Lesson 16º

 

 

 

 

 

 

 

FACTORS TO CONSIDER TO GAIN SECTORIAL PROFITS:

DEMAND AND COMPETITION

 

With strategy, we try to obtain sufficient profits to guarantee the survival of a company. At the same time, with our products and service we try to create value for the clients and the society in general.

If our products/services are of a high quality and they create value for those that enjoy them, we can increase the price. However, this depends on the conditions of those that are competing, the structure of the sector, the intensity of the competition,....

To summarize, the profits obtained by the companies in a determined sector depend on:

• the value of the product or service for the client

• the intensity of the competition

• the power of relative negotiation at different levels of the production chain.

The structure of the sector is a fundamental aspect to consider. If we know the structure of our sector, our company can predict its trends, and the behaviour of the competition, all of which means our company has to be dynamic, as if this is the case we can benefit from economic profits. In the following picture, you can see the typology of sectorial structures.

 

Tipología de estructuras sectoriales (Typology of sectorial structures); Competencia perfecta (Perfect competition); Oligopolio (Oligopoly); Duopolio (Duapoly); Monopolio (Monopoly)

Concentración (Concentration); Muchas empresas (Many companies); Pocas empresas (Few companies); Dos empresas (Two companies); Una empresa (A company)

Barreras de entrada y salida (Barriers of entry and exit); No hay (None); Barreras significativas (Significant barriers); Importantes (Important)

Diferenciación del producto (Differentiation of the product); Productos homogéneos (Homogeneous products); Posibilidad de diferenciación (Possibility of differentiation)

Información (Information); Flujo perfecto (Perfect flow); Imperfecta (Imperfect)



In strategy there is an important concept to consider and it's when we talk about a sector's strategy. It is known as Paradigm ERC and it expresses the idea that a sector's structure conditions the a company's behaviour and results.

 

Paradigma (Paradigm); Estructura (Structure); Conducta (Conduct); Resultado (Result)