Porter generic strategies this is a strategy on the dimensions of the strategic scope meaning the market penetration and strategic strength referring to the company. For porter an industry is impacted by five forces. (Porter, 1985) This study is going to examine the aviation industry, which is amongst the biggest and competitive industry and highly growing
In a convectional economic setup, competition among rival companies reduces profits of the companies to nil. However, competition can not be perfect and companies are so sophisticated to counter competition by gaining competitive advantage over their rivals. Competition varies depending on the different industries. In the aviation industry the competition is high as there are many companies offering the same services. In pursing the competitive advantage in the industry, the aviation industry can continue to improve its services by introducing new products. At the same time the industry can innovate new ways of services, and improved its general operations. The aviation industry is very competitive and companies in the industry need to merge to reduce competition while gaining competitive advantage. As it is now several companies has collapsed due to high competition in the industry. (Porter, 1985)
Threat of substitutes
Substitutes in an industry according to Porter (1985) are products from other industries. A threat of a substitute will occur when the demand of the product is affected by changing of price of a substitute product. The price elasticity of a product is directly affected by the availability of substitutes. Since availability of substitutes will make the demand of a product to be more elastic. In The case of the aviation industry, the industry is getting threats of substitute from the other transportation industry such as road, water and rail transportation networks. Though, aviation industry offers the fastest traveling services, security risks and high air fares have made its customers to opt of these other substitutes. According to Aaker (1984) the industry can wade off fear of substitutes, by building strong and unique services, having good customer orientation and creating attractive marketing strategies to attract more customers and retain existing ones.
This is the impact that buyers have on a specific industry. Generally if there is a strong buyer power, the relation between the industry and the buyer is termed as “monopsony” such a condition happens when there is one buyer and many suppliers. On the other hand buyers are weak when they are many or different segments and there is no specific buyer who has particular influence on the price of the product. Aviation industry has a weak buyers, the industry can have take advantage of this by setting prices of its services customer friendly and offering a high product-mix on the market to satisfy the demand of various customer segments. (Porter, 1985)
Porter, (1980) states that, each industry needs raw material, components and labor and other provisions. This need creates supplier-buyer relationships between the companies which provide the raw material and the industry. In cases where suppliers are powerful, the can impact the industry through selling of the raw material highly. However, sometimes suppliers are weak, this happens when there are many suppliers for the same product or if the purchasers are many. In the aviation industry, suppliers are many and the industry is not impacted by the suppliers. Aaker (1984) observes that, the industry can use economic of scale to source for better deals to ensure that it gets the best quality of raw material at the best prices.
Barriers to entry
Apart from rivals posing threat to existing companies, new entries in the industry also pose a threat the existing companies and increases competition in the industry. In practice any company should be able to enter and leave the market. Nevertheless, aviation industry has features that protect high profits of the companies in that industry and restrain additional competitors from entering the industry. Aviation industry has many regulations and licenses both national and international which an new has to adhere to before entering the industry, this has restricted some potential new comers who can not adhere to this requirements. (Porter, 1980)
Industry analysis in important in improving and ensuring the success of a company, in industry analysis there are several tools that are used to analysis the performance of a an industry. Porter’s five forces is one of the tools that are used in industry analysis, to provide vital information concerning the performance of the industry in relation to the five forces which are Rivalry, Threat of substitutes, Buyer power, Supplier power and Barriers to entry.