Porter's Five Basic Forces of Competition Paper Example

Introduction

When a new firm wants to enter the market, it is always wise to examine the nature of the market to determine its competitiveness. This is achieved by taking into consideration the existing firms and customers. Michael Porter came up with five basic forces to be used in determining the competitiveness of the industry (Porter, 2008).

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Competitive rivalry. In this case, you examine the firms who are in the market. Considering the number of firms offering the same services and goods as your company, if there are few rival firms in the sector, the rivalry will be high. If the existing firms are many, price wars will ensue thus affecting the prices of good in a negative way, thus low profit.

The threat of new entrants. This force analyses how easy is it for other new firms offering the same services can enter the market. If new firms offering the same services enter the market, the business is risking to be depleted.

Customer's bargaining power. This force takes into consideration the power of the consumer in determining the prevailing price of products in the market. Customers have the power to influence the price if they are few and the sellers are many.

Suppliers bargaining power. This force analyses how the suppliers can affect the price of the products in the market. If suppliers are few in the market, they will raise the price of their supply which will, in turn, reduce the profit margin in the industry.

Treat of substitute goods and services. This force analysis the presence of different products in the market which serves the same purpose. This effect will affect the price of goods and services in the market; if there are substitutes, the client will consider buying a product which has a low price in the market as opposed to expensive product.

Maximizing the Wealth of Firm Owners

It is prudent to note that when starting a business, it is the owners aim to have a successful business and get positive results from the business. For them to realize this, the owner will employ managers who are conversant with the trends in the business and have the desired skills to establish the business.

The success of the business means maximizing wealth for the owners of the business. For financial managers to achieve this they have to ensure that they pay dividends; this is the money paid to the owner of the business and shareholders as the profit (Gitman, Juchau, & Flanagan, 2015). By receiving dividends their profit increases. After paying out dividends to managers will be able to invest back the surplus profit into the business thus increasing the market value of the business.

Exploiting the final value of their products. The manager should ensure that the value of the final products of the business fetches the right value in the market with a desirable profit margin. This will be achieved by ensuring that the goods and services offered meets the expectation of the customers. Customers will always opt to buy products which will satisfy all of their needs (Gitman et al.,2015). If the business achieves this, it will mean that they will sell more thus increasing the profit which will then be paid to the owner as divided hence increasing the wealth of the owner.

Three Basic Competencies of Level 1 Financial Specialists

In every department in an organization, there are various levels of employees and each is expected to have specific qualities. In USA financial specialists and management analysts have been categorized into three levels; level 1, level 2, level 3. Each person in a specific level is expected to have certain core competencies.

Level one employee should have basic knowledge of the basic mission and functions of an organization. At this level, a specialist is expected to know the mandates of the organization; this will enable him or her to know what should be executed first in the organization. It is also expected that at this level, one should be able to tell how the organization has strategized itself to ensure that its mission is achieved.

Basic budgeting and financial terms and principals. At this level one is expected to have mastered terminologies used in the financial field, this will enable the employee to make the right decision without having been confused by the terms. Mastery of principals will guide one in making the financial statements and follow the specific procedure is computing financial the financial reports when needed.

Be able to use basic financial techniques, auditing, and financial analysis. With the possession of this knowledge, one can analyze the financial records given and give an accurate interpretation of the data. With the possession of financial techniques, one can make basic computation and provide reliable information which can be used in decision making.

Explain the Process for the International Market and Site Screening

When a firm has a plan to venture into the market globally, it has to follow the following steps:

• Taking advantage of the domestic market. Before planning to get into the international market, it is prudent for a firm to ensure that it has firm support and their products are well selling in the local market. This will enable them to find ease when marketing their products in other countries.
• Familiarize yourself with the target market. Before getting into the new market, it is prudent to gather information about their expectations and culture; this enables the firm to plan adequately on how they will venture the market.
• It is testing the market. As you venture into the new market, it is a wise decision to start small as this will give you a guide on whether the business will be profitable or not.
• Expanding exports. After establishing a small business in the potential market and realize you are selling as expected, then you'll start to export more products to be sold in the target market.
• Increasing investment. After realizing that the market is profitable, it is the responsibility of the firm to increase their investment in the market; this is done by opening up many business branches of the business within the market, increasing the size of structures like shops.
• Site screening. This is the process of carrying out an analysis of the location where the business is going to be set up. This process is vital since it will make sure that the business is set at a strategic location to be accessed easily by customers.

Describe Issues and Methods of Conducting International Research

International research is the process of analyzing the state of the global market; this process seeks to identify potential customers and their needs. Due to the need of the firms to increase the volume of their sales, the need to explore other markets beyond the geographical location of the country located arose.

Before deciding on which country to expand your business into, it is prudent to take into consideration the following factors; political stability, the population of the country, economic stability, cultural practices of the native people and government policies on trade (Douglas, & Craig, 1983). Putting all these factors into consideration will enable one to determine whether it is viable or not viable to venture into the market.

On conducting research on whether to venture into the international market, there are methods to be employed for one to get the real picture of market; Trade shows, this is a method in which the firm which wants to venture into the market showcase their products in the potential market and provide a full description of the product. This method is always employed after researching the products offered by the rival firms, to ensure that your products are more beneficial to the customers compared to the rival products.

Interviews and focus groups. This is a method in which the person is carrying out the research interviews the potential customers. Through this method, you'll get the firsthand information about customer expectation; you'll also know the cultural beliefs of the customers.

Survey. This is a method in which an interviewer presents written question or verbal questions to the potential customers to get the customer expectation.

In the process of conducting international research, there are various challenges which the researcher is likely to face.

Availability of data, when carrying out research, it is always good to get precise information from a certain segment of people, this can be difficult to achieve; thus the data received will be inaccurate.

Comparability of data. When catering information from different countries, several factors should be considered; this is because the level of education, poverty, and economic index differs with countries, this will, therefore, make the data to be different hence need for more analysis.

Cultural differences. When conducting research, the researcher will come in contact with different people, and some use different language, this will force researchers to use interpreters who might unintentionally give wrong interpretation hence falls data obtained.

Meaning of Comparative Advantage and its Importance

Comparative advantage. It is a theory which was put forward by David Ricardo. It states that different countries have got different cost of production. In a statement example, one country can produce product X at a cost which is less than the cost of producing the same good in a different country (Ruffin, 2002).

This theory is important in the sense that it enables researches to establish a country with favorable conditions to start a business. After carrying out research, it will be prudent to start a business in a country with low cost of production.

Terms of Trade impact on Economy

Terms of trade. It is the ratio of export prices in a country to the import price within the same country. Terms of trade have influenced the economy of a nation negatively or positively depending on the prevailing terms of trade.

A country having a positive terms of trade; that is a rise in terms of trade means that they can import more goods after exporting a few goods. A fall in terms of trade means that a country has to export more goods for them to import few goods, this affects the economy of a country negatively in the sense that they will spend more of their money on foreign goods thus reducing the amount of money circulating within the country.

References

Block, S. B., Hirt, G. A., & Danielsen, B. R. (1992). Foundations of financial management.

Douglas, S. P., & Craig, C. S. (1983). International marketing research (p. 192). Englewood Cliffs, NJ: Prentice-Hall.

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.

Hall, P. A., & Soskice, D. (Eds.). (2001). Varieties of capitalism: The institutional foundations of comparative advantage. OUP Oxford.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.

Wild, J., Wild, K., & Han, J. (2003). International business. Upper Saddle River, N.J.: Prentice Hall.

Ruffin, R. (2002). David Ricardo's discovery of comparative advantage. History of political economy, 34(4), 727-748.