THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY

THE FACTORS

The essence of these five competitive forces is to help an organization to understand the strategy they have acquired and stake out a position that is more profitable and less exposed. 

The Porter’s Five Forces Model will used to explore the environment in which a company operates to generate competitive advantage.   This will help also to take advantage of a situation of strength, improve a situation of weakness and avoid taking wrong steps.  

Understanding the tool, the original Five Factors for competitor advantage and competitive advantage:

Threat of New Entrants

The easier it is for new companies to enter the industry, the more cut-throat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:

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• §  Existing loyalty to major brands
• §  Incentives for using a particular buyer (such as frequent shopper programs)
• §  High fixed costs
• §  Scarcity of resources
• §  Government restrictions or legislation
• §  Entry protection (patents, rights, etc.)
• §  Economies of product differences
• §  Brand equity
• §  Switching costs or sunk costs
• §  Capital requirements
• §  Access to distribution
• §  Absolute cost advantages
• §  Learning curve advantages
• §  Expected retaliation by incumbents

As per PCT, they are applying for accreditation for the new courses and relevant program curricula which designed to the technical needs of the community.  But because of this K-12 program to align the Philippine Basic Education Curriculum to the global standards by adding two years of senior high school to the current four year secondary education, and another year for mandated kindergarten, PCT decided to have a secondary education.  This decision leads to sustain the impact to tertiary education and a challenge to the management on how they will need to cushion of this new cycle to enrolment. 

Power of Suppliers

This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company’s margins and volumes, then they hold substantial power. Here are a few reasons that suppliers might have power:

• §  There are very few suppliers of a particular product
• §  There are no substitutes
• §  The product is extremely important to the buyer, they cannot do without it
• §  The supplying industry has a higher profitability than the buying industry
• §  Supplier switching costs relative to firm switching costs
• §  Degree of differentiation of inputs
• §  Presence of substitute inputs
• §  Supplier concentration to firm concentration ratio
• §  Threat of forward integration by suppliers relative to the threat of backward integration by firms
• §  Cost of inputs relative to selling price of the product

In my organization and based on the months I stayed there, I saw some improvements in facilities, rooms, and etc. But, last semester we encountered a scarcity of teachers, the management decided to let us teachers handle subjects that are not in-line with our degree, like me an IT teacher teaching PE subjects.  Eventually the quality of education was compromised; many questions arose from students and even from us. The management of course alarmed with the situation and urgently hired new teachers.  

Power of Buyers/ Customers

This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company’s margins and volumes, then they hold substantial power. Here are a few reasons that customers might have power,

• §  Small number of buyers
• §  Purchases of large volumes
• §  Switching to another (competitive) product is simple
• §  The product is not extremely important to the buyer; they can do without it for a period of time.
• §  Customers are price sensitive
• §  Buyer concentration to firm concentration ratio
• §  Bargaining leverage
• §  Buyer volume
• §  Buyer switching costs relative to firm switching costs
• §  Buyer information availability
• §  Ability to backward integrate
• §  Availability of existing substitute products
• §  Buyer price sensitivity
• §  Price of total purchase

PCT continues to move onward in fulfilling its vision and mission of providing technically skilled graduates and highly competitive professionals for the manpower needs of an economically, socially and morally developed Mindanao as well as Asian countries on a global scale.  

PCT is giving scholarship to deserving students and accept government scholars.   

PCT also have linkages in the Philippines, like PLDT, Super Ferry and more.  PCT deploys and gives services like conducting seminars and training workshop in collaboration with PSITE XI, CHED and TESDA.

Availability of Substitutes

What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses to be a serious threat. Here are a few factors that can affect the threat of substitutes:

§  Buyer propensity to substitute

§  Relative price performance of substitutes

§  Buyer switching costs

§  Perceived level of product differentiation

§  Fad and fashion

§  Technology change and product innovation

I think all colleges or tertiary schools experienced the same situation as my organization, because every second semester the number of enrolees will decrease.   This occurrence provoked the management to cost cutting. The management decided to close the office of the assistant dean because of malfunctioning; she was offered to be an English teacher to multi-task but she declined the offer and resigned.  According to her, the management wanted to have a multitasking because of the decreasing number of students who transferred to the other schools, stop schooling and etc. I think this is only discretion to her.   

Competitive Rivalry

This describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from:

§  Many players of about the same size, no dominant firm.

§  Little differentiation between competitors’ products and services.

§  A mature industry with very little growth.

§  Companies can only grow by stealing customers away from competitors.

For many industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc.

§  Number of competitors

§  Rate of industry growth

§  Intermittent industry overcapacity

§  Exit barriers

§  Diversity of competitors

§  Informational complexity and asymmetry

§  Fixed cost allocation per value added

§  Level of advertising expense

Competition among rival organizations drives profits to zero.  But competition is not perfect and firms are not unsophisticated passive price takers.  Fairly, organizations strive for a competitive advantage over their rivals.

In my organization, we compete for the same customers in a large number of same type organizations.  The 19^th years of service, my organization started to prove that we have our own style to produce products and we are competing to the other IT schools in Davao as of now.  


PCT have a modular type of teaching which I think this is the reason why many working students preferred to study here.  


PCT strongly adheres to quality education at affordable cost as a way of empowering the people through sustainable human resource management and development, thus making them technologically equipped to participate in the socio-economic progress.  


PCT continues to upgrade the resources and expand its programs and services to cater the growing number of customers region-wide.  


PCT now, continues to find partners in some companies who gave scholarships to conduct trainings, seminars and in collaboration with CHED and TESDA for professional advancement.  We have new courses and relevant program curricula designed in answer to the technical needs of the community.   We have one branch in Calinan and the main branch is in Bajada.  Evidences of excellence can be seen in co-curricular competitions, assessment and trade test examinations and the expanding networks and linkages for on the Job Trainings, Ladderized Education Program and more.  These improvements and innovations have brought PCT to greater heights resulting to 60% increase in its population this school year.

Reference: http://rapidbi.com/porterfiveforces/