Competitive Environment

10 Key excerpts on "Competitive Environment"

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  Designing and Executing Strategy in Aviation Management

  • Triant G. Flouris, Sharon L. Oswald(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Some of the characteristics that affect the competitive playing field include the size and growth rate of the market, the depth and breadth of products in the market, the uniqueness of these products (or likeness as in commodity products), the existence or availability of distribution channels, the dependence and sensitivity toward technological changes, the make-up of the buyer and seller market and the effect of new entrants and economies of scale to the long-term success in the market. No two industries are identical and no two industries face identical competitive pressures. Some industries, like the airline industry, were introduced for the first time to the often cutthroat behavior of a Competitive Environment after many years of regulated complacency. Understanding the competitive pressures and how to exist within these conditions is paramount to industry survival.

  Before moving forward in this discussion of analyzing the Competitive Environment, it is important to discuss the pressures that affect competition. Without a thorough understanding of these pressures and how they affect the businesses of an industry, it is nearly impossible to craft a sustainable competitive strategy.

  Michael Porter’s Five Competitive Forces

  In 1980, Michael Porter published a framework for analyzing the competitive pressures in all industries.8 While industries differ greatly in their composition, Porter argued that all industries face similar competitive forces. Porter’s model of the Five Forces of Competition is presented in Figure 4.3 .

  Figure 4.3 Porter’s Five Forces of Competition

  Porter’s model provides a very simple yet methodical way to dissect an industry and determine the true pressures that affect the marketplace. The Five Forces model suggests that the competition in an industry is determined by five competitive forces:

  1. Barriers to Entry. 2. The Power of the Supplier Market. 3. The Power of the Buyer Market. 4. Power of Substitute Products. 5. Rivalry among Industry Members.

  Barriers to Entry

  A barrier to entry into an industry occurs when it is difficult for a newcomer to enter into the market. New entrants in a market can change the complexion of the industry and almost always provide a challenge to the existing firms due to the newcomer’s ability to carve out a portion of the market. However, sometimes it is difficult for a newcomer to gain a foothold in an existing market. There are many types of barriers that could provide a challenge to newcomers entering in a given market. Some of these are as follows.

  Economies of scale

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  Business Strategy and Competitive Advantage

  A Reinterpretation of Michael Porter's Work

  • Jovo Ateljević, Dženan Kulović, Filip Đoković, Mirza Bavčić(Authors)
  • 2023(Publication Date)
  • Routledge

    (Publisher)

  All the stated resource classifications (explained comprehensively and in detail) reinforce the hypothesis that there is a vast number of potential resources as well as the importance of their successful utilisation. A reaction is therefore needed based on the collected information on an industry.

  When reacting to gathered information on an industry, it is necessary to understand, interpret and correlate the information to reach relevant conclusions on the value of available information. The information concerning the given industry is important since the industry has a direct impact on the company (Mašić, 2009 ).

  According to Michael Porter (1983) , the relative environment is considerably broad and it includes the respective social and economic factors and it is a key aspect of the environment of the industries (or an industry) which is the competing field of the organisation.

  An analysis of the definition reveals that, in modern conditions, an industry does not have demarking lines. This means that each company can be both a rival and a competitor, simultaneously.

  However, the partner relationship can be easily transformed into a competitive relationship. For example, if a buyer starts producing items which it formerly bought or if a supplier starts using products for his own business, rather than for sales. If we add potential competitors and the possibility of substitution to this scenario, it can be concluded that the competitive outreach, i.e. the range of contact with competitors, is much wider than the range indicated by the industry analysis.

  However, the definition offered by Michael Porter is not accepted by contemporary theoreticians and practicians. Hence, he approached it from a broader aspect and expanded the competitive context beyond the industry (i.e. the competition among existing companies) to include suppliers, buyers, new competitors and substitute producers. He called it extended rivalry and he used it to set the boundaries of an industry. Considering his analysis of these five variables, there can be a so-called good and bad environment (Table 4.1 ; Bateman and Zeithaml, 1990

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  Project: Strategy

  • Helgi Thor Ingason, Haukur Ingi Jonasson(Authors)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  5 Understanding the business landscape: the supply chain, competitors, and regulators

   

  Every enterprise operates in the context of a dynamic external environment. The operating environment of a business includes social, technological, and market forces as well as organisations that will influence the strategies of an enterprise in a variety of important ways that can be hard to predict. Among the principal initial tasks when you are planning any strategy is the characterisation of this external environment, surfacing the forces at work and identifying the extent to which particular elements are risks or opportunities that may influence the fortunes of an enterprise. This is a key part of defining the current status of an enterprise. In any strategic plan, recognising and dealing with the most influential aspects first is likely to be the effective course of action, although this may be easier said than done.

  There is no set formula that can be applied to identify all the sources of influence in the external environment. The best approach is perhaps to hold some form of a brainstorming session with a diverse array of informed people (including external consultants, if necessary) in order to construct as comprehensive a picture of the external environment, together with associated risks and opportunities, as you can. Whether an enterprise is commercial or non-profit, the nature of its operations can have a major bearing on what aspects are important in the external environment and the kind of thinking required to ensure future success. Natural monopolies such as municipal authorities will have a different viewpoint from, say, a small enterprise operating on tight margins in a highly competitive market. Equally, the viewpoint of a small volunteer organisation with a fragile funding pipeline that is meeting an important social need will differ hugely from that of a Fortune 500 company.

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  Strategic Management

  From Theory to Practice

  • Allen Amason, Andrew Ward(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  Chapter 4 Analyzing the Environment

  Defining the Business and the Environment The Macro-Environment: PESTEL Framework Analyzing the Competitive Environment The 5-Forces Model Bargaining Power of the Seller Bargaining Power of the Buyer Availability of Substitutes Threat of New Entrants Rivalry Among Competitors Competitiveness and the Lifecycle Model Ongoing Evolution in the Environment Concluding Thoughts and Caveats Hypercompetition Industry Definition Locus of Competition

  Having detailed in the previous chapter the various “tools” of the strategic manager’s trade, this chapter looks in detail at one of those tools, the analysis of the environment. In terms of immediacy, the environment is probably the most important component of strategic success. This is because, as many contend, the environment “determines” the success of a company’s strategy. This view or belief reflects a deterministic view of strategy (Bourgeois, 1984; Child, 1972).

  The academic debate between determinism, the view that strategic success is a function of analytical precision and fixed cause and effect relationships, and voluntarism, the view that strategic success is a function of creativity, innovation, and the exercise of strategic choice, is not a matter of great practical importance. However, the tension between these two philosophies does reflect a comparable and essential tension between two practical strategic philosophies, proaction and reaction.

  A cursory browsing of the day’s popular business books will reveal any number of titles dealing with proaction, leadership, taking the initiative, and seizing the moment. However, a relative few are likely to spend much time on the importance of reaction. Indeed, the subject of reaction is far less popular and so often largely ignored. Undoubtedly, there is something satisfying about being first. Especially in business, we tend to celebrate leaders rather than followers. However, the reality is that leading is an imprecise science that often entails significant risk. Sometimes it is better to wait, to allow others to do the basic work of research and development and then to simply react quickly to the emerging changes in the marketplace. Thus, well-timed and appropriate reaction is an important part of strategy. Indeed, in some instances, reaction may be the very key to survival. At the same time, there are instances where being first can yield clear and sustainable advantages. In these cases, a firm would do well to accept the risks and step out ahead of the competition and, sometimes, ahead of the accepted wisdom.

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  Business Strategy

  • George Stonehouse, Bill Houston(Authors)
  • 2003(Publication Date)
  • Routledge

    (Publisher)

  The micro (or near) environment is that which immediately surrounds a business, the parts of which the business interacts with frequently and over which it may have some influence. For most purposes, we can identify competitors, suppliers and customers as comprising the main constituents of this strata of the environment.
• The macro (or far) environment comprises those influences that can affect the whole industry in which a business operates. The macroenvironment comprises influences arising from socio-demographic, political, economic, natural and technological factors. The nature of these factors normally means that individual businesses are unable to influence them – strategies must usually be formulated to cope with changes in the macroenvironment.

Porter's five forces model of industry analysis

Porter (1980) developed a framework for analysing the nature and extent of competition within an industry. He argued that there are five competitive forces which determine the nature of competition within an industry. Understanding the nature and strength of each of the five forces within an industry assists managers in developing the competitive strategy of their organization. The five forces are:

• the threat of new entrants to the industry;
• the threat of substitute products;
• the power of buyers or customers;
• the power of suppliers (to businesses in the industry);
• rivalry among businesses in the industry.

By determining the relative ‘power’ of each of these forces, an organization can identify how to position itself to take advantage of opportunities and overcome or circumvent threats. The strategy of an organization may then be designed to exploit the competitive forces at work within an industry.

When using Porter's framework (see Figure 7.1