In the business world, it is essential to always plan for every action so that the company’s operation is not impaired. This procedure involves making a series of decisions and setting goals for monitoring, implementation and verification of the results; and we may call this whole process a business strategy. In order to meet the challenges and opportunities of the business environment and still make the best of it, it is very important to set concrete and properly designed business plans.
The act of drawing a strategy should involve well-structured areas of the organization and be divided into stages in order to be monitored and to avoid any errors capable of invalidating the constructed strategy, and then to make the necessary course corrections, therefore, you cannot have much, if you cannot always predict all the variables. Competitive Analysis Oliveira (2002) conceptualizes competitive analysis as a structured methodology that considers certain techniques that provide the basic information for the inherent design of the company’s strategic decision making process.
The process of competitive analysis starts in search of information and the analysis of environments. With this information, you can make an assessment of current and future scenarios of the company’s sector, identifying the best scenario, the most likely and the most worst. In this paper we have used Porter’s framework for our analysis competitiveness of the UK’s food industry. The 5 forces framework defines the characteristics of competition within a sector, industry or market, rivalry between the present firms, bargaining power of buyers, bargaining power of suppliers, threat of substitutes/products and threat of new entrants.
Porter’s framework is ideal to fully meet the industry’s competitive behaviour and thus develop successful strategies. Competitive Rivalry amongst existing firms Industry Growth The food industry of UK has seen evident growth in recent years. However, this growth has recently slowed in due to the worldwide economic recession. As a result, the competition in the market is fierce, and without any new market share being offered through development, current firms are being enforced in order to directly compete for other’s market share (Traill, & Pitts, 1998).
Even though there is a slow-down in the growth, however, it is worth noting that the continuing trends propose that the growth will persist once improvement takes place. Number and Size of Competitors The size of competitors significantly varies within the size of the market as shown in the UK’s food industry analysis. Tesco, the market leader holds 24. 6% of the market share and the other big 4 firms collectively holds around 35%. The smaller firms hold the remaining market share in their own right.
The significant share that is held by the Big 4 increases the sharing of these firms. The result of having high consolidation within the industry implies that the rivalry is strong; however, there are uncertainties that through complicity their strength within the industry can be harmed. Threat of new entrants Significant economies of scale exist in the UK food industry. The leading firms utilise the benefits of economies of scale through securing more approving business terms, spreading any semi fixed or fixed costs over large volumes and improving their supply efficiencies.
Leading firms can make use of these economies of scale in order to provide competitive advantages within their value chain that will not be competent to be matched by new entrants, thus providing a major barrier to entry (Porter, & Ketels, 2003). Whenever there is the possibility that new firms enter in the food industry without much difficulty, it increases the strength of competition between firms (Porter, 2011). Thus, barriers to entry can incorporate the need to
obtain machinery and expertise, the prompt requirement for economies of scale, strong customer loyalty, lack of experience, the clear preference for the brand, the large capital required, the lack of sufficient channels of distribution, regulatory policies of the government, tariffs, ownership of patents, unattractive locations, lack of access to raw materials, the counterattacks of well-established firms and possible market infiltration. Threat of Substitutes In UK’s food industries, there is a fierce competition between firms with the manufacturers of substitutes for other industries.
The presence of substitute products puts a cap on the price the firm can collect before customers choose a substitute product. Competitive demand occurring from substitute products increases as the comparative price of substitute products decreases. This results in the customers to switch to another product. The competitive strength of substitute products can be measured based on the progress achieved by these products in their market share and market plans of these firms in order to increase their capacity and market penetration (Porter, 2011). Bargaining power of suppliers
The volumes bought by the major markets allow them to use huge purchasing power over suppliers. However, this purchasing power is not just constrained to the Big 4 as a number of smaller firms have stepped into buying groups or formed buying arrangements. With the increased centralization of supermarket, there is additional power over suppliers because of the extent of choice and relatively low switching costs that the firms have. These aspects facilitate retailers to increase the profit margins even when they reduce or even maintain prices to customers as they can achieve more approving terms from suppliers.
The firms can follow the approach of backward integration in order to gain control or command of the suppliers. This approach is particularly effectual when suppliers are unpredictable, too expensive or are not capable to meet the business needs every time. In general, firms can agree more approving terms with suppliers when backward integration is an approach utilized by rival firms in the food industry. Bargaining power of Buyers The price sensitivity of purchasers is an essential factor of the bargaining power held by the buyers.
With the present economic environment, buyers could be alleged to have additional bargaining power as compared to in the past because of the increasing sum of price sensitive customers. The customers are greatly concentrated and purchase large volumes; therefore, their bargaining power is a significant power affecting the intensity of competition in the food industry. The rivals within the industry offer special services or extensive guarantees in order to win customer loyalty in the cases where consumers bargaining power are significant.
The consumers bargaining power is also higher when the products they purchase are standard or there are no differences. In the UK’s food industry, it is common for customers to have superior bargaining power for the selling prices, accessory packs and security coverage. Conclusion It can be concluded that it is very important to set tangible and properly designed business plans in order to meet the challenges and opportunites of the business environemtn of the present world. Every industry must start its process of competitive analysis with search of information and the study of market environment.
This information would facilitate the industry or business to make an appropriate assessment of current and future scenarios of the industry’s sector, identification of the best possible scenario, the most likely and the most worst. In addition, Porter’s model is one of the most suitable framework for the analysis of competiton within the business environment since it depicts the characteristics of competition within a sector, industry or market, rivalry between the present firms, bargaining power of buyers, bargaining power of suppliers, threat of substitutes/products and threat of new entrants.
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