Strategic Management

1. CHAPTER 3:
BUSINESS COMPETITION
EDRIAN V. ABARINTOS

2. PORTER’S COMPETITION
MODEL
Michael Porter has made substantial
contribution in the field of strategic
management via his business competition
model which originally comes in five
major forces; hence, the so-called Porter’s
Five Forces Competition Model.

3. PORTER’S COMPETITION
MODEL
Figure 1. Porter’s
Five Forces Model
of Competition

4. PORTER’S COMPETITION
MODEL
In its original context, the then five forces referred to
include rivalry among competing sellers,
suppliers of key inputs, substitutes, buyers, and
potential new entrants. Recently, the said business
competition model comes with a sixth major
component known as stakeholder. The specific roles
played by the forces of the business competition
model are individually addressed or discussed on the
next slides.

5. RIVALRY AMONG
COMPETING SELLERS
It is positioned in the middle block in Porter’s
competition model. The middle block in Porter’s
business competition model refers to the key
players or direct competitors within the industry
or sector offering the same or similar products
or services. These are the business organizations
trying to outdo each other and eyeing for a
share in the market.

6. RIVALRY AMONG
COMPETING SELLERS
For strategic management purposes,
rivalry among competing sellers is the
most powerful and important aspect
of Porter’s competition model.

7. WHAT CAUSES RIVALRY TO
BE STRONGER?
a) active jockeying for position among rivals and
frequent launches of new offensives to gain sales and
market share;
b) a number of firms that are relatively equal in size and
capability;
c) slow market growth;
d) industry conditions tempt some firms to go on the
offensive to boost volume and market share;

8. WHAT CAUSES RIVALRY TO
BE STRONGER?
e) Customers have low costs in switching to rival
brands;
f) a successful strategic move carries a big payoff;
g) costs more to get out of business than to stay in;
and
h) firms have diverse strategies, corporate priorities,

9. DETERMINANTS OF RIVALRY
a) the level of industry's growth;
b) fixed (or storage) cost / value
added;
c) intermittent overcapacity;
d) product differences;
e) brand identity;
d) switching costs; and
g) concentration and balance.

10. SUPPLIERS OF KEY INPUTS
This includes another group of business
organizations outside the middle box of
Porter’s competition model in the sense that
they do not pose as direct threat to
competition. In a sense, the role of suppliers is
to provide inputs or doing supportive role to
the key players belonging to the middle box

11. SUPPLIERS OF KEY INPUTS
In the arena of strategic management, the
notion that suppliers of raw materials are
partners of the business organization should be
taken with apprehension and concern. This is so
because suppliers of raw materials are just like
any other business organization motivated and
driven by profit.

12. SUPPLIERS OF KEY INPUTS
The worst scenario is when a supplier joins the foray
of competition or be in the business concern usually
served by the company it used to serve or supply its
product or service as raw material or input. Such an
event or scenario may be perceived as unfair and
treacherous but that is the reality of business in a
democratic society. Such a situation will result to an
additional player or rivalry within the middle block
and situation that will make competition even much
stiffer.

13. COMPETITIVE FORCE OF
SUPPLIERS
a) item makes up large portion of product costs, is crucial to
production process, and/or significantly affects product
quality;
b) it is costly for buyers to switch suppliers;
c) they have good reputations and growing demand;
d) they can supply a component cheaper than industry
members can make it themselves;
e) they do not have to contend with substitutes; and
f) buying firms are not important customers.

14. DETERMINANTS OF SUPPLIER
POWER
a) differences in inputs;
b) switching costs of suppliers and firms in the
industry;
c) presence of substitute inputs;
d) supplier concentration;
e) importance of volume to supplier;
f) cost relative to total purchase in the industry; and
g) impact of inputs on costs or differentiation.

15. SUBSTITUTES
Substitutes generally refer to products or
services which prospective buyers can buy
or source elsewhere whose utility, function
and/or use is similar (or can act as
substitute) to a desired product for a
lesser price or other reasons.

16. FACTORS AFFECTING COMPETITION
FROM SUBSTITUTES
a) sales of substitutes are growing rapidly;
b) producers of substitute products add
new capacities;
c) profits of substitute products are up; and
d) popularity of substitute products is
growing.

17. DETERMINANTS OF
SUBSTITUTION THREATS
a) relative price of the substitutes;
b) performance of the substitutes in the industry;
c) switching costs involved in the act of
substitution;
d) buyer’s propensity or penchant for substitutes;
and
e) regulatory or other factors that tend to

18. SWITCHING COST
Switching cost is a factor that leads
prospective customers to entertaining or
considering the idea of buying or patronizing
other products for a variety of reasons.
Basically, switching cost refers to the amount
the buyers can save or forego in exchange for
buying other products or services they used to
patronize.

19. ROLE OF BUYERS
Traditionally, prospective clients or buyers are
simply considered as target market for business
organizations. For strategists, buyers are not
simply target markets but they also constitute a
sector acting as driving force that can disturb
competition or market conditions for after all,
market is all about demand and supply
condition.

20. COMPETITIVE FORCE OF THE
BUYERS
a) they buy in large quantities;
b) they can integrate backward;
c) industry’s product is standardized;
d) their costs in switching to substitutes or
other brands are low;
e) they can purchase from several sellers;
f) they have high purchasing power;

21. COMPETITIVE FORCE OF THE
BUYERS
g) bargaining leverage;
h) buyer concentration versus firm concentration;
i) buyer switching cost relative to firms switching
costs;
j) buyer information;
k) availability of substitute products;
l) price sensitivity;

22. COMPETITIVE FORCE OF THE
BUYERS
m) product difference;
n) brand identity;
o) impact on quality and
performance;
p) buyer profits; and
q) decision-maker incentives.

23. WHEN IS BARGAINING
POWER OF BUYERS WEAK?
a) buyer switching costs to competing brands are
high;
b) there is a surge in buyer demand; and
c) seller-buyer collaboration or partnering
provides attractive win-win opportunities.

24. DEALING WITH THE COMPETITIVE
FORCE OF BUYERS
a) the price buyers have to pay for the product — make
it affordable;
b) the quality of the product sold to buyers — make it
acceptable to their standards and expectations;
c) services buyers can expect from the business — be
sure after sales services are available whenever needed;
and
d) other conditions of the sale — make sure that there
are other attractive conditions that come with the

25. BARRIERS TO NEW
ENTRANTS
a) economies of scale;
b) access to secret technology (patented
and not patented);
c) brand recognition;
d) capital cost entry;
e) access to distribution channels;

26. BARRIERS TO NEW
ENTRANTS
f) lack of experience in carrying
operational activities leading to learning
gaps, producing cost disadvantage;
g) high customer switching costs;
h) access to low cost inputs (e.g., labor);
and
i) legislative barriers entry.

27. STAKEHOLDERS
The stakeholder group is a sector of the
economy or society which may be
considered an indirect player in the
business arena the other five major
components of the Porter business
competition model but may have bearing
upon the business as a whole.