Porter's Five Forces Of Competition

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.

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 price fixed by the firm, which will deter

Positioning the company will enable the firm to analyze its profitability and will help in setting the firm’s goal higher. Sustainable competitive advantage is the foundation of having an above average performance in the firm (Porter, M. E., 1985). There are two functions that a firm can possess for competition: Low cost or differentiation. Having a full understanding of the five forces help to achieve those two functions. Therefore to achieve a sustainable competitive advantage, the pursue of the three generic strategies is important in an industry: cost leadership, differentiation and focus. To achieve competitive advantage, a firm must make a choice of which generic strategy to make and the capacity the firm can reach. If a firm try to achieve everything at the same time, it will only lead to below-average performance.
Cost Leadership
Cost leadership is when the firm targets to be the lowest producer in its industry. To achieve cost advantage through cost leadership, economies of scale, having low raw material cost and other factors could help in achieving it. If the firm can achieve cost advantage through cost leadership it will remain in the above average

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.
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