Threat of Alternate Product

Alternate product refers to a product developed by the other industry but is capable of providing functions similar to those of the original product. For example, electronic musical instruments in place of piano or laser disk in place of video are the typical example. Rental car service is also another type of alternate product in place of the automobile as a product.

The alternate products which have shown remarkable trend of better price-performance ratio and those supplied by the industries which have shown very high yields need careful attention. Presence of an alternate product does not allow the cost hike easily even when there is a lot of demand. Therefore, the latent profits get restricted inspite of all the efforts. A joint action by all the members is very effective in the case of an industry facing the threat of offensive by the alternate products.

Negotiation Power of the Customers

The customer always have various types of needs related to the product like cost, quality and functions etc. To what extent an enterprise in an industry can sacrifice its profits to satisfy the customers demands depends upon the negotiation power relationships of the two. The conditions given below increase the negotiation power of the customer.

· The customers are concentrated at one place and they contribute a considerable amount of share of profits of the supplier.
· The price of the product supplied by the supplier forms a big cost factor for the customers.
· The supplied product can not be made distinctive or standard product.
· The switching cost for changing the supplier is low for the customer.
· Earning power of the customer is problematic.
· The supplied product does not form a very important factor with regard to quality of the product or the services for the customer.
· The customer has considerable amount of information.

There is nothing like a state in which the supplier can select the customers, however, in this case, the supplier must consider the above mentioned conditions and it is important to select a customer in such a manner that it can carry out the transactions under most beneficial conditions.

Hostile Relationship among the Competitors

Hostile relationships among the enterprises involved in similar business is the most easy to understand in competition. This hostile relationships become further severe when following conditions are prevailing.

· Either there are more number of enterprises involved in similar business or the companies with almost the same scale are competing against each other.
· Slow growth in the industry.
· Higher fixed or inventory costs.
· No distinction on the basis of product.
· It does not require such switching cost for changing the customer.
· It is not possible to increase the supply capability bit-by-bit.
· The strategy adopted by the different competitors is diversified.
· The results are very high once the success is achieved.
· Barrier against withdrawal is very big.
· The major barriers against withdrawal are listed below:
· Sunk cost (an investment which has been made in the past and is not possible to recover).
· Fixed cost for withdrawal.
· Restrictions from the Government or society.
· Sentimental barriers.
· Strategic inconveniences, which results in bad relation with the other operation division.

Competition Analysis

Probably, it is necessary to carry out the analysis of competition environment in the industry from various aspects in order to establish the operation strategy or the competition strategy. Even while saying so, it is not very simple to control the important factors by understanding the diversified and complex realities.

A framework of analysis was constructed on the basis of 5 competition factors which are described below, as shown by Michael E. Porter in his book “Kyoso no Senryaku” (Competition strategy). This framework is very useful for streamlining the information and compiling the ideas.

1. Threat due to new entrants.
2.Hostile relationships among the competitors.
3.Threat of alternative product.
4. Negotiation powers of the customer.
5. Negotiation power of the suppliers.