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Network for Quality, Productivity &

Competitiveness - Nepal Presentation on

CompetitivenessFebruary 13, 2005

By Saroj RaiSolar Energy Component Coordinator

Energy Sector Assistance Programme (ESAP)

Alternative Energy Promotion Centre (AEPC)

Dhobighat, Lalitpur, Nepal

Tel: +977-1-55 39 390/55 39 391 Fax: +977-1-55 39 392

E-mail: sarai@aepc.gov.np

Website: www.aepcnepal.org

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Presentation Overview Concept of Competitiveness Personal Competitiveness Defining Competitiveness in Business Competitive Analysis: Michael E

Porter’s 5-Force Model Competitive Advantages Remaining Topics on Competitiveness

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Concept of Competitiveness

Competitiveness is the ultimate virtue of being able to compete, contest, or strive to survive, better perform or outperform, etc. in long run it is survival of the fittest – Darwinism

Competitiveness at Different Levels Person -> Family -> Community -> Nation Person -> Organisation -> (Industry) Cluster ->

Nation -> Region -> Globe

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Concept of Competitiveness (continued) Factors of Competitiveness

Physical, mental/educational, psychological, spiritual/religious,

Cultural, socio-economic, political Competitiveness at higher levels also depend on

that of the lower levels e.g. family competitiveness depends that of individual members and so on.

Some Bases of Competitiveness Resources & Sizes Quality, Productivity, Innovation, Improvements Bargaining Power over Suppliers, Buyers, etc. Strategy, Focus, Specialisation, etc.

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Concept of Competitiveness (continued) Driving Forces of Competitiveness

Sense of urgency for survival Vision, leadership Competitive environment Customers’ sophistication Quality/competitiveness of support

services Policy and structural frameworks, etc.

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Personal Competitiveness Foundation of all levels’ competitiveness Competing with others is not enough –

compete with yourself! Strategic career advancement and

competitiveness Some not-so-conventional personal

management and development frameworks or tools Seven Habits of Highly Successful People – Stephen

R. Covey Lord Buddha’s Astangik Marga You Can Win – Shiv Khera Art of living, yoga, meditation, exercise, etc.

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Defining Competitiveness in Business

Conventional definition – too narrow race among the players in the industry or sector

to improve your bottom line Whoever hurts your business.

Broader definition Whoever and whatever hurt your business! Because, Profit = Volume X Unit Price – (Fixed

Cost + Volume X Unit Cost)

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Five-Force Model of Competitive Analysis and

Business Profitability Prof. Michael E Porter of Harvard B

School redefined competitiveness in business in his 5-Force Model for Competitive Analysis in his book (Competitive Strategy, 1980)

He argues that besides rivalry among the industry players, there 4 competitive forces which determine profitability.

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Five-Force Modelof Competitive Analysis

POTENTIAL ENTRANTS

INDUSTRY COMPETITION

Rivalry among Existing Firms T

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at o

f N

ew

En

tran

ts

SUBSTITUTE RPODUCTS

Th

reat o

f S

ub

sti

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P

rod

ucts

SUPPLIERS Bargaining Power of Buyers

BUYERS Bargaining Power of Suppliers

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Competitive Analysis: Threat of New Entrants

Entry Barriers to Address the Threats Economies of scale Product differentiation Capital requirements Switching costs Government policy and regulation Expected retaliation Entry-deterring price

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Competitive Analysis:Bargaining Power of

Suppliers Suppliers (of materials, equipment, labour,

capital, etc.) are powerful if: The supplier group is dominated by a few companies and

is more concentrated than the industry itself Suppliers face no threat from substitutes The industry is not an important customer of the supplier

group The suppliers’ product is an important input to the

industry’s business Suppliers’ products are differentiated or have built up

switching costs Suppliers pose a credible threat of forward integration.

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Competitive Analysis:Bargaining Power of Buyers

Buyers are powerful when: They are more concentrated than the seller They purchase in large volumes They have low switching costs They possess much info about the seller and the

product They have ability to integrate backward There are good substitute products The product is standard or undifferentiated The product makes little impact on quality of

buyers’ products.

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Competitive Analysis: Threat of Substitute Products Substitute products pose a threat when

There is an attractive price-performance alternative

They could improve performance They are produced by industries earning

high profits They require none or few switching costs Buyers have a high propensity to

substitute

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Competitive Analysis: Rivalry Among Existing Firms Rivalry is stronger when:

There are many equally able competitors There is slow industry growth There are high fixed or storage costs There are no product differentiation or no little

switching costs Capacity is built up in large increments There are competitors of diverse interests,

origins, background, etc. High strategic interests are involved Exit barriers are high.

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Competitive Advantage vis-à-vis Other Players

Prof. Michael E Porter adds in his 2nd book (Competitive Advantage, 1985) that competitive advantage of a firm as the other determinant of profitability.

Competitive advantages (against others in the industry) result in above-average profitability

Small-but-hard-to-emulate competitive advantages are sustainable (kaizen is useful to be a “moving target”)

Value chain analysis is very useful to look for sustainable and spread out competitive advantages.

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Remaining Topics on Competitiveness

Competitiveness of an industry/sector The Diamond Model

Competitiveness Advantage of a Nation Prof. Michael E Porter wrote his 3rd book called

Competitive Advantage of Nations published in 1990.

Competitiveness of a Cluster Transforming Porter’s competitive framework to

economic development (thro’ private sector)

(Michael E Porter’s 4th Book)

Thank you.