The essence of strategy formulation is coping with competition. Intense competition in an industry is neither a coincidence nor a bad luck, it is something which inevitable and a part of any industry.
The state of competition in any industry depends on five forces, which are diagramed as following:
The collective strength of these forces determines the ultimate profit potential in any industry. Hence, a company, whatever is their collective strength, always tries to find a position in the industry where it can best defend itself against these forces or can influence them in its favor. Knowledge of these forces provides the company with ground work to prepare its strategies and course of action. These help company determine its core strengths and weaknesses, clarifying the areas where strategic changes may yield greatest payoff, and highlights the places where industry trends promise to hold the greatest significance as either opportunities or threats.
Difference forces take on prominence in shaping competition in each industry. In Ocean going tanker industry, the key forces is probably the buyers( the major oil companies). Likewise, in the steel industry, the key forces are foreign competitors and substitute products. Hence, a strategist should know what makes the industry tick or move, as each industry has a underlying structure, or a set of fundamental economic and technical characteristics.
Threats of New Entrants:
The seriousness of the threats depends on the barriers present and on the reaction from the existing competitors. Whenever new firms can easily enter into an industry, intensity in competition increases.
Some of the possible barriers to entry are:< ...