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How do you reduce rivalry among competitors? Using Competitive rivalry, Porter explains how businesses compete, and why. The threat of rivalry is the possibility for other companies to form and become rivals to your company. Backward integration is the process through which an organization acquires its suppliers to reduce the volatilities in the supply chain or create a monopoly in its industry. How can bargaining power of suppliers be reduced?īackward integration: This is one of the techniques widely employed today to reduce the bargaining power of suppliers. Switching cost (switching costs of suppliers) Availability of suppliers for immediate purchase. Dependence of a supplier’s sale on a particular buyer. What affects the bargaining power of suppliers?ĭetermining Factors: Bargaining Power of Suppliers Number of suppliers relative to buyers. The threat of new entrants: the existence of barriers to entry, economies of product differences, brand equity, capital requirements, access to distribution, absolute cost advantages, learning curve advantages, government policies. The availability of close substitute products can make an industry more competitive and decrease profit potential for the firms in the industry. The availability of a substitution threat effects the profitability of an industry because consumers can choose to purchase the substitute instead of the industry’s product. How can the threat of substitutes and the threat of new entrants impact an industry’s profitability? High intensity of competitive rivalry can make an industry more competitive and thus decrease profit potential for the existing firms. As a result, this reduces profit potential for all firms within the industry. If rivalry is fierce, then competitors are trying to steal profit and market share from one another. How does rivalry among existing firms have the potential to suppress an industry’s profitability?

As a result, they reduce profitability in an industry where companies cannot recover cost increases in their own prices.

Suppliers increase competition within an industry by threatening to raise prices or reduce the quality of goods and services. How does the bargaining power of suppliers have the potential to suppress an industry’s profitability? There is a reduced profit potential as more competitors are in the industry. Therefore, new competitors are able to easily enter into the industry, compete with existing firms, and take market share. A high threat of new entrants makes an industry less attractive – there are low barriers to entry.