Competitive strategy and international competitiveness

Course Contents

• Competitive strategy and international competitiveness
• Global strategy. Strategic audit
• Five forces model. SWOT Analysis
• Value Chain Analysis
• Cases

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Learning Unit Summary

Michael Porter described a concept that has become known as the "five forces model". This concept involves a relationship between competitors within an industry, potential competitors, suppliers, buyers and alternative solutions to the problem being addressed. While each industry involves all of these factors, the relational strengths vary. Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are:

• The threat of entry of new competitors (new entrants)
• The threat of substitutes
• The bargaining power of buyers
• The bargaining power of suppliers
• The degree of rivalry between existing competitors

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. What activities a business undertakes is directly linked to achieving competitive advantage.

The process of conducting a strategic audit can be summarized into the following stages:

1. Resource Audit
2. Value Chain Analysis
3. Core Competence Analysis
4. Performance Analysis
5. Portfolio Analysis
6. SWOT Analysis

A firm that chooses a cost-leadership business strategy focuses on gaining advantages by reducing its economic costs below all of its competitors. When there are significant economies of scale in manufacturing, marketing, distribution, service, or other functions of a business, larger firms have a cost advantage over smaller firms. As the volume of production is reached, after which the average costs per unit of production begin to rise because of diseconomies of scale.

SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT = Strengths, Weaknesses, Opportunities, and Threats.

Value Chain Analysis. To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain.

The Value Chain System. A firm's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers.

A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment.