Determining the state of competition in an industry is a necessary step for every company which considers venturing into a new field. There are three main tools which can help businesses conduct preliminary analysis and decided whether starting operations in a particular industry is a sound strategy. Namely, these are Porter’s five competitive forces, PEST analysis, as well as SWOT analysis.
Porter’s competitive forces model involves establishing five key factors affecting a position of a business in the industry. Specifically, the threat of new entrants and substitutes, bargaining power of clients and suppliers, and the intensity of the current competition (Baker, Filbeck, & Spieler, 2019). This approach will allow the company to identify the practices of the enterprises which are already involved in the industry and to understand whether it has the capacity to outperform them. Another powerful tool for finding profitable niches and sectors is PESTLE analysis which covers political, economic, social, technological, legal, and environmental factors affecting companies in an industry (Robertson, 2020). This method raises awareness of the company about all the potential advantages and disadvantages of the industry it is planning to enter. It grants an ability to truly assess all the risks, limitations, and negative sides of the industry and to determine how it will address them compared to its competitors.
Finally, SWOT analysis, which stands for strengths, weaknesses, opportunities, and threats, presents the company with knowledge about its business environment. In theory, a SWOT analysis has to be performed based on the company which is already active in the industry, yet the potential entrants also can use it to simulate a future situation (Baker, Filbeck, & Spieler, 2019). SWOT analysis is particularly useful for establishing the state of competition in industries because it highlights the areas where companies both excel and fail.
Porter’s five competitive forces, PESTLE and SWOT analyses are important frameworks for assessing the state of competition in different industries. When used together, they can provide an invaluable insight into the challenges faced by businesses and unexplored opportunities of which others can take advantage. Essentially, all three approaches can help companies gain a better understanding of the competitiveness in various industries.
References
Baker, H.K., Filbeck, G., & Spieler, A.C. (2019). Debt markets and investments. Oxford University Press.
Robertson, P.W. (2020). Supply chain analytics. Taylor & Francis.