Business Culture and Strategy

In: Business and Management

Submitted By nicolemccolm
Words 970
Pages 4
By determining the relative importance of each of these forces we can: • identify the controlling forces and trends • explain and predict the profitability of the industry • identify an organisation’s competitive position within the industry • suggest ways to improve the competitive position (e.g. vertical integration)

Threat of new entrants ← New entrants are businesses that enter the marketplace with the same product as the current members of the industry ← Includes imports from firms seeking economies of scale ← If it is easy to enter the industry this will tend to force industry prices down ← Threat depends on the height of barriers to entry ← Examples of entry barriers: ← Economies of scale - entrant must either enter on a large scale or accept a cost disadvantage ← Differentiation - brand identification and customer loyalty has to be overcome ← Capital requirements - how much finance is needed to enter and compete? ← Cost disadvantages independent of size - the learning curves, access to cheap labour, patents etc. ← Access to distribution channels - are they closed to new entrants? ← Government policy - legislation, tariff and non-tariff barriers

Supplier bargaining power ← Includes suppliers of raw materials, components, labour, power, plant and equipment, finance ← High supplier power means that firms in the industry will have to pay high prices for whatever is being supplied

← Suppliers have high bargaining power if: • there is a concentration of suppliers • the costs of switching between suppliers are high, e.g. the item supplied is unique or highly differentiated • there is the possibility of forwards integration by the supplier if it does not get the prices it seeks • the industry is not…...

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