How to understand the company's position in a birds eye view?

Md Rezaul Karim By Md Rezaul Karim, 30th Dec 2011 | Follow this author | RSS Feed
Posted in Wikinut>Business>Analysis

Before investing and making decisions of how much where to invest, we must understand that companies competitive position and future.

Factors and elements work as a tool to measure companies.

Michael E. Porter's five forces are fundamentals of analyzing all the business
Principles of Competitive Markets. Whenever investors are contemplating about investing among multiple portfolios or sectors, the Porter's forces provide ample leverages to compare amongst the weakest and strongest parties.
The five forces are:
1. Competitive rivalries
2. Substitute products
3. Suppliers
4. Seller-Buyer Collaboration
5. New entrants

While we discuss about the forces our focuses will be directed to competitors and industrial performances. We need to compare our companies with the others, both nationally and internationally.

1. Competitive jockeying among rival firms is dynamic and ever-changing:
In some sectors businesses are less competitive and some are fiercely competitive. The less competitive the better for business in a sense that companies can mark up prices with less efforts, and consumers could easily charge premium prices. Meaning the company is lucrative to invest.

On the other hand as industry members initiate new offensive and defensive moves. Hence, the company we are analyzing should adjust our move accordingly, for that sometimes it might go defensive and watch the maneuvering capacity of the counterparts and take necessary measures. When the opponents go offensive, if we have less power, should take defensive measures. Again if necessary, as emphasis swings from one mix of competitive weapons to another, the companies are to move accordingly. It means the position of competitiveness is never fixed or static rather a flexible one.


2. Competitive threat of substitutes is stronger when they are:
When companies are gaining much from the market or super profits are pouring in, normally it attracts other companies to come to the business. This particularly true for Bangladeshi business culture, where business people rather wait to see other's successes and jump on altogether, if positive signs are seen. Normally, substitute products are coming when they could not make such a product or could not be efficient and productive and efficient. So, cheaper alternative or substitutes are made to compete.
Now as a company executive, we have to see and check out whether the substitutes are -
• Readily available
• Attractively priced
• Believed to have comparable or better performance features
• Customer switching costs are low
If the above factors are turned out to be positive, the company is for sure facing tremendous pressures, and necessary moves are needed beforehand. May be fighter brand could work in this situation, to fight the cheaper substitutes.

3. Suppliers are a stronger force the more they can exercise power over:
The suppliers represents the firms and organizations that are engaged in the delivering Raw materials that are used in making the core products, e.g., bamboo for paper mills, sugar cane for sugar mills and so on. The comparative advantages and disadvantages the competitions are getting against us must be analyzed in order to have a competitive edge. Company must be satisfied with other ingredients such as-
• Prices charged
• Quality and performance of items supplied
• Reliability of deliveries
If required suppliers could be changed or multiple suppliers could be contracted in order to have the leverages on the above. In any case if no advantages are achieved against the competitors or cost is above the industrial average, necessary measure should be taken immediately.

4. Competitive Pressures from Buyers and Seller-Buyer Collaboration:
In these elements comparative advantages should be measured against the performances of the competitors. Supply chain or channel of distributions, namely, Dealers, Agents, Wholesalers, and Retailers, i.e., all the other people who are involved in distributing or managing goods to reach the consumers should be assessed. The company must have positive answers on the following matters:
• Whether seller-buyer relationships represent a weak or strong,
• Whether buyers have sufficient bargaining leverage to influence terms of sale in their favor,
• Extent and competitive importance of collaborative partnerships between one or more sellers and their customers
If required necessary kieretsus could be arranged, in order to maintain the smooth delivery and quality of supplies. Otherwise, company would lose its competitive edge to earn the premium price from customers.


5. New entrants:
New entrants are live threat for a running company, as it comes with forces like new technology and techniques that the existing companies never think of. It comes quietly and sneaks around the market shares and steal customers. This is necessary to create entry barrier to protect the company from being attacked by this kind of companies. That's why businessmen are now trying to influence the politicians and if not themselves get involved in politics, In Bangladesh this is the reason why so many businessmen are engaged in the political domains. So, that they could influence regulatory bodies and could explore new opportunities and face off new companies that are interested to come in. Bright example is the City cell, who for so long barricaded new cell phone companies to come in and had enjoyed so much profits, that no one could ever made.

So, this is also the duty of the Executives to ensure that the company is safe from being attacked by new entrants.

The above five forces are so vital in analyzing both business futures and achieving its’ own objectives in short and long run. Moreover, for investors when portfolios are analyzed the same is true for them too.

Tags

Business Enterprise, Companies Equity, Competitiveness, Investment Decision, Market Position

Meet the author

author avatar Md Rezaul Karim
I am a teacher engaged with the Southern University Bangladesh. I Like to use my spare time by writing and reading. I take it as a fun and source of inspiration in pursuing knowledge.

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Comments

author avatar Ivyevelyn, R.S.A.
31st Dec 2011 (#)

Buzz said it: "Just read one of your articles and 'bang' here comes another one". You are amazing, Md. Your pages certainly are educating me.

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author avatar Md Rezaul Karim
1st Jan 2012 (#)

Thank you and how is life going on now a days? Hope new year would be a better one for us all.

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author avatar Ivyevelyn, R.S.A.
1st Jan 2012 (#)

Md: I look forward to seeing you on Wikinut through 2012.
Happy New Year.

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author avatar Md Rezaul Karim
2nd Jan 2012 (#)

Let's pray to live long... Happy New coming all the years.

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author avatar ittech
15th Jan 2012 (#)

Very well stated

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author avatar Md Rezaul Karim
2nd Jun 2013 (#)

Thank you Ittech.. where have you been?

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