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Comparative vs. Competitive Advantage
Any business school MBA knows about Michael Porter’s Five Forces, which are used to describe the competitive rivalry that exists within an industry. Below is a snapshot of these forces:
- Suppliers: Those market suppliers of industry, bargaining power may be held in the hands of the buyer or the supplier. The dynamics of this relationship helped define pricing strategies as well as pull-push marketing strategies.
- Buyers: The customers of an industry who choose whether to purchase based on price or performance. Depending on the economic category of the industry – bargaining power would be held in the hands of the buyer or the supplier.
- Substitutes: According to Porter, the threat could drive the competitive environment.
- New Entrants: Another element that helped to drive the competitive environment was the arrival of new market entrants. These new market entrants change the dynamic of the economy but first, they have to break in.
- Industry Competition: A fifth element described by Michael Porter is the competitive rivalry experienced by the current market competitors. The intensity of this rivalry was driven by several factors, including dependencies and industry growth rates.
The forces of competition are seemingly well understood in today’s digital economy. What we postulate is a modification of the original Five Forces identified by Michael Porter to the following forces that drive competitive rivalry:
- Customers : customers will remain in any industry as a substantial force that drives competition in capital market economies. The pendulum that dictates bargaining power between customers and suppliers will determine which of these two will set business terms.
- Suppliers : suppliers (as above) exist to support customers based on their purchasing needs.
- Competitive Rivalry : previously captured as competitive rivalry, substitutes and new market entrants – these 3 elements can in fact be seen as a single force that drives competitive behavior of suppliers. When new market entrants and substitute products appear in an industry, it drives an uptick in competition. However, the dynamics of suppliers.
- New Technology : Perhaps not previously considered in the five forces classification, technology has a strong hand in driving behaviors among suppliers, buyers and new market entrants.
These four forces are in fact the main drivers of competition in industry today.
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