True Or False: The Competitive Environment Includes Only Those Organizations That Are Direct Rivals.

True And False Question Answer | What Is Competitor Environment (CE) And Its Components?

This statement is “False” as Competitive Environment includes not only a company’s close and direct competitors who are rivalries against each other but also includes the impacts of new entrants (entry of new firms), substitutes and complementary products, suppliers and customers. These factors affect the company strategic decisions in a Competitive Environment.

1. Competitors

A company, within the industry, has to compete with its direct competitors to survive and, ultimately, to gain competitive advantage in the market and attract more similar customers who may also purchase products of its close competitors.

A company can attracts and satisfy more customers by reduces the prices without losing quality, creating new unique products, differentiation in products i.e., adding new features, packaging, designing, etc.

2. New Entrants

A new firm also creates an impact of competition for already established and existing companies competing in the market. However, the difficulties for new company to enter into the market are that there are barriers to entry (factors which stops a new company to enter into the market to compete) for them because of the following factors:

(i) Government Laws

The government laws also prevent the entry of new firms to ensure the credibility of new firms. For example, a new firm may be required 2 years of operating from the date of commencement before entering into the market to prove its credibility in the market.

(ii) Large Capital Requirements

Initially, the new company has low sales as compared to already established bigger companies due to which it has less capital to grow, increase its scale of production, expand its business, etc., so it is very difficult for such firm to compete in the market.

(iii) Brand Awareness And Identifications

Existing companies have already their brands awareness and identifications in the minds of customers but for a new company, it is very difficult for it to do so.

(iv) Cost Disadvantages

For a new company, it is very costly to increase production at large scale as it has not enough resources (skilled workers, financial resources such as cash, capital, etc.) to meet costs of huge production as the already established bigger companies can do.

(v) Strong Distribution Channels

A new which try to enter into the market has weak distribution channels while already established bigger companies have strong distribution channels spread around the whole country and all the important places of the globe.

3. Substitutes And Complementary Products

If there are substitutes of a product, then it is a potential threat for the company as customers will buy more that substitute products of competitors than the company, so the company lose so many customers in that way. For example, 7up and sprite are substitute products. Any increase or decrease in any one of them creates a competition in the market. If the price of 7up increases, the more customers are willing to buy sprite with almost the same quality.

On the other hand, if there are more complementary products, then there will be more possible opportunities for the company to attract more customers towards its products to buy quality products from the company. For example, mobile phones and mobile cases are complementary products. If the usage of mobile increases in the market, then the company has opportunity to sell also phone cases as more customers need screen cases to protect the screens of mobiles phones.

4. Suppliers

A company need resources such as people to work for organization, raw material, goods or products, finance or funds, etc., to work effectively and compete in the market. These resources are provided by persons or companies to this company so that it can convert inputs into outputs to achieve organizational objectives and goals. For the process of transferring inputs into output and distributes the outputs such as products or goods to customers, a company establishes supply chain management which is very important for profitability and competing in a competitive environment.

What is A Supply Chain Management (CSM)?

It is a process of managing and coordinating the entire system of facilities and people who get supply of inputs (raw material, goods or products) from suppliers and then convert these inputs into outputs like products and finally distribute to customers.

If supplier supplies raw materials or products at high, then it is not or less profitable for the company, so it needs to buy in bulk from wholesalers in order to purchase products at lower prices and thereby earns profits by selling to customer at customer price.

5. Customers

Customer are very important in Competitive Environment as all the efforts of the company get in vain if customers refuse to make purchase from the company. So, the ultimate purpose of the company’s management is to satisfy customers by focusing their needs and wants, preferences. What are their demands from the company.

Customers can be intermediate customers (wholesalers or retailers and final or end users in value chain. Wholesalers buy products from manufacturing or trading company. Retailers buy from wholesalers. Then, retailers sell finished products to final customers.

When the products are bought by final customers, they are final customers such as buying laptops computer HP company by home users. On the other hand, buying raw material or wholesale products and then sell to end users are intermediate buyers. For example, if a company buys parts from a company to be used in its computer systems, which are later, to be sold to final customers, is an intermediate buyer and such buying from business to business is called B2B as one business buy raw materials from another business before selling to final customers.