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1 If a market leader succeeds in increasing the size of the total market, its competitors benefit.

2 The size of a market can be increased without attracting any new consumers. 3 Market challengers generally attack the leader and market followers.

4 Market challengers cannot use the same strategies as leaders. 5 Market leaders generally win price wars.

6 Market challengers can attack leaders by way of any of the four P's of the marketing mix.

7 Market followers generally achieve cost reductions through economies of scale.

8 The most profitable companies are logically those with medium or high market share.

9 For a market nicher, product imitation can be as profitable as product innovation.

10 A market nicher is never safe from an attack by a larger company.

3. Choose any segment of the market. Complete the chart with companies or products (e.g. cars, soft drinks, jeans…) in your country which operate there.

product	market	market	market	market
	leader	challenger	follower	nicher

Describe a general situation in this segment of the market (level of competition, competitors’ relationships, their marketing strategy, etc.). Use words and phrases from Vocabulary.

SPEAKING

1. Read essential theory about main competitors in the market and support it with the examples for each type of market structure. Discuss your examples in pairs and then present to the class.

Market Structures

Firms operating in markets face different types of market structure. We can look at three structures and find examples of each:

monopoly duopoly oligopoly

Monopoly

In a market where a monopoly exists, there is no competition, as the firm is the market. This may be because the market is a natural monopoly, where there are significant savings to be had from having one company running the market. Network Rail, for example, are responsible for the maintenance and upgrading of the rail network of tracks, signals, bridges, stations and so on. A market structure where there is a single seller of a unique product no competition, as the firm = the market potential for abuse of monopoly position the market may be a natural monopoly – having competition among firms in this kind of market would be costly.

Duopoly

In a duopoly, the market is controlled by two dominant firms. An example of a duopoly is the global aircraft market, where the two dominant firms are Airbus and Boeing. Two large producers or sellers exactly two equally dominant firms seldom found tend to compete or collude.

Oligopoly

In oligopolies, which are the most common types of market, large firms are involved in selling either identical or very similar products. There are significant barriers to entry into the industry. Where competition does happen, it is usually non-price competition. Markets dominated by a small number of large firms are the most common types of market. Large firms are involved in selling either identical or very similar products. Firms could face significant barriers to entry into the industry.

(A helpful resource for further study of oligopolies is Oligopoly Watch).

B. Answer the following questions:

1.It is believed that having competition among firms in natural monopolies is costly and may also jeopardise safety. Why is Network Rail thought to be less likely to have these problems than if there were a number of firms competing against each other?

2.Use the Colgate-Palmolive profile (www.oligopolywatch.com/2003/05/07.html) to find out more about the three major players in the personal and domestic care market. How do they differentiate themselves from each other?

3.Find the definition of a ‘new oligopoly’ at Oligopoly Watch. Why does this suggest that multinational companies aren't interested in becoming monopolies?

READING

1. Read the text and then decide which of the three summaries on the next page most fully and accurately expresses its main ideas.

In two very influential books, Competitive Strategy (1980), and Competitive Advantage (1985), Michael Porter argued that growth and diversification alone do not guarantee a company long-term success. Instead, success comes from having a sustainable competitive advantage, which derives from the value a company creates, in excess of its production costs, and passes on to its customers. Size alone guarantees nothing: industry leadership is an effect of competitive advantage, not a cause. Contrary to popular belief, a company's optimum market share is rarely very large.

Porter outlines five competitive forces at work in an industry: rivalry among existing firms, the threat of new entrants, the threat of substitutes, and the bargaining power of both buyers and suppliers. Inter-firm rivalry affects prices, advertising and sales budgets, and so on. The threat of the entry of new competitors in an industry limits the prices a company can charge, and often results in expensive investment designed as a deterrent. The power of large buyers such as retail chains, and the possibility of consumers switching to cheaper substitute products, both limit prices. Powerful suppliers determine the cost of raw materials.

Successful firms are the ones which sustain their competitive advantage by making sure they retain their value, and that it isn't lost to industry rivals, new entrants, or lower prices, or appropriated by powerful buyers or suppliers.

Within these competitive constraints, Porter isolates three generic strategies that can give a company a competitive advantage: cost leadership (a cheaper product); differentiation (a better product than those of competitors); or focus on a narrow market segment. He criticizes buying companies rather than beating them, and diversification for its own sake, suggesting - like most other prominent business authors - that companies should rather look for strategic, synergy-producing links among business units in related industries.

First Summary

Michael Porter argues that success comes from growth, diversification, low production costs, and having a competitive advantage. Firms must protect this advantage against competitors, new entrants, and their customers. A competitive advantage can be the result of having a cheaper or better product than competitors, or diversifying into unrelated market segments.

Second Summary

Michael Porter argues that success comes from having a long-term competitive advantage in creating value and passing it on to customers. Firms must ensure that the value they create isn't eroded by competitors, or appropriated by buyers or suppliers. A competitive advantage can result from cost leadership, differentiation, or succeeding in a narrow market segment.

Third Summary

Michael Porter argues that success comes from competitive advantage and a small market share. Companies have to prevent competitors entering their industry, and ensure that competitors or customers do not reduce their profits. Success can come from having a cheaper or a better product, from focusing on a narrow market segment, or from diversification into new industries.

2. Match up the words below to make collocations from the text.

1. bargaining	2. business	3. competitive	4. cost
5. inter-firm	6. market	7. new	8. production
a. advantage	b. costs	c. entrants	d. leadership
e. power	f. rivalry	g. segment	h. units

3. What are the verbs related to the following nouns and adjectives, all found in the text above?

For example: advertising > advertise
1. competitive .........	9. investment .........
2. constraints .........	10. leadership .........
3. consumers .........	11. optimum .........

4. deterrent .........	12. production .........
5. differentiation .........	13. success .........
6. diversification .........	14. suppliers .........
7. entrants .........	15. sustainable .........
8. influential .........	16. threat .........

READING 2

1. Read the following text, discuss it in groups of 3-4, complete 10 questions according to the text to ask them other students.

The Factors Affecting Competitiveness of Companies

In any economy all corporations operate within a macro economic, social, political and cultural systems. These differ from country to country regarding the role of markets even in the era of globalization. That is the role of market and government interventions in the market differs from country to country. However, in the era of globalization and trade liberalization most countries allow market forces to determine economic affairs to a greater extent.

In the 21st century the technological developments became more rapid compared to the previous centuries particularly in the information technology. This to some extent has an impact on changes in business practices and business models and enabled companies to embark business on a global scale. This also enabled the companies the ability to co-ordinate activities and to share information on real time and plan international operations. This also enabled the emergence of international capital flows. This gave rise to the emergence of multinational corporations and transnational corporations operating in many countries. In addition, the liberalization of trade and the dismantling of trade barriers increased trade between countries. It also changed the nature of competition. That is the competition became dynamic than static in nature. For example e-commerce, business networks, alliances, joint ventures and changes in decision about inbound logistics, outbound logistics, when where to produce at what scale, marketing and sales, distribution channel strategies to gain cost leadership, differentiation and focus became vital for sustainable profitability in the long-term by corporate entities of small, medium and large enterprises.

In the context of nations, governments are to provide a stable economic and political environment and prudent regulation of the financial system. As well, build social capital by improving knowledge base and skill development. Government also must provide a stable social climate so that market can work efficiently and attract capital and allocate capital efficiently where the economy can reap the maximum benefit and continue to upgrade its competitive potential by technological innovation and investment in research and development. This addresses the ability to improve the efficiency and productivity and quality of its

products and service on a continuous basis. That is, the government can encourage innovation in the private sector by private public partnership in research and development and commercialization and provide incentives and fiscal measures for that to happen.

In addition, it can encourage entrepreneurship in the private sector so that the economy as whole encourages new branch of industries to emerge and provide a dynamic business environment. In addition, the nations can improve its competitive potential by investing

in physical infrastructure developments like roads and rail network. Communication networks, energy and electricity infrastructure and assist in the development and application of information technology in small and medium firms to improve their productivity and competitiveness. These initiatives are vital particularly to developing countries at various stages of development to participate as quickly as possible in international trade opportunities as well to gain competitive potential to enable to increase their standard of living and the quality of life in general for the majority of citizens and reduce income disparities. In summary, the role of government is to provide an environment in terms of regulation, institutional structure and policy initiatives in micro and macro economic level to enable corporations to make economic decisions and to facilitate to have the possibility to enhance its productivity, provision of quality human resources, provide and improve the physical and communication infrastructure. Above all, to assist corporations to continually gain competitive advantage by reforming its processes and products and innovate new process and products on a continual basis. Governments must also provide rules for effective corporate governance to be socially responsible.

In essence, the role of government in this era of globalization is to provide the corporations a dynamic market environment, where technical progress and innovation takes place in a dynamic manner to continually upgrade their competitive edge in industries and sectors, which has the maximum benefit as an economy as whole.

In addition, it can make the labor market more flexible to improve the productivity and the cost competitiveness of firms and their fore contribute to sustainable profitability of enterprises of all sizes and control inflationary pressures. This is also vital to gain competitive advantage to become more cost effective and there fore improve their ability to compete dynamically in an international market place.

Corporate competitiveness depends on the corporation internal strengths and weaknesses and the opportunities and threats it faces in its immediate microenvironment as well as the opportunities and threats faced by the macro environment. In other words, the competitive advantage of a corporation depends on its strategic planning and its effective implementation. That is, the corporation business model must able to develop appropriate and effective strategies analyzing its competitive forces, from new entrants, substitutes, supplier bargaining power, intensity of rivalry of existing corporations in an industry, consumer bargaining power as well as recognizing the dynamic nature of market in the contemporary

global market environment. It must also take in to consideration the role of government and regulation and the environmental and social impact of its operations particularly if the corporation is operating on a regional or global level. The corporations competitive advantage comes in general from cost leadership, differentiation and focus by continually innovating new processes and products using appropriate inbound logistics, outbound logistics, marketing and sales strategies and determination of where to locate operations. It also have to decide when to produce and the level of co-ordination, which will give cost leadership and quality of its products and services comparable to its competitors to earn profits sustainable in the long-term in a socially responsible manner.

The business model can be based on Porters five forces model, which considers economic competitive factors on a static manner, which is a sever limitation to develop strategies. The companies must also consider the dynamic nature of competition and the value of alliances and networks as well as joint ventures as a strategic option and e-commerce initiatives to upgrade or gain competitive advantage. As well, it can also use balance scorecard, which is financial and non-financial to measure performance in critical indicators of performance, which determines its competitive strength or potential compared to other firms in the industry. This will enable the companies to identify weaknesses and develop strategies to upgrade those performance deficiencies and to innovate new processes and its ability to innovate and commercialize new products on a continual basis, which is competitive in price and quality compared to its competitors.

In addition, it must also have an organizational culture, which recognizes the importance of environmental issues and social responsibility. As well, the companies must recognize the importance of sustainable development principles as a guide to its policy formulation and decision-making processes to meet regulatory standards. This will increase the potential to self-regulation rather than to be regulated by government regulation, which may be very costly and may erode competitive advantage compared to other industries and firms.

Porter model bases corporation's strategies by studying the external environments opportunities and threat. Porter has identified five forces that shape every industry and every market.

According to Porter, these five competitive forces determined the intensity of competition and the profitability and attractiveness of an industry. In Porters model, the objective of corporate strategy must be to revise these competitive forces that improve the position of an organization or corporation. In Porter’s view, analyzing these five forces and information derived from this analysis management can decide how to use some characteristics to gain competitive advantage.

The five forces in Porters model are threat of new entrants, bargaining power of suppliers, bargaining power of consumers, threat of substitutes and competitive rivalry within the industry. In porters view, the bargaining power of suppliers is high when few large suppliers dominate the market, no particular substitutes for inputs, the customers for the suppliers are fragmented, the switching costs to one supplier to the next is high, suppliers integrating forward in order to obtain higher

prices and margin. In Porter’s model, the bargaining power of customers is high when there is concentration of buyers, the supplying industry comprise a large number of small operators, supplying industry operates with high fixed cost, the product is undifferentiated and can be replaced by substitutes, switching to alternative product is relatively simple and not costly, customers have low margins and price sensitive, can produce the product themselves, the product is not strategically important to the customer, the customer is aware of the cost of the product, possibility the customer integrating backwards.

The threat of new entrants is high in Porter's model, which depends on the extent of barriers of entry. They are economies of scale, high initial investment and fixed cost, cost advantage of existing players due to experience curve effects of depreciated assets, brand loyalty of customers, protected intellectual like patents and licenses, scarcity of important resources such as qualified expert staff, access to raw materials is controlled by existing players, distribution channels are controlled by existing players, existing players have close customer relations, high switching costs for customers, legislation and government action.

In Porter’s model, the threat of substitutes is determined by brand loyalty of customers, close customer relations, switching costs of customers, relative performance of substitutes in terms of price, current trends. In addition, Porter’s model the rivalry between existing firms will be likely to be high when there are many players of about the same size, players have similar strategies, there much mare differentiation between players and their products and there fore more price competition, low market growth rates and barriers for exit is high.

The Porter's model can be used to determine industry attractiveness as it provides insights about profitability and there fore supports to enter in to an industry or exit from an industry. As well, the model can be used to compare the impact of these five forces on the organization and the competitors. Competitors may have different options to react to changes in competitive forces dependent on their resources and competencies and may change the structure of the whole industry.

In this manner the Porter model enables the organization corporate planning and strategy development to gain competitive advantage. In combination with PEST-analysis, five forces Porter’s analysis can reveal the future attractiveness of industry. Political, technological, economic and socio-demographic changes can affect the five competitive forces and thus affects the industry structures. In this regard, tools such as scenarios may determine potential changes in competitive forces. If organization can analyze using the Porter’s model, the current and future state of competitive force the management can develop options to influence these forces to their organizations interest. However, the organization must be aware of industry-specific models, which will limit options to compete effectively. But the organizations industry-specific strategies change the impact of competitive forces on the organization. In this respect, by influencing the power of five forces it has an objective to reduce the power of competitive forces by appropriate strategies so that it can change the impact of these competitive forces to its advantage and gain a competitive edge in the industry. For example, if one uses the Porters model to

reduce the bargaining power of suppliers depending on its resources and competencies of its managers and staff it may pursue strategies such as partnering, supply chain management, supply chain training, increase dependency of suppliers, build knowledge of supplier cost and methods, and take over of suppliers or a combination of strategies which suits its internal strengths and organizational resources.

The corporations must aware that Porter’s model has some major critiques in its value to develop strategies and options in its own and base their strategies only on the Porter model. The critiques of Porter model, are that it does not recognize the new entrants and other industries may completely change business model, entry barriers and relationship along the supply chain within short time and the Porter model do not give any advice for preventive action. As well, the Porter model is based on achieving competitive advantage in an industry, which does not take in to consideration the value of strategic alliances, electronic linking of information of all companies along the supply chain, virtual-networks and others.

Overall, the limitation of Porter's model arises from the fact it does not account for new business models and the dynamics of the market in the current market environment. It is necessary the corporations must be using other models in conjunction with Porter's model to develop strategies and must not rely heavily on the Porters model in its own. This is because the company may not consider other strategies and preventive strategies recognizing the dynamic nature of competition in the current market conditions and changes in business model used in other industries and by new entrants to compete effectively in an international arena. The corporations also must give due consideration of environmental issues, cultural issues and government regulation to enter in to new markets and to use of alliances, virtual networks and electronic linking of companies along the supply chain as strategies to improve their competitiveness in a global market place, which is dynamic in nature.

As discussed above in the Porters model a countries economic, political, technological and social factors affect the structure of industries and the quality of its resources in terms of human capital, managerial ability, entrepreneur culture, which determines productivity and cost structure and quality as well as to effectively respond to market changes in a timely manner. Even if the company identifies strategies using the Porter model it must be able to have the resources as explained above and competencies to implement such strategies. This capacity is dependent on economic, social, political and culture of a country. The structure of an industry is affected by these factors and it forces it affects the attractiveness of industry and the long-term profitability of an industry. This affects the profitability within an industry. The country, affects the future potential state of five competitive forces in a dynamic manner. It affects certainly the competitiveness of a company. That is the characteristics of a country affect the competitiveness of a company applying the Porters model.

In summary, competitive nature of an industry in the current global market environment is dynamic in nature. As the technological advances will become rapid every countries macro environment also will become more dynamic and

unpredictable in the future. Nations and corporations must continually monitor the external environment and continually review their strategies is in these dynamic environment and to use a variety of models to develop strategies and review these models on a continual basis for its value for the corporations long-term profitability and competitive advantage. Countries must be able to create conducive environment for private sector to compete effectively and continually reform their economic, political and social institutional structure. In addition, the government must reform corporate governance of local and international companies so that the market system to work efficiently and allocate resources to industries and sectors, which will bring maximum benefit and to improve its productivity and potential for further technical and social progress.

The country also must provide efficient physical infrastructure, cost effective energy supply, information and communication network, investment in knowledge and research and development, provision of skilled force, stable financial and economic system so that the corporations have the quality resources in terms of technology and quality human resources so that they can reap the maximum competitive advantage in a dynamic market place. In addition, to become more competitive it must reform the labor market to become more flexible to improve productivity and become more competitive in cost terms in dynamic market conditions.

As discussed above the Porter model at least as an initial step in analyzing the competitive forces will shed insight in to the strategic options to enhance competitiveness. However further preventive strategies have to be developed, as the market place is dynamic and use other business models to further analyze the external situations scenarios so that it can develop a comprehensive strategy, which is more effective, and there is more probability of success.

In addition, it must also be aware of environmental issues like global warming and other environmental issues and must act as a socially responsible manner in international market to be competitive. The corporations must also consider value chain analysis to become more cost leaders; differentiation of its products in terms of price and quality compared to its competitors and develop strategies by appropriate configuration in terms of inbound logistics, outbound logistics, marketing and sales and the level of co-ordination, which meet the above objectives and contribute to competitive advantage particularly for corporations involved in international business and industries. As well, the strategies must be compatible with a corporation’s strength in terms of internal resources and competencies so that they can reap the maximum benefit and the realization of such benefits.

The corporations must become more flexible to meet customer needs quickly as possible and must have a culture of innovation and product quality and customer service to meet customer needs more effectively than the competitors and change is welcome in an organization.

As discussed above, it can be argued the Porter Model has some value in developing effective strategies, if the management of corporations also use other complementary models to analyze further and refine their strategies to gain