Leg Zero: Porter´s model explained (Part X). Industry Rivalry. Corporate Stakes.
We have almost finished with the first competitive force, Industry Rivalry. I have tried to explain with common words, with simple terms and humble examples, what is the meaning of each key determinant factor for this first competitive force. For those who are consultants or are experts doing competitive industry analysis, I beg your pardon for reading basic terms, but I believe the best way to refresh what we already know or to learn if we had no idea of these models; is by understanding the basics. Tomorrow I will start with the second competitive force threat of substitutes.
The last key structural variable for Industry Rivalry force is Corporate Stakes.
The term High-Stakes is used to describe a situation that has a lot of risks and in which a company is likely to either get or lose an advantage, a lot of money, etc.
For example, a high-stakes negotiation refers to a negotiation involving serious risks if there is not a success. Another high-stakes example happens when a high school student is preparing his SAT test in order to apply to the University of his Dreams, let´s say, Babson College in Massachusetts, and the minimum required SAT score to be accepted there must be 1375. This student also is planning to apply for a Full Tuition Scholarship, and financial aid is offered only if the SAT score is 1475. In order to be able to apply for the Scholarship anything at or above 1475 can be considered an extremely impressive SAT score. This SAT test is a high-stakes test, meaning that, it is very important for the student because if he is not able to get that score, he will not be able to apply for financial aid, and his dreams will go to the drain.
Let´s go to the strategic context of the “High-Stakes” meaning: Strategic Corporate Stakes can be high when it is important for several of the competitors to perform well in the market, otherwise there is a huge risk of losing market share and profits. For example, although it is diversified and is a market leader in other businesses, Samsung has targeted market leadership in the consumer electronics market. This market is quite important to Sony and other major competitors such as Huawei, Apple and L.G. Electronics. Thus, we can expect substantial rivalry in this market over the next few years.
High strategic stakes can also exist in terms of geographic locations. For example, Japanese automobile manufacturers are committed to a significant presence in the U.S. marketplace. A key reason for this, United States is the world’s single largest market for auto manufacturers’ products. Because of the high-stakes involved in this country for Japanese and U.S. manufacturers, rivalry among firms in the U.S. and the global automobile industry is highly intense.
To know if our industry has high strategic stakes, the first thing to ask ourselves is if our company in our industry involves serious risks if there is no success to reach our strategic objectives. Imagine an industry like solar power or cancer research. Businesses in these industries have significant levels at stake for our humanity as a whole. For these health industries, it is imperative to invest in Research & Development (R&D) and find the cure as quickly as possible. In consequence, for society to be rewarded as quickly as possible. High stakes industries are therefore extremely competitive. Many pharma companies such as Roche, Johnson-Johnson, Novartis, Celgene, and others are extremely competitive in the oncology field.
Let me finish about this topic today, sharing something I read from Brookings Institution. According to Brookings, $159.9 billion is spent on health R&D annually. Harvey Hurricane damages have been estimated at the same amount of $150 billion in total damage to homes and furnishings, vehicles, commercial real estate, and public infrastructure. Can we stop here for a moment: One single hurricane damages are the equivalent of all the world money spent on health R&D annually. And, from those funds, the world spends 50.2 percent of its resources on HIV/AIDS, tuberculosis, and malaria, but those illnesses only account for 7.5 percent of the world mortality burden. In contrast, non-communicable disease, which includes heart disease, cancers, liver diseases and mental health, garner only 2.4 percent of world funding but account for 73.6 percent of the world mortality burden. We must be aware of the amounts of money we are currently spending in global health R&D, and how important it is to increase the private and public investments in the most relevant illnesses which are causing death in the world.
Brookings recommends the following: “In order to extend the health gains of recent decades, public and private organizations should narrow this gap and increase their investments in global health R&D”. If you want to read more details about the full article you can click here.
Thank you so much for reading me today. See you tomorrow again, if God wishes.
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