~ EVALUATING A COMPANY'S EXTERNAL ENVIRONMENTAL ~

Now, we continue to the Competitive Pressures Associated With The Threat Of New Entrants. The entry threat considerations are expected defensive reactions of incumbent firms, strength of barriers to entry, attractiveness of a particular market's growth in demand and profit potential, capabilities and resources of potential entrants, and entry of existing competitors into market segments in which they have no current presence.

Basically, company also have their problem in Market Entry Barriers Facing New Entrants. 

• Incumbent cost advantages related to learning and experience, proprietary patents and technology, favorable locations, and lower fixed costs.
• Strong brand preferences and customer loyalty.
• Strong ''network effects'' in customer demand.
• High capital requirements.
• Building a network of distributors or dealers and securing adequate space on retailer's shelves.
• Restrictive government policies.

Figure 3.5 Factors Affecting The Threat of Entry

Competitive Pressures From The Sellers of Substitute Products.

1. Substitute Product Considerations :

• Readily available and attractively priced ?
• Comparable or better in terms of quality, performance, and other relevant attributes ?
• Offer lower switching costs to buyers ? ( variable costs between the two goods. )

2. Indicators of Substitutes' Competitive Strength :

• Increasing rate of growth in sales of substitutes.
• Substitute producers adding new output capacity.
• Increasing profitability of substitute producers.

Figure 3.6 Factors Affecting Competition from Substitute Products

Competitive Pressures Stemming from Supplier Bargaining Power. It's depends on :

1. Strength of demand for and availability of suppliers' products.
2. Whether the suppliers provide a differentiated input that enhances the performance of the industry's product.
3. Industry member's costs for switching among suppliers.
4. Size of suppliers relative to size of industry members.
5. Fraction of the cost of the supplier's product relative to the total cost of the industry's product.
6. Number of suppliers relative to the number of industry members.
7. Possibility of backward integration into suppliers' industry.
8. Availability of good substitutes for suppliers' products.
9. Whether industry members are major customers of suppliers.

Figure 3.7 Factors Affecting the Bargaining Power of Suppliers.

Competitive Pressures Stemming from Buyer Bargaining Power and Price Sensitivity.

• Strength of buyers' demand for sellers' products.
• Degree to which industry goods are differentiated.
• Buyers' costs for switching to competing sellers or substitutes.
• Number and size of buyers relative to the number of sellers.
• Buyers' knowledge of products', costs and pricing.
• Threat of buyers' integration into sellers' industry.
• Buyers' discretion in delaying purchases.
• Buyers' price sensitivity due to low profits, size of purchase, and consequences of purchase.

Figure 3.8 Factors Affecting the Bargaining Power of Buyers.

Factors that driving industry change, and the impact will they have.

• Driving forces analysis has three steps :

1. We must identify what the driving forces are.
2. After that, assessing whether the driving forces are, on the whole, acting to make the industry more or less attractive.
3. Lastly, determine what strategy changes are needed to prepare for the impact of the driving forces. 

The industry rivals can be position in the market with a Strategic Group. That consists of those industry members with similar competitive approaches and positions in the market such as :

• Having comparable product-line breadth.
• Emphasizing the same distribution channels.
• Depending on identical technological approaches.
• Offering the same product attributes to buyers.
• Offering similar services and technical assistance.

The Core Concepts are a Strategic Group is a cluster of industry rivals that have similar competitive approaches and market positions. Besides that, the Strategic Group Mapping is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. The strategic group maps reveal which companies are close competitors and which are distant competitors.

Comparative Market Positions of Producers in the U.S Beer Industry : A Strategic Group Map Example.

Footnote : Circles are drawn roughly proportional to the sizes of the firms, based on revenues.

Some strategic groups are more favorable positioned than others because they confront weaker competitive forces and or because they are more favorable impacted by industry driving forces.

The next strategic moves that rivals likely to make is Competitive Intelligence, which is collect information about rivals that is useful in anticipating their next strategic moves and Signals of the likelihood of strategic moves such as rivals under pressure to improve financial performance, rivals seeking to increase market standing, public statements of rivals' intentions, and profiles developed by competitive intelligence units.

Figure 3.9  A Framework for Competitor Analysis

The Industry's Key Success Factors ( KSFs) are the strategy elements, product and services attributes, operational approaches, resources, and competitive capabilities that are necessary for competitive success by any and all firms in an industry. Second, the vary from industry to industry, and over time within the same industry, and in importance as drivers of change and competitive conditions change.