How Competitive Forces Shape Strategy?

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How competitive forces shape strategy? The main idea formation of strategy is to coping with competition. Managers are not take much care regarding competition. There was much need to go deeper and in detail regarding the competition around them. This can be simplified and easily calculated with the help of “Five Competitive Forces that Shape Strategy” by Michael Porte. This five tool can help in calculating return of what we invest. At the time of formation of strategy it is very important to look at the forces which are strong. The forces which are strong determine the profit of that business. The five competitive forces are threat of entrants, power of suppliers, power of buyers, threat of substitute products or services, and rivalry among existing competitors. Entrant: A commodity that enters competition with established merchandise. Threat of New entrant: • It is the first force that shape the strategy, • new capacity and a desire to gain market share, • This puts pressure on prices, costs, and the rate of investment necessary to compete in the industry, • When the threat of new entrants is high, existing companies must hold down their prices or boost investment to deter new entrant, • Something to be noted about this force is that it is not the physical entry of new competitors into the industry that drives profitability down, it is the threat of new entrants. The power of suppliers: 1) It is the second force that shape the strategy. 2) Few things that make suppliers more powerful, they are a. charging higher prices, limiting the quality of services, or shifting costs to industry participants, b. it is more concentrated than the industry it sells to, c. the supplier groups does not depend heavily on the industry for its revenues, d. industry participants face switching costs in changing suppliers, e. suppliers offer products that are

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