STRATEGIC MANAGEMENT

Name
Date
Michael porter
One of the biggest threats to any business of any scale, large or small, start-up or
established firm is competition. Hence the questions ‘who is your competition? How are
their operations in the market going to affect your current bottom-line and future planning
decisions?’ are inescapable to many companies. To answer these questions Harvard
Business School’s Michael E. Porter coined the five forces theory in 1979. Competition
proves to be a very principal factor to start-ups. Business man Vusi Thembekwayo from
South Africa is known for bearing the view that for a start-up you are likely not to get so
much money but rather too much months at the end of the money as you struggle to
penetrate the market.
These five forces will be very instrumental to Daykar Ltd in formulating their five year
strategy.

Michael Porter’s Five Forces

1. Competitive Rivalry.
This refers to the intensity of competition in the market place determined by the
number of players in the market and their impact to the market. Competition varies
in different markets, this is influenced by the number of companies selling the same
product or service. For instance the energy sector in Kenya has only two players, the
transport sector hosts hundreds of companies or individual investors. As such the
competition dynamics between the two is expected to differ by a margin. There are
several factors influence competitive rivalry which Daykar Ltd should consider.

i) Number of players in the market.

Rivalry is high when there are many companies in the same market and low when
there are only a handful of companies selling the same goods or products. Daykar
should assess the market and know its competitors, how many they are, their sizes
and what market share they hold, their strengths and their weaknesses. This will
help them in setting a realistic target in terms of what market share they want to
hold in five years and the strategies they intend to implement to outwit their
competitors. Some of these strategies would be:
Favorable prices.
Superiority of products.
Good customer retention.
Continuous research and development. Continuous improvement of their
products,
Big vs. Best. Big doesn’t always mean Best, Best however can get you to
Biggest? Daykar should focus in satisfying their customer by offering the best
quality products rather than expanding to many different locations.
ii) Size of Competitors.
Competitive rivalry is high when competing companies are roughly equal in size.
When the size margin is high rivalry is low. When all competitors have the capacity
to produce large volumes of products, a vicious battle of getting customers to buy
their products emerges.
Daykar should evaluate the size of their competitors:
If Daykar is Larger (Bigger) than the other competitors in terms of volume of
production, they should now focus on being the Best.
If Daykar is smaller among its competitors, it may take advantage of the
weaknesses of the other companies and strive to be best among the big
companies.

iii) Rate of growth.

The greater the rate of growth in a particular industry, the less competitive rivalry
there is since, ‘all boats rise with the tide’. However in small or no growth industries
there is likely to be high competitive rivalry since all competing companies seek to
improve their growth in terms of returns through efforts to secure high market
share.

Various factors influence this:

How many target customers are there in the industry?
How frequently are customers expected to purchase these products? For
example dairy products are more frequently consumed than cosmetic
products.
How much in profit per unit are our products going to make?

iv) Distinguishability of products.

Rivalry is very high when nearly identical. This gives the consumer no reason for
having preference of either of the products. The companies should therefore put a
lot of effort in trying to convince and inform the customers about their products.

Daykar should create a brand with products that are easily distinguishable
from the other products. Their brand should be driven by values which are
not similar to other competitor’s.
Daykar should consider patenting and copyrighting some of their products
e.g. logos, catch phrases etc.

v) Incumbent firms’ commitment to the business.

 The more committed incumbents of an industry are, the more they will invest in
improving it therefore the tougher it is for new entrants to penetrate the market.
vi) Perishability of products.
Competitive rivalry increases when the products are perishable and low when goods
are not perishable. Losses are incurred when goods not sold have to be discarded
since they cannot be sold beyond a particular time. For example agricultural
products like tomatoes, flowers. Therefore companies’ products have to sell out if
they are to make profits.

To reduce losses, companies which work with perishable goods should for
instance consider investing in preservative technology.

vii) Rivalry is also high when fixed costs and marginal costs are low. This forces
companies to cut prices lower than average.
viii) Rivalry is high when exit barriers are high.