Compare two industries in terms of key environmental influences and competitive forces in them. Assess and compare the entry barriers and the extent of competitive rivalry in the two industries.?

Answer 1

The success of a company's competitive strategy depends on how it relates to its environment. Although the relevant environment is very broad, encompassing social as well as economic forces, the key aspect of the company's environment is the industry or industries in which it operates. Industry structure has a strong influence in defining the rules of the competitive games as well as the strategies potentially available to the company.

The intensity of competitive in an industry is not a matter of luck. Rather competition is rooted in underlying industry economics and goes well beyond the established competitors. Not all industries have equal potential. They differ fundamentally in their ultimate profit potential as the collective strength of the forces range from intense in industries like airline, real estate and steel where no firm earns spectacular returns, to relatively mild in industries such as oil field equipment and services, cosmetics and toiletries, where high returns are common.

The essence of competitive strategy for a company is to find a position in its industry where it can best cope with these competitive forces or can influence them in its favour. Knowledge of the underlying sources of competitive pressure can reveal the basic attractiveness of an industry, highlight the critical strengths and weaknesses of a company, clarify the areas where strategic changes may yield the greatest pay off and pinpoint the industry trends that promise the greatest significance as either opportunity or threats. According to M. E. Porter, the goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defend itself against these competitive forces or can influence them in its favour. Understanding the existence and magnitude of economic, social, cultural, demographic, geographic, political, governmental, legal and technological and competitive changes underlie the need for an effective external audit. The competitive forces of the environment consists of those with whom an organization must "do battle" in order to obtain resources.

As it is argued by one David F. (1989) in his book entitle, strategic Management Columbus, that increasing levels of environmental uncertainty are having a major impact upon all products, services, markets, and organizations in the business world. By identifying when, where, how, and why relevant trends and events will affect them, organizations can use the external audit to formulate and implement strategies more successfully.

In comparing the telecommunication and the airline industries considering the springing up of these industries in the country, we would be looking at the key environmental influences in each of these industries and the competitive forces in them.

In recent times, there has been the emerging of new telecommunication companies notable among them are airtel taking over zain, expresso taking over kassapa and Vodafone taking over Ghana Telecom. With the surfacing of these companies, it is believed that the key environmental influence that has brought about these companies are economic, social and demographic, political, and technological forces.

With the economic factors, it is concern with the nature and direction of the economy in which a firm operates. In view of the fact that consumption patterns are affected by the relative affluence of various market segments, each firm, in its strategic planning, needs to consider economic trends in the segments that affect its industry. On both the national and international level, the firm must consider the general availability of credit, the level of disposable income, and the tendency of people to spend. Other economic factors it must consider are economic growth, inflation, government spending, interest rates, exchange rates, the money supply and taxation.

On the issue of social and demographic forces as one of the environmental forces, this has a major impact upon almost all products, services, markets and customers. Organizations of all forms are challenged by the opportunities and threats stemming from changes in social, cultural, demographic and geographic variables.

The social factors that affect an organization involve the beliefs, values, attitudes, opinions, and lifestyles of people in the organization's external environment, as developed from cultural, ecological, demographic, religious, educational, and ethnic conditioning. As social attitudes change, so too does the demand for various types of clothing, books, leisure activities, and so forth. Social factors, like other forces in the external environment, are dynamic, with constant change resulting from the efforts of individuals to satisfy their desires and needs by controlling and adapting to environmental factors.

Demographic forces include some which can be forecast reasonably well and some which are more unpredictable. Changes in population structure can be readily forecast; changes in tastes and values are more difficult. Again it is essential to be able to appreciate the significance of observed events and changes.

Another environmental influence that can result in the above mentioned two industries is political forces, this relate to changes in governments and their priorities and legislation programme. The direction and stability of political factor is a major consideration for managers on formulating organizational strategy. Political factors define the legal and regulatory parameters within which organizations must operate. Political constraints are placed on firms through tax programmes, fair-trade decision, pricing policies, minimum wage legislation, pollution policies, and several other actions geared toward protecting employees, consumers, the general public and the environment. As such laws and regulations are usually restrictive; they tend to reduce the potential profits of firms. Nevertheless, some political actions are designed to benefit and protect firms. Such actions include patent laws, government subsidies, and product research grants. Thus, political, governmental, and legal factors either may represent key opportunites or threats for organizations. For instance, if Vodafone Ghana received financial assistance form the Ghanaian government this support would make the company one of the most successful members of the sub-regional telecom industry.

Technological forces of the organization's external environment include new approaches to producing goods and services; new procedures as well as new equipment. To avoid obsolescence and promote innovation, an organization must be aware of technological changes that might influences its industry.

Technological changes and breakthrough such as computer engineering, superconductivity, robotics, unmanned factories, bio-computers, lasers, fibre optics, space communications, satellite networks and electronic funds transfer are greatly impacting on organizations. Technological forces such as these represent major opportunities and threats that must be considered in formulating strategies since they can have a dramatic impact on an organization's products, services, markets, supplier's, distributors, competitors, customers, manufacturing process, marketing practices, and competitive position.

According to Porter M. (1980), in his book entitled Competitive Strategy: Techniques for Analyzing Industries and Companies, the nature and degree of competition within any given industry depends on five basic forces:

1. The threat of new entrants

2. The bargaining power of customers

3. The bargaining power of customers

4. The threat of substitute products or services

5. The jockeying among current contestants (i.e. rivalry among existing firms)

Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services. Understanding the forces at work in the overall industry is an important component of effective strategic planning. Industry analysis enables small business owners to identify the threats and opportunities facing their businesses.

In view of the above discussion on the industry and forces with companies in the industry, let us now cmpare the airline industry and that of the telecommunication industry in terms of the key environment influences and competitive forces in them using M. E Porter's five forces. It is important to know that if an industry wants to sustain long-term profitability, it must respond strategically to competition and naturally keep tables to established rivals.

Considering the commercial aviation industry, its one of the least profitable industries because all five forces are strong. Established rivals compete intensely on price. Customers are fickle, searching for the best deal regardless of carrier, suppliers, that is plane and engine manufacturers, along with unionized labor forces bargain away the lion's share of airlines profits new players enter the industry in a constant stream and substitutes are readily available such as train or car travel.

If a firm is to control its growth, change and development, it must seek to control the forces of which provide the opportunities for growth and change, and those which pose threats and demand responses. Managers must as well manage the organization's resources to take advantage of opportunities to counter threats.

Understanding an organization's external environment is essential for developing and implementing an effective strategy. To gain a greater understanding of their environment, the company's executives should also analyze their industry and competitors. Thus designing feasible strategies for an organization requires a thorough understanding of the organization's industry and competition.