Porter’s model provides a useful Corporate strategy framework for our analysis. As can be seen from the model below, the competitive environment includes not only the output market but also the input market as well.
Generally, the forces of competition will drive the industry towards a profit level which is sufficient to keep the corporate firms in the industry. The strategic task, therefore, for any corporate company is to deploy resources so that it can make enough profit levels in excess of what is normal i.e. that profit level which keeps it in production e.t.c.
A number of threats to the pursuit of profit are as follows:
- Threats of new entrants: the ability of corporate firms to enter the market is determined by the nature of barriers to entry.
- Threat from substitutes products: A major strategic effort may, therefore, be devoted to product differentiation based either on nonproduct features or on the product itself.
- Buyers can exact pressure on a company. The more concentrated the buying market vis a vis the producer the more power it will have.
- Degree of dependency upon existing channels of distribution
- Bargaining leverage, particularly in industries with high fixed costs
- Buyer switching costs relative to firm switching costs
- Buyer information availability
- Force down prices
- Buyer concentration to the firm concentration ratio
- Availability of existing substitute products
- Buyer price sensitivity
- Differential advantage (uniqueness) of industry products
- RFM (customer value analysis)
- The total amount of trading
- Suppliers can exact pressure on the company. Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.
Potential factors :
- Supplier switching costs relative to firm switching costs
- Degree of differentiation of inputs
- Impact of inputs on cost or differentiation
- Presence of substitute inputs
- Strength of distribution channel
- Supplier concentration to the firm concentration ratio
- Employee solidarity (e.g. labour unions)
- Supplier competition: the ability to forward vertically integrate and cut out the buyer.
- Rivalry among competitive firms. For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.
- Sustainable competitive advantage through innovation
- Competition between online and offline companies
- Level of advertising expense
- Powerful competitive strategy
- Firm concentration ratio
- Degree of transparency
Generic competitive strategies.
The ultimate objective of any corporate firm is to gain a superior position over that of its rivals.
Porter advances a number of answers to these question based upon important concepts. Does the firm seek to gain an advantage by being low cost or through differentiation such that buyers will pay a premium based on their perceptions of the product?
In summary of the whole analysis, the differing Corporate strategy framework require differing market conditions as well as differing skills, for example, cost leadership requires tight cost control and sets of customers who perceive the benefit of low costs translated into prices. Differentiation requires strong marketing and often R&D as well as distinctive requirements from people. Furthermore, the product has to be perceived by customers as offering something unique to them for which they are prepared to pay a premium.
Porter developed his five forces Corporate strategy framework analysis in reaction to the SWOT analysis. Porter’s five forces are based on the Structure-Conduct-Performance paradigm in industrial organizational economics. It has been applied to a diverse range of problems, from helping businesses become more profitable to helping governments stabilize industries.
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