Competituive Forces free essay sample

Michael Porter identified 5 forces analysis of which he defined as a framework for industry analysis and business strategy that draws up industrial organization economics to derive the 5 forces. These five forces determine the intrinsic long run attractiveness and strength of a market segment: industry competitors potential entrants, substitutes, buyers and supplies. Three of Porters five forces refer to competition from external sources. The remainders are internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average and the writer is going to look at the impacts these forces have on the Zimbabwean Tourism Industry. The diagram below is an overview of Porters five forces Adaped from Phillpe Kolter (2010) Threat of intense segment rivalry A segment is unattractive if it contains numerous, strong and aggressive competitors as according to Phillipe Kotler. As in the diagram above all the 4 forces mentioned in the digramram contribute to the intensity of rivalry within the industry. For example, Rainbow hotel in Bulawayo faces stiff competition from its rivals like Cresta Churchill, Nesbit Castle, holiday Inn and the nearby Hotel St. Patrick’s. The existence of these rivals in respect to their exceptional environment like in the case of Hotel St. Patrick’s is a live threat to rainbow hotel which is located in the CBD and in a less quiet environment as compared to St. Patrick’s. Rainbow offers services like which are offered at Hotel St. Patrick’s for example wedding planning and function management. Looking at these two hotels they offer the service differently and this makes it a threat to each and every firm in the industry. A segment is even more unattractive if it is stable or declining and fixed costs in need to be increased or exit barriers are high or its competitors have high stakes in staying in the segment. For example in African Sun limited, one of its Strategic business unit Hwange Safari lodge, had not been pumping in profits from 2008-2010. The corporate was keeping this unit for strategic reasons, thus business was going to boast on the 2010 world cup and gain its competitive advantage and recap on its position in the market. The reason why it did not exit the market is the potential that it possessed as far as the dog factor in the BCG matrix is concerned. These conditions will lead to frequent price wars as some rivals may restructure their marketing strategy to price penetration into the existing market, advertising battles and new product introduction and will make it expensive to compete. In the case of INSCCOR, expensive renovations were done to catch the customers and position its self in within the market. Hotels and lodges in Gweru like Village Lodge are advertising through billboards to attract customer attention and fight the competition. On price wars, analysis Zimbabwe’s hospitality industry concentrating on Bulawayo locality, food outlets like Chicken Inn, their chicken is less expensive, for example ‘1 piercer’, 2piecer combos’ unlike hotel food which is generally expensive, for example Holiday inn half chicken costs US$22 comparing to Mamoyo restaurant billing it at $11, half the price for Holiday inn. The price at Mamoyos attracts customers’ from different levels of affluence. In an effort to eliminate intense segment rivalry food outlets, lodges and hotels invested in setting up billboards like chicken inn, village lodge and Crestar Churchill. This positions these companies in a better competitive advantage unlike hotels like Nesbit Castle, Rainbow hotel and other small outlets which are thriving to be identified in the market and more so for establishments like INNSCOR and village lodge makes their distribution channels accessible to their target market. For small outlets to introduce new products it is expensive for them but they have got a slim choice due to the existing market with set standards. For example hotel St. Patrick’s is a new hotel and for it to meet the set standards, it has to penetrate the market through offering better standards as compared to existing rivals. Threat of new entrance The most attractive segment is one in which entry barriers are high and exit barriers are low. More-so potential competitors may enter the industry if given the choice to do so. This refers to firms which are not currently competing in the industry but have potential to do so if given a chance In the hospitality industry today we see that hotels, lodges and food outlets are emerging this causing a threat to existing business units. The Chinese are currently constructing a state of the art shopping mall and a hotel which is going to have the latest technological advancements in terms of security (improved locking systems), luxurious surroundings, product and service to the clientele in Harare, this is a threat to the existing hotels and fast food outlets as this project is bound to improve from where the existing hotels are lacking in terms of product development and services. This however will mean that the existing hotels and other accommodation facilities will lose the market share as the new entrant will cause the major change in the market environment. When both entry and exit barriers are high, profit potential is high but firms face more risk because poorer performing firms stay in and fight it out. When both entry and exit barriers are low firms. New competitors are a threat as they rob current firms of their clients and market. Due to brand loyalty existing firms enjoy profits as their products are already inclined within the market, in contrast the new firms will need to fork out more on heavy advertising of their product. The distribution channel for emerging business units needs a high capital base so that they will be able to market their products and services intensively to create a platform for survival in the existing market. Government regulations may restrict entrance of new firms; however the Zimbabwean government has passed the indigenization law which allows the locals to have a 51% stake and the remaining to the foreign firm. Recently Kentucky Fried Chicken (KFC) wanted to come back into the Zimbabwean business sector but due to the indigenization law hence discouraging their entry requirement back in to the Zimbabwean industry allowing to have one leading fast food outlet that being Chicken Inn. Threat of substitutes According to the five forces the threat of substitutes refers to the products having the ability of satisfying customers’ needs effectively. The threats to substitute products can be defined as the products’ that have potential to replace the existing products more economic than the original products nd services that are offered in the hospitality industry for example in the transport sector Pathfinder fares are almost the same as compared to domestic air fares which acts as a substitute to the road network leading to the resort destination. However profits and prices are likely to be negatively affected if technology or competition increases for example high technology in farming potatoes increased the quality and lowered the cost of production exposing direct threat to relative products like bread as they act as a substitute. Looking at the Zimbabwean tourism earlier in the days hotels were the only establishments that had restaurants but currently there are restaurant take aways where the food is cheap and affordable and this poses as a threat to hotels for example the emerging of restaurants like Cafe Mnandi ,Horizon bar and restaurant, these are substitutes to big hotels like Holiday Inn and Rainbow as customers are resorting to these other establishments as they are cheap and affordable to all types of clientele. In some cases when big hotels such as Holiday Inn and Rainbow are fully booked and they do not have space they refer their clients to other lodges and other hotels such as Cresta. THREAT OF BARGAINING POWER OF BUYERS Michael Porter’s five forces refers to the pressure consumers can exert on businesses to get them to provide higher quality of products, better customer service and lower prices. For example in Zimbabwe’s economy the clients expect goods which are worth the value for their money. This then pushes the price for civilized clients to be in possession of the power to push the firms in industry to fight competition and surface in the market. For sellers to protect themselves from this threat they must target and look for clients or buyers who are less sensitive to price changes while another counter measure is developing superior offers and products which strong buyers cannot have the guts to resist. For example in Zimbabwe, an entrepreneur aimed at high class clientelle in establishing ‘club 360’ with very high prices in Borrowdale Brooke where clients are less sensitive to prices. Looking at most Zimbabwean hotels bookings for Conferences and large catering can be negotiated for lowest costs at reasonable qualities for example If people who do large catering were few ,it means they would come together and negotiate on a set price s that customers would not have bargaining power over the sellers. Like in the likes of different areas that have different cultures certain products and services cannot be sold in for example the Trout back Inn is surrounded by the Amapostori and establishing a bar that sells alcohol will not be profitable because of the type of clientele that surrounds the area BARGAINING POWER OF SUPPLIERS Bargaining power of suppliers is also known as the market of inputs. of raw materials ,components ,labor and services such as expertise to the firm can be the source of power over the firm when there are few substitutes. From 2000 to 2010 suppliers in Suppliers Zimbabwe had the bargaining power as they were able to raise prices as well as reduce the quantities supplied as the inflation rate was very high. Most hotels were facing challenges on which suppliers to trust and there was too much competition for these commodities and some hotels had to close down their food and beverage department as it was not making any profit, currently due to the normalization of inflation creating the availability of commodities thus increasing the number of suppliers that supply a number of goods(flooding of suppliers in the industry). Suppliers are powerful or differentiated if there are only a few suppliers or one in the market ,the suppliers will have more leverage because of lack of available alternatives for instance ZESA and Fuel companies, customers are less likely to switch supplies if the cost of switching is very high that is most hotels cannot resort to generators because of irregularity of fuel so they rely most on ZESA and gas. Nesbit Castle also has power over other hotels like Holiday Inn and Rainbow Hotel because of the castle that is unique and is mostly used to do international conferences and weddings and is the only castle in Bulawayo so they have power over their competitors who cannot offer clients a castle as a service. Labor is a supplier and may exert a degree of considerable power in some situations that is if working conditions and salaries are low and unsatisfactory it usually leads to strikes, go slows, vandalism and pilferages which is a cost factor to the company. To cap it all these five forces analysis is just one part of the complete Porter strategic models. The other elements are Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and services as factors that affect the five forces. It is also perhaps not feasible to evaluate the attractiveness of an industry independent of the resources a firm brings to that industry. It is thus argued that this theory be coupled with the Resource-Based View (RBV) in order for the firm to develop a much more sound strategy.  It provides a simple perspective for accessing and analyzing the competitive strength and position of a corporation, business or organization.