The Factors Affecting Competitiveness of Companies

The corporations competitive advantage comes in general from cost leadership, differentiation and focus by continually innovating new processes and products using appropriate inbound logistics, outbound logistics, marketing and sales strategies and determination of where to locate operations. It also have to decide when to produce and the level of co-ordination, which will give cost leadership and quality of its products and services comparable to its competitors to earn profits sustainable in the long-term in a socially responsible manner.

The business model can be based on Porters five forces model, which considers economic competitive factors on a static manner, which is a sever limitation to develop strategies. The companies must also consider the dynamic nature of competition and the value of alliances and networks as well as joint ventures as a strategic option and e-commerce initiatives to upgrade or gain competitive advantage. As well, it can also use balance scorecard, which is financial and non-financial to measure performance in critical indicators of performance, which determines its competitive strength or potential compared to other firms in the industry. This will enable the companies to identify weaknesses and develop strategies to upgrade those performance deficiencies and to innovate new processes and its ability to innovate and commercialize new products on a continual basis, which is competitive in price and quality compared to its competitors.

In addition, it must also have an organizational culture, which recognizes the importance of environmental issues and social responsibility. As well, the companies must recognize the importance of sustainable development principles as a guide to its policy formulation and decision-making processes to meet regulatory standards. This will increase the potential to self-regulation rather than to be regulated by government regulation, which may be very costly and may erode competitive advantage compared to other industries and firms.

Porter model bases corporation's strategies by studying the external environments opportunities and threat. Porter has identified five forces that shape every industry and every market.

According to Porter, these five competitive forces determined the intensity of competition and the profitability and attractiveness of an industry. In Porters model, the objective of corporate strategy must be to revise these competitive forces that improves the position of an organization or corporation. In Porter's view, analyzing these five forces and information derived from this analysis management can decide how to use some characteristics to gain competitive advantage.

The five forces in Porters model are threat of new entrants, bargaining power of suppliers, bargaining power of consumers, threat of substitutes and competitive rivalry within the industry.

In porters view, the bargaining power of suppliers is high when few large suppliers dominate the market, no particular substitutes for inputs, the customers for the suppliers are fragmented, the switching costs to one supplier to the next is high, suppliers integrating forward in order to obtain higher prices and margin.

In Porter's model, the bargaining power of customers is high when there is concentration of buyers, the supplying industry comprise a large number of small operators, supplying industry operates with high fixed cost, the product is undifferentiated and can be replaced by substitutes, switching to alternative product is relatively simple and not costly, customers have low margins and price sensitive, can produce the product themselves, the product is not strategically important to the customer, the customer is aware of the cost of the product, possibility the customer integrating backwards.

The threat of new entrants is high in Porter's model, which depends on the extent of barriers of entry. They are economies of scale, high initial investment and fixed cost, cost advantage of existing players due to experience curve effects of depreciated assets, brand loyalty of customers, protected intellectual like patents and licenses, scarcity of important resources such as qualified expert staff, access to raw materials is controlled by existing players, distribution channels are controlled by existing players, existing players have close customer relations, high switching costs for customers, legislation and government action.

In Porter's model, the threat of substitutes is determined by brand loyalty of customers, close customer relations, switching costs of customers, relative performance of substitutes in terms of price, current trends.

In addition, Porter's model the rivalry between existing firms will be likely to be high when there are many players of about the same size, players have similar strategies, there much mare differentiation between players and their products and there fore more price competition, low market growth rates and barriers for exit is high.

The Porter's model can be used to determine industry attractiveness as it provides insights about profitability and there fore supports to enter in to an industry or exit from an industry. As well, the model can be used to compare the impact of these five forces on the organization and the competitors. Competitors may have different options to react to changes in competitive forces dependent on their resources and competencies and may change the structure of the whole industry.