COMPETITIVE ADVANTAGE

INTRODUCTION
The interaction of the four environmental dimensions creates further sub-dimensions
such as political and economic environments that act as a filter between the internal and
external environment and profoundly affect the performance of the corporation. Culture
here refers to transmitted patterns of behaviour shared by members of a group which
provide them with effective mechanisms for interaction (Krefting & Krefting, 1991). Culture
can be thought of as an overriding concept (eg. western cultures and indigenous cultures)
that directs the sociocultural specificity of group environments each with its own beliefs
and rituals that are used to determine behavioural norms.

Michael Porter provided a framework that models an industry as being influenced

by five forces. The strategic business manager seeking to develop an edge over rival firms
can use this model to better understand the industry context in which the firm operates.When
a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies.The
intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or
weak,based on the firms’ aggressiveness in attempting to gain an advantage.

Learning Objectives
After learning this unit you must be able to:
Analyze the external environment influencing the industry as well as strategy
Understand the porter’s five forces model and its uses in strategic management
Know the competitive changes and the stages of industrial analysis
Predict the changes in the industry structure due to the globalization
Analyze the importance of capabilities and competencies in gaining competitive
Advantage
Implement the porter’s model on Gaining Competitive Advantage
Planning for the sustainability of competitiveness.
2.1 EXTERNAL ENVIRONMENT
The external environment is all the conditions surrounding a person, and has been
classified in various ways. Any organization before they begin the work of strategy
formulations, it must scan the external environment to identify possible opportunities and
threats and its internal environment for strengths and weaknesses. Environmental scanning
is the monitoring , evaluating, and disseminating of information from the external and internal
environment to key people within the corporation.
The major four environmental dimensions are as follows
1. Economical factors
2. Technological factors
3. Political factors
4. Socio-cultural factors

Let us see each of the factors some influencing variables:

A Economical factors :
GDP trends
Interest rates
Money supply
Inflation rates
Unemployment levels
Wage/price controls
Devaluation/revaluation
Energy availability and cost
Disposable and discretionary income

B Technological factors:
Government spending for R&D
Technological efforts
Patent protection
New products
Technology transfer
Automation
Internet availability
Infrastructure

C Political and Legal factors:

Antitrust regulations
Environment protection laws
Tax laws
Special incentives
Foreign trade regulations
Attitude towards foreign companies
Laws on hiring and promotion
Stability of the government

D Socio-Cultural factors
Life style changes
Career expectations
Consumer Activism
Rate of family formation
Growth rate of population
Age distribution of population
Regional shifts in population
Life expectancies
Birth rates

The interaction of these four environmental dimensions creates further subdimensions

such as political and economic environments that act as a filter between the
internal and external environment and profoundly affect the performance of the corporation.

Although aspects of this environment are defined separately, the environmental

impact that is brought to bear on occupational performance is an integration of sensory,
physical, social and cultural dimensions V (Llorens, 1984b, Spencer, 1987).
Physical aspects of the environment refer to the natural and constructed surroundings
that form physical boundaries. This physical environment contributes to shaping occupational
performance by influencing the extent to which self maintenance; productivity; leisure and
rest occupations can be performed.
Culture here refers to transmitted patterns of behaviour shared by members of a
group which provide them with effective mechanisms for interaction (Krefting & Krefting,
1991). Culture can be thought of as an overriding concept (eg. western cultures and
indigenous cultures) that directs the sociocultural specificity of group environments each
with its own beliefs and rituals that are used to determine behavioural norms.

2.2 MICHAEL PORTER FIVE FORCES MODEL

A model for industry analysis
The model of pure competition implies that risk-adjusted rates of return should be
constant across firms and industries. However, numerous economic studies have affirmed
that different industries can sustain different levels of profitability; part of this difference is
explained by industry structure.
Michael Porter provided a framework that models an industry as being influenced
by five forces. The strategic business manager seeking to develop an edge over rival firms
can use this model to better understand the industry context in which the firm operates.