The dynamics of a particular industry or market may change to such an extent that a company may see divestiture or spinoff of the affected operations and divisions as an option.
Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers.
Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.
The Concentration Ratio CR is one such measure. The CR indicates the percent of market share held by the four largest firms CR's for the largest 8, 25, and 50 firms in an industry also are available.
A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is less competitive closer to a monopoly.
A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. The concentration ratio is not the only available measure; the trend is to define industries in terms that convey more information than distribution of market share.
If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry's history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct.
Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally.
However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market. When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies.
The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage.
In pursuing an advantage over its rivals, a firm can choose from several competitive moves: Changing prices - raising or lowering prices to gain a temporary advantage. Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself.
Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel to the industry. For example, with high-end jewelry stores reluctant to carry its watches, Timex moved into drugstores and other non-traditional outlets and cornered the low to mid-price watch market.
Exploiting relationships with suppliers - for example, from the 's to the 's Sears, Roebuck and Co.
Sears set high quality standards and required suppliers to meet its demands for product specifications and price. The intensity of rivalry is influenced by the following industry characteristics: A larger number of firms increases rivalry because more firms must compete for the same customers and resources.
The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership. Slow market growth causes firms to fight for market share.
In a growing market, firms are able to improve revenues simply because of the expanding market. High fixed costs result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs.
Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry.
High storage costs or highly perishable products cause a producer to sell goods as soon as possible. If other producers are attempting to unload at the same time, competition for customers intensifies.Entry or exit of firms to an industry refers to the difficulty or ease with which a new firm can enter or exit a market.
In short run, where the capital of firms is fixed, entry and exit does not make much difference. Proper documentation and understanding of the Indian import procedures will help to ensure smooth entry of products into the Indian market. Geographic Diversity As stated, U.S. companies, particularly small and medium-sized enterprises, should consider approaching India’s markets on a regional level.
3) Barriers to Entry The barriers to enter the automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive.
Specialized manufacturing is an example of an industry with high barriers to exit, because it requires large up-front investment in equipment that can only do one task. A barrier to entry is something that blocks or impedes the ability of a company (competitor) to enter an industry.
A barrier to exit is something that blocks or impedes the ability of a company (competitor) to leave an industry. In general, industries that are difficult for new competitors to enter.
The restaurant industry has low barriers to entry, making it an attractive new business option for many entrepreneurs, according to the University of West Georgia. Though consumers often hear statements like, "The majority of new restaurants fail," in reality, only one in four restaurants close or change.