Competition does not always happen on the football field or under the basketball hoop. Any game field is open to competition if it is a matter of comparison of performance. That makes no difference if it is family, friendship, fraternity, or business world; a national, regional, or global scale; the ‘desire to prevail and win’ is one of the most important human impulse. We want to win and be better and faster than the others. It’s human nature… Competitiveness is an important trigger of success. However, competitiveness in the business world is completely inevitable; beyond impulses, it is a necessity, even a prerequisite.
After all, the way to snatch is through ‘competitiveness’.
An environment in which companies strive to gain customers from other organizations that operate in the market, is called a ‘competitive environment’. It is possible to analyze the competition step by step: for example, there may be a competition between those who try to ‘position the product’ in the same market segment; such as Coke. Or such as soft drinks market where there are similar characteristics in their ‘product categories’. There may be a competition to respond to customers’ common needs, such as the beverage market. Or, like the food and entertainment industries, there may be even higher levels of competition to get a share of the customer or consumer’s spending.
The ‘Five Competitive Forces Model’, developed by Michael Porter, represents a business strategy which is developed to analyze the attractiveness of the industries: it provides the organization the chance to understand where they stand within the market and the industry. According to Porter, “The primary factor which determines the profitability of a business is the ‘attractiveness of the industry’. Organizations should understand the ‘competitive rules’ that determine the attractiveness of the industry, while shaping their own competitive strategies.
Competitive Strategy is not about changing forces outside the organization’s own sphere of influence, but rather is about using that power to turn these rules in favor of the organization. Porter demonstrates that the profitability of an industry depends on the structure of that industry rather than what the product looks like or whether it contains high-tech technology or not. The structure of the industry or its economic and technical characteristics affect profitability. The Five Competitive Forces affect the profitability of the industry as when they have an impact on price, cost and investment. The stronger the Competitive Forces are, the more difficult the business environment will be.
Now let’s look at the questions that will reveal these 5 Forces:
- How easy or difficult is it for New Competitors to enter the Industry? What are the barriers to market entry?
- How easy is it to replace a product or service while being cost effective?
- How strong are the buyers? For example, can they come together to place large quantities of orders?
- How strong are the vendors/suppliers? Are there a lot of potential vendors in the industry, or are there just a few or is there a sole supplier?
- Is there a strong competition among existing players? Is a single player in a dominant position? Or are all players in a similar position in terms of strength and scale?
Depending on the country and industrial conditions, the Government and/or the Press can also be considered as a formidable competitor.
While examining the competitiveness of Regions and Countries, it would be convenient to look at the “Global Competitiveness Index” which is prepared for the World Economic Forum (WEF). WEF addresses Global Competitiveness in three dimensions:
- Basic Requirements: macro-economic stability, infrastructure, institutions, health and basic education;
- Efficiency: market size, higher education and training, stock market efficiency, productivity of the labour market, depth of financial markets, speed for adaptation to technology;
- Innovation and the Depth of Business World.
To gain a competitive advantage, first and foremost, Organizations need to have a competitive mindset.
An organization needs to expose an identity which likes to win – not to lose, and to have a unique ‘story’ to tell in order to appeal the customers and the market.
Release: SME-EFOR November 2012