Five Factors Of Competitive Advantage

2.7 Competitive advantage
Competition forms an integral part of any business. It is the reason why companies constantly innovate and perform better as it is a determinant in defining a company’s success or failure. A competitive strategy will enable a company to position itself better from other forces that determines industry competition (Porter, M. E., 1985). Two key concept surrounds a competitive strategy: attractiveness of industries for long-term profitability and factors affecting it and determinant of relative competition within an industry.
2.7.1 Porter’s five forces
Porter’s five forces affect the attractiveness of an industry and those forces are to be considered when devising a strategy for the firm:
• Threat of entry of new competitors:

The five forces affect factors such as the price, cost and the investment and influence the firm’s profitability (Porter, M. E., 1985). The industry structure determines the power of the five forces and the structure of an industry is affected by industry trends. However, even if industry trends are important and affect the structure of an industry, firms can also alter the 5 forces. If a firm can change the structure of an industry, the overall industry’s attractiveness can also be changed either positively or negatively. The 5 forces are however not equally important and differs in every industry. The five forces will help the firm in understanding the factors determining competition in an industry and enable firms to see which are the most important aspects to stress on for long-term

E., 1985). The firm targets a segment or a group of the market and formulates a strategy for this target. Therefore, the firm achieves a competitive advantage in this target market. The firm can pick to be either cost focus or differentiation focus, which means either picking to be cost advantage or achieve differentiation in that segment.
2.7.3 Value chain
The value chain is the tool of measuring the origin of the firm’s competitive advantage. This tool will separate each activities of the firm to understand its process. The value chain help a firm identify where its strategy will be implemented. A too wide value chain will result in the inability to evaluate the activities of the firm. Firms have different value chain and this is how they compete against each other. The one with the most effective value chain gains in competitive advantage. Value as mentioned above is the price that buyers are willing to pay for a product or service. The firm would be profitable if the price paid to create value exceeds the cost. The value chain displays the activities performed by the firm, which could be divided between primary and supporting