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The Five Competitive Forces In The Industry

Decent Essays
Understanding the competitive forces and their underlying forces tells the roots of the industry’s current profitability while providing a framework for anticipating and influencing competition overtime. The Five Competitive Forces are meant for companies strategist to analyse and cope with competition. The five forces defines an industry’s structure and shaped the nature of competitive interaction within an industry. A healthy industry structure should be as much as competitive concern to strategiest as their company’s own positions. Understanding industry structure is also important to effective strategic positioning.The structure of the five forces differs by industry. The main competitive force or forces determine the profitability of…show more content…
Rivalry is especially destructive if it gravitates solely to price, as this transfers profits directly from the industry to its customers. Price competition is most liable to occur if: 

- Fixed costs are high, marginal costs are low 

- Capacity must be expanded in large increments to be efficient 

- The product is perishable 


Factors not forces
Industry structure determines the industry’s long-run profit potential because it determines how the economic value created by the industry is divided between firms, customers, suppliers, substitutes or new entrants. By considering all five forces, a strategist keeps overall structure in mind and his/her attention remains focused on structural conditions rather than on fleeting conditions. It is important to avoid the pitfall of mistaking visible attributes of an industry for its underlying structure: 

- Industry growth rate

- Technology and innovation

- Improved technology/innovation may also attract competitor’s 

- Government 


Changes in industry structure
• Shifting threat of new entry
 o The expiration of a patent may unleash new
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