Industry Competition & Core Business Functions

Competitive Forces Shaping Industries

1. Degree of Rivalry Among Competitors

   The intensity of competition in a sector depends on the number of competitors and the market growth rate. The market growth rate also influences the degree of concentration in the sector, determining how the market is distributed among competitors. The greater or lesser competitive pressure often depends on the maturity of the sector.

2. Threat of New Entry

   The entry of new competitors increases competitive pressure. The easier it is for a company to access a major sector, the greater the competition. Factors that create barriers to entry include:

   • An established edge of differentiation.
   • Lower costs for existing firms.
   • Firms with long-standing products and strong experience in the sector.
   • Significant capital investments required to start producing.

3. Threat of Substitutes

   The appearance of new products can cause significant changes in a sector, especially if they improve the quality-to-price ratio of existing products.

4. Negotiating Power of Suppliers and Customers

   If suppliers are few and powerful, companies will have less profit margin, intensifying competition within the sector. Similarly, powerful customers can exert pressure on prices and terms.

Core Functions of Businesses

1. Coordinate Production Factors

   The search for greater efficiency has led to an increased division of labor. A fundamental feature is strong specialization in different trades to produce goods that satisfy human needs. This specialization process requires coordinating various tasks. To meet our needs, it's essential to rely on multiple specialists and coordinate their respective functions and tasks. *Ultimately, a company's role is to lead and coordinate the factors of production.*

2. Create or Enhance Value

   Companies *create or enhance value* by transforming raw materials into products, increasing their ability to satisfy human needs. Successive transformations convert raw materials into assets capable of satisfying these needs. As goods become more useful to people, their value increases, and so does the price consumers are willing to pay.

3. Assume Risk

   Businesses *assume risk* by paying in advance for the resources needed to perform their activities, without a guarantee of future sales or profits.

4. Create Wealth and Generate Employment

   Businesses *create wealth and generate employment* by increasing the quality of goods and services, thereby improving the quality of life for citizens.