1- The 5 competitive forces.
2- Generic competitive strategies.
3- The value chain.
In this post we are going to deal exclusively and in a brief but interesting way with the first point… Michael Porter’s 5 competitive forces.
The purpose of the competitive strategy of a given business unit of a company is to find a position in the sector from which the company can defend itself from these 5 competitive forces or can influence them in its favor.
The 5 competitive forces defined by M. Porter are the following:
-The threat of entry of new competitors.
-The threat of substitute products or services.
-The bargaining power of buyers.
-The bargaining power of suppliers.
-The rivalry between the different competitors in the sector.
The first force could be summarized as the ease or complexity for other companies to penetrate a certain market. To assess this variable we will take into account fundamental aspects such as the ease of achieving economies of scale, the differentiation or not of existing products, the capital needs to access the market, the costs of change, access to the necessary distribution channels, ecological and political factors, etc.
German Pineiro's BlogThe second competitive force refers to the ease or difficulty with which the consumer could replace one product with another that performs the same function or provides the same purpose.
The third and fourth competitive forces refer to the bargaining power of customers and suppliers. Many variables influence the decision, but to name one, I could say that the greater the number of suppliers, the greater the bargaining power a purchasing company will have, and the fewer the number, the opposite.
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The fifth and final variable refers fundamentally to the degree or level of competitiveness that exists in a given sector. In a sector with little competition, we must thoroughly review the reasons or barriers to entry, since we may be faced with the case of a sector that is not very interesting or profitable. It may also be the case of a highly competitive sector where there are strong barriers to entry and exit (e.g. the telephone sector in Spain).
After thoroughly analyzing the variables mentioned above, the company will be in a position to define the "critical success factors" in that sector. The final step, along with the graphical representation of the results, of the strategic analysis proposed by Mr. Michael Porter.
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