Thomas Friedman’s book “The world is flat” has been viewed as one of the best books of the 21st century. He advances the ideology that the world is interconnected because of improvement in technology and because of other factors like business strategies like globalization for multinational companies.
Michael porter’s five forces model is a framework for analyzing the industry and business strategies. Porter develops his model from SWOT analysis, which was popular. The five forces are made up of two from vertical competition and the other three from horizontal competition. They include; competition threat from substitute goods, competition from already established rivals, competition threat from new entrants to the industry, bargaining power of the customer and bargaining power of the suppliers.
Businesses and individuals need to understand Friedman’s ideology that the world is flat because of globalization of the world. Businesses are now operating mostly on a global platform rather than a regional platform. The internet enabled by the World Wide Web, has transformed they way business is carried out. Most businesses are now operating online. Individuals are also affected as they are touched directly or indirectly by the globalization.
Because businesses are now global, they need to adjust there strategies so as to survive. They face a wider competition from substitute goods offered by other companies, competition from already established businesses and also competition threat from new and emerging companies.
Competitors through research and development are continually coming up with new and improved products. These products are both cheaper and more efficient than those offered by its competitors. Businesses; therefore, need to invest in research and development so as to improve there products to make them more competitive in the market.
The business should come up with a strategy so as to compete favorably, in the industry. The business faces a competition threat from already established companies to a threat from new and emerging businesses. Already established businesses have economies of scale, there products have already been accepted by the consumer and they already have good frameworks in place, like a good supplier chain and efficient management. The business therefore, needs to devise a strategy to compete with them.
New and emerging businesses offer a threat to the businesses they operate with because they enter the market with new and fashionable products, which can easily capture the consumer. The products are cheaper, or derive more consumer satisfaction than substitute product of competing businesses can. The new entrants are competition threat and therefore, the business should come up with strategies to counter there threat.
There is also vertical competition. This is the bargaining power of the consumer and the bargaining power of suppliers. If consumers have a higher bargaining power they are able to obtain the product at lower prices. The good then will not be able to make sufficient profit. The business will not be able to meet the production costs or the product will not be attractive to the business as there are more profitable products that can be offered. The bargaining power of suppliers has the same effect as that of the consumers. If the suppliers are able to negotiate a contract that offers a higher price for the raw materials they supply, then the profits of the business will be suppressed as the production costs will be higher. An example of a company that negotiates its contract so as to obtain the best and at the lowest price is Apple, that has 157 suppliers with if’s largest supplier being FOxxcon, which assembles its product efficiently and at a very low price.
Individuals need to change there thinking in accordance with globalization. The market for labor has gone global, with individuals needing to be more efficient as they compete with other workers who are more qualified and offer there services at a cheaper price. They also need to adjust to know the companies that offer improved goods and services than those available already so as to make informed consumer choices. Workers who are coming into the marketing must be prepared not only to compete with students from their colleges, but also those from the entire world. Bill gates say it is not easy for a genius student to succeed in the US than a ‘B’ student in china.