Competitive Strategy (Porter) Chapter 1

Essay by Roger_94College, Undergraduate February 2014

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ITESM Campus Chihuahua

Rogelio Israel Carrillo Hinojosa (A00757992) Competitiveness and Geoeconomy

Competitive Strategy: Techniques for Analyzing Industries and Competitors

Chapter 1: The structural analysis of industries

To have a good competitive strategy the company should know all its competitive environment, in order to confront better the external forces. Competition depends on five basic competitive forces determined by Porter.

Threat of new entrants: The entry of new firms can affect the company's profitability, since these would push prices down or inflate costs, enabling an instable situation in the sector. There are six main barrier to entry:

Economies of scale: These refer to the reduction of unitary costs, increasing the overall production.

Product differentiation: This barrier requires that enter the market represents a raise in advertising, research and innovation spending, in order to overcome the loyalty obtained by the established enterprises, thus companies have to consider that it will take a long time to recover the initial investment and there is a great possibility of loss.

Capital requirements: The need to invest large financial resources to compete creates a barrier to entry, particularly if aggressive advertising campaigns, or research and development are required.

Cost shifting: Created by the presence of costs to switch suppliers.

Access to distribution channels: This barrier forces the new company persuade distribution channels to accept their products, either reducing prices, offering a shared advertising or other, which reduces their utilities.

Cost disadvantages of economies of scale: The established companies can take advantage of lower costs that new competitors cannot compete with. The advantages for established companies includes:

Favorable access to raw materials

Favorable locations

Government subsidies


Rivalry among existing competitors: In most industries, if a company has competitive strategy, observable effects are caused on its rivals and therefore may incite efforts to counter competitors' movements. Enterprises...