Factors Which Could Influence Competitive Strength, Measured By the Expected Decrease in Profitability

1. The present rivalry in the market. What would be the effect of an initiative which might distort present market shares/Is retalia­tion to be expected? Will that decrease profits?

2. The bargaining strength of the buyers. Are the buyers so strong that they can dictate the terms of transaction (prices, delivery con­ditions, etc.) to the suppliers? Or are the buyers competing amongst each other to be supplied?

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3. The bargaining power of the suppliers. Same as above, but pro­jected on the relative influence of the suppliers (of half material, component, etc.). If the supplies are few, their power is great, re­ducing the profits.

4. The threat of potential entrants into the market will decrease the profitability. If market entry is easy, may competitors can be expected to fight for a piece of the profits, thereby reducing the profits. But if entry barriers are high (e.g. large investments in equipment, in know-how), some protection can be had.

5. The threat of product/service substitutes is more difficult to iden­tify. Some products can come and take over the function of other products (e.g. desktop publishing took over the function of type setters, the manufacturers of industrial glues pushed many nuts- and-bolts producers from their markets).

Identification of substitutes requires a ‘helicopter view’, which is the ability to look beyond the boundaries of one’s own product area.

The competitive analysis seems complicated, but has proven valuable in assessing one’s own competitive strength. The organisation could analyze its’ position in the near future. A discussion with key persons in the organisation (‘brain storm’) could provide many answers in a short time.

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