First, Porter's five kinds of competitiveness analysis
(1) Entry threat of potential entrants.
"Structural barriers" and "behavioral barriers", that is, the entry barriers presented and the counter-attacks that potential entrants may encounter from existing incumbents, are collectively called entry barriers. Barriers to entry refer to those factors that allow existing enterprises to earn positive economic profits, but make new entrants unprofitable.
① structural disorder
Porter pointed out that there are seven main obstacles: economies of scale, product differences, capital requirements, switching costs, distribution channels, other advantages and government policies. According to Bain's classification, these seven main obstacles can be summarized as three main barriers to entry: economies of scale, control of key resources by existing enterprises and market advantages of existing enterprises.
(1) economies of scale. Economies of scale mean that in a certain period of time, when the absolute quantity of products or services produced by enterprises increases, their unit costs tend to decrease. When the industrial scale economy is significant, the old enterprises operating at or above the minimum effective scale have cost advantages for smaller new entrants, thus forming entry barriers.
(2) Control of key resources by existing enterprises
The control of key resources by enterprises is generally manifested in the accumulation and control of funds, patents or proprietary technologies, raw material supply, distribution channels, learning curves and other resources and resource use methods. If the existing enterprises control certain resources necessary for production and operation, they will be protected and will not be infringed by the entrants.
(3) Market advantages of existing enterprises
The market advantage of an enterprise is mainly manifested in the brand advantage. This is the result of product differentiation, which refers to the difference between products due to the different loyalty of customers or users to the product quality or brand reputation of enterprises.
② Behavior disorder (or strategy disorder).
Behavior barrier refers to the entry barrier formed by the existing enterprises retaliating against the entrants. There are two main types of retaliation:
(1) Restrict entry pricing. Restricted entry pricing is often an important weapon for incumbent large enterprises to retaliate against entrants, especially in those markets where technological advantages are weakened and investment is increased. There is an assumption behind the maximum price limit, that is, in the long run, the income obtained under the condition of low price that is enough to prevent entry will be greater than that obtained under the condition of high price that attracts entry. The incumbent enterprise tries to tell the entrant that it is low-cost through low price, and it is unprofitable to enter.
(2) enter the other side's field. Entering the other side's field is a common retaliation in oligopoly market, aiming at offsetting the advantages that may be brought by the entrants taking the lead and avoiding the risks brought by the other side's behavior.
(2) The substitution threat of substitutes.
To study the substitution threat of substitutes, we need to clarify two concepts of "product substitution" first. There are two kinds of product substitution, one is direct product substitution and the other is indirect product substitution.
① Direct product substitution. That is, one product directly replaces another product. For example, Apple computer replaced Wang An computer. The substitute in Porter's definition of industry quoted earlier is a direct substitute.
② Indirect substitution. That is, products that can play the same role indirectly replace other products. For example, synthetic fibers have replaced natural fibers.
Porter's threat to an industry mentioned here refers to indirect substitutes. Whether old products can be replaced by new products mainly depends on the "cost-effective" comparison between the two products.
(3) the bargaining power of suppliers and buyers
① The concentration of the buyer (or seller) or the size of business volume.
② Degree of product differentiation and asset specificity.
③ Degree of vertical integration.
④ Degree of information mastery.
Note that labor is also a part of suppliers, and they may bring pressure to many industries. The basic method of considering the potential strength of the labor force as a supplier is very similar to the above discussion. When estimating the strength of suppliers, the focus is on the degree of organization and whether the labor supply in short supply will increase.
(4) competition among existing enterprises in the industry
In the following cases, the competition between existing enterprises in the industry may be fierce:
There are many or close competitors in the industry.
② Industrial development is slow.
Customers think that all goods are homogeneous.
(4) Overcapacity in the industry.
⑤ Low barriers to entry and high barriers to exit.
Second, the strategy to deal with five kinds of competitiveness
First of all, the company must position itself and isolate itself from the five kinds of competitiveness by using cost advantage or differentiation advantage, so as to surpass its competitors.
Secondly, the company must determine which market segment in the industry, and the five competitiveness have less influence, which is the "concentration strategy" put forward by Porter.
Finally, the company must strive to change these five competitiveness. Companies can reduce bargaining by establishing long-term strategic alliances with suppliers or buyers; Companies must also seek entry prevention strategies to reduce the threat of potential entrants, and so on.
Limitations of three-force model and five-force model
Porter's five-force model is effective in analyzing the external environment faced by enterprises, but it also has limitations, including:
The (1) analysis model is basically static. However, in reality, the competitive environment is always changing. These changes may change from high to low, or from low to high, and the speed of change is much faster than the model shows.
(2) This model can determine the profitability of the industry, but for non-profit organizations, the assumption about profitability may be wrong.
(3) The model is based on the assumption that once this analysis is carried out, enterprises can formulate enterprise strategies to deal with the analysis results, but this is only an ideal way.
(4) The model assumes that strategists can know the information of the whole industry (including all potential entrants and substitute products), but this assumption does not exist in reality. For any enterprise, it is neither possible nor necessary to master the information of the whole industry when formulating strategies.
(5) This model underestimates the possibility of establishing long-term cooperative relations between enterprises and suppliers, customers or distributors and competitive enterprises to reduce the threat between them. In the real business world, it is not necessarily a life-and-death relationship between peers, enterprises and upstream and downstream enterprises. The combination of strength and weakness, or the combination of strength and weakness, can sometimes create greater value.
(6) The model does not fully consider the elements of industrial competitiveness.
On the basis of Professor Porter's research, David Yafei, a professor at Harvard Business School, put forward the sixth element, namely interaction and complementarity, which further enriched the five theoretical frameworks of competitiveness.
Asia and Africa believe that any industry and its related industries have products or services with different degrees of complementarity and interaction. Enterprises will gain important competitive advantages by carefully identifying complementary and interactive products with strategic significance and adopting appropriate strategies (including controlling complementary products, bundling or cross-subsidizing sales). Complementary interaction can add value to products or services (hardware and software, housing and housing loans, power supply and home appliance production, car purchase and insurance, etc.). ) and expand market demand.
According to the complementary interaction theory put forward by Professor Yafei, in the early stage of industrial development, enterprises can consider controlling the supply of some complementary products when positioning their business strategies, which will help improve the whole industry structure, including improving the overall image of industries, enterprises, products and services, raising entry barriers and reducing the degree of competition among existing enterprises. With the development of the industry, enterprises should consciously help and promote the healthy development of complementary industries, such as providing training and enjoying information for intermediary industries. You can also consider strategies such as bundling operation or cross-subsidizing sales.