Competitive Advantage Study Guide

Competitive Advantage The foundation in competitive advantage lies in the ability to recognize environmental change before the competition. Wheelen and Hunger (2010) outline Michael porter, who is known as an authority on competitive advantage, he describes five key forces that businesses should consider to be successful through business strategy.

The first, threat of new entrants, allows a new industry to expand market share and ample resources. In this section entry barrier Wheelen and Hunger (2010) define this as “an obstruction that makes it difficult for a company to enter an industry” (p. 1) The barriers include economies of scale, product differentiation, capital requirements, switching costs, cost disadvantages independent of size, and government policies. The second force, rivalry among existing firms Wheelen and Hunger (2010) give the example of Dell and Gateway in rivalry with IBM, Apple, and Compaq because of their dominating success. Porter believes rivalry happens for a number of reasons such as the number of competitors, rate of industry growth, product or service characteristics, amount of fixed costs, capacity, height of exit barriers, etc (Wheelen & Hunger, 2010).

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I believe by having these rivalry is significant for companies because it allows them to continue to challenge one to become greater. Third, threat of substitute products or services Wheelen and Hunger (2010) identify the substitute product as an off brand of another product, such as NutraSweet is a substitute for sugar, e-mail instead of fax, use the Internet instead of going to a video store, buy a bottle of water instead of buying a coke.

Fourth and fifth force are bargaining power of buyers and suppliers, the buyers have a substantial affect on the industry because they can be able to reduce prices, bargain higher quality, and use competitors against one another (Wheelen & Hunger, 2010). On the other hand, the suppliers bargaining power allows them to raise prices or reduce quality. Wheelen, T. L. , & Hunger, J.

D. (2010). Concepts in strategic management and business policy (12th ed. ). Upper Saddle River, NJ: Pearson Education.