers to the entry of new
This competitive force is often a difficult one to manage because the internet has created many ways for a new
entrant to enter the market place quickly and with relatively low cost of entry .
The threat of substitute is another competitive force confronting a business .the effect of the force is seen almost
daily in a wide variety of industries .it is often at its strongest during period of rising cost or inflation .
Eg :when airline prices get too high people substitute car travel on their vacation
Finally a business must guard against the often opposing forces of customer and supplier bargaining powers. If
the customer bargaining power get too strong they can drive price to unmanageably low level or simply refuse to
buy the product or services .
If the key supplier bargaining power get too strong it can force the price of goods and services to
unmanageably high levels or can simply starve a business by controlling the flow of materials essential to the
manufacture of a product
The business can counter the threats of competitive force that they face by implementing five basic
Cost leadership strategy
Becoming a low cost producer of product and services in the industry, or finding
ways to help its supplier or customer reduce their costs or to increase the costs of
Developing ways to differentiate a firm’s products and services from competitors
or reduce the differentiation advantages of competitors .
This may allow a firm to focus its products or services to give it an advantage in
particular segment or niches of a market
Finding new ways of doing business. This may involve the development of unique products and services, or
entry into unique market or market niches.
It may also involve making radical changes to the business processes for producing or distributing products
and services that are so different from the way a business has been conducted that they alter the fundamental
structure of an industry.
Significantly expanding a company’s capacity to produce goods and services, expanding into global markets,
diversifying into new product and services , or integrating into related product and services
Establishing new business linkage and alliances with customer, suppliers,
Competitors ,consultant and other companies.
These linkages may include mergers ,acquisitions ,joint venture, forming of
“virtual companies “or other marketing ,manufacturing ,or distribution agreements between a business and its