Competitive Strategy: Techniques for Analyzing Industries and Competitors

Achieving a low overall cost position often requires a high relative market share or other advantages, such as favorable access to raw materials.

Government Policy. The last major source of entry barriers is government policy. Government can limit or even foreclose entry into industries with such controls as licensing requirements and limits on access to raw materials (like coal lands or mountains on which to build ski areas).

Competition in an industry continually works to drive down the rate of return on invested capital toward the competitive floor rate of return, or the return that would be earned by the economist’s “perfectly competitive” industry. This competitive floor, or “free market” return, is approximated by the yield on long-term government securities adjust

Cost Disadvantages Independent of Scale. Established firms may have cost advantages not replicable by potential entrants no matter what their size and attained economies of scale. The most critical advantages are factors such as the following: • Proprietary product technology: product know-how or design characteristics that are kept proprietary thr

The final generic strategy is focusing on a particular buyer group, segment of the product line, or geographic market;

The five competitive forces—entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors—reflect the fact that competition in an industry goes well beyond the established players.

The focus strategy always implies some limitations on the overall market share achievable. Focus necessarily involves a trade-off between profitability and sales volume.

goals, current strategy, assumptions, and capabilities.1

Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve one or both of these positions vis-à-vis its narrow market target.