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The Competitive Environment: Unit 2 Section
The Competitive Environment: Unit 2 Section
Sometimes, the answer to the above is quite obvious. For example, Coca-
Cola and Pepsi Cola are competitors, just as are the Big Three Automakers,
namely General Motors, Toyota, and Nissan by world standards. In much
the same vein, Nokia and Samsung are clear competitors within the Mobile
Phone industry. But much too often, organisations focus too exclusively on
traditional rivals thereby missing out on the emerging ones. United Airlines,
Delta, American, and US Airways have focused their attention to a battle
over long haul and international routes. In the process, they all but ignored
smaller carriers such as Southwest, Alaska Air, and America West that have
grown and succeeded in regional markets.
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Unit 2, section 5: The Competitive Environment BUSINESS
Once competitors have been identified, the next step is to analyse how they
compete. Competitors use tactics like price reductions, new-product
introductions, and advertising to undercut or counteract their competitor’s
strategy.
If a firm in an oligopoly market cuts prices, this can take market share away
from its competitors, forcing the competitors to respond with similar price
cuts to retain their original market share. When one firm raises its prices, the
other firms follow. When one firm expands its capacity its rivals or
competitors follow, lest they be left out in a disadvantageous position. For
example, Toyota and Nissan responded to Honda’s investments in the
United States and Europe by increasing their own FDIs (Foreign Direct
Investments) in the United States and Europe.
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BUSINESS Unit 2, section 5: The Competitive Environment
Government policy
Capital requirements
Brand identification
Cost disadvantage
Distribution channels.
The government can limit or prevent entry, just as the Government of Ghana
in 2005 allowed the importation of textiles only through the Takoradi
harbour. The aim of this exercise was to control the inflow of these
products to protect the local industry. Some industries, such as trucking and
liquor retailing, are regulated. More subtle government controls operate in
such fields as mining. Patents are also entry barriers. When patent expires
(like Polaroid’s basic patents on instant photography), other companies (like
Kodak) can take advantage of the situation and easily enter the market.
Other entry barriers are less formal, but can have the same effect. Capital
requirements may be so high that companies will not risk, or try to raise
such large amounts of money in order to enter the industry. Brand
identification forces new entrants to spend heavily to obtain customer
loyalty. The cost advantages of established companies hold true, due to
large size, favourable location, existing assets, and so forth. These can also
be formidable entry barriers.
Finally, existing competitors may have such tight distribution channels that
new entrants have difficulty getting their products or services through to
customers or the final consumers. New entrants must displace existing
products with promotions, price breaks, intensive selling, and other tactics.
Indeed, Southwest has gotten its cost base down to such a low point that it is
now cheaper to fly using Southwest Airlines to any destination within the
US mainland than it is to take a bus or to rent a car. This particular example
shows that substitute products or services can limit another industry’s
revenue potential. Companies in those industries are likely to suffer growth
and earning problems unless they improve quality or, launch aggressive
marketing techniques
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Unit 2, section 5: The Competitive Environment BUSINESS
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Service charges (that is, where services are free or priced separately).
In all businesses – services as well as manufacturing – strategies that
emphasise good customer service provide critical competitive advantages.
The organisation is at a disadvantage if it depends too heavily on powerful
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Unit 2, section 5: The Competitive Environment BUSINESS
Summary
In this Section, we have learnt that the environment is made up of rivalry
among current competitors, threats of new entrants, threat of substitutes,
power of suppliers, as well as the power of customers. International
businesses can survive and even flourish if they think and act strategically.
Please, refer to other texts in the references provided for further information
on the meaning and importance of this topic. Put down any important notes
you come across in the blank sheet provided below for face-to-face
discussions with your course lecturer.
Activity 2.5
What threats do new entrants pose to international businesses?
What is an oligopoly?
Who are competitors?
State five actions that mean excellent customer care.
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