Threatening entry

I remember studying Porter’s five forces model in college explaining how five forces namely: bargaining power of buyers, bargaining power of suppliers, threat of new entrants, threat of substitutes and rivalry within the industry impact the overall competitiveness and attractiveness (profitability) of the industry/market. Last few days we have been seeing how one of these factors has come to the forefront in two industries/sectors. The factor that I am referring to is the ‘threat of new entrant’ and two industries/sectors are aviation and online retail. AirAsia’s ambitious plans to take the aviation sector by storm with its competitive pricing strategy (please notice the word-play here: usage of words ‘storm’ and ‘aviation’!) and Amazon’s attempt to sweep the online retail marketplace like an aggressive river flowing at full speed (kindly again notice the word-play here: usage of words ‘Amazon’ and ‘river’!) has made everyone take note of the same

Interesting thing is to see how existing players are readying themselves to face the upcoming onslaught in the form of cut-throat competition (most likely to lessen profitability). On one hand, we have AirAsia India, a JV among Tata sons, Telestra Tradeplace and Malaysian low-cost airline AirAsia, which promises to redefine the budget air travel with their unbelievably low prices (Google search about their India strategy, you will come across some interesting stuff) but right now facing hurdles in starting their india operations. They allege that the entire industry is trying to block their entry because they are very good at what they do. Technical argument being put forward by the industry association is that FDI is allowed in aviation to help the existing carriers and not the new ones as it will only lead to more competition! I am not an expert to comment on the matter but the fact remains that it is the ‘threat of new entrant’ which has got the existing players worried as it is likely to impact the attractiveness (profitability) of the industry in a negative way. Anyways, most of them are not making profits! Till the time the deadlock remains, it is the end user who loses out

Then we see a more acceptable way of tackling competition. Flipkart recently bought Myntra to take on Amazon. I always thought Flipkart was the best thing that happened to online retail but then Amazon launched its one-day delivery campaign which was quickly followed-up by Flipkart with its own one-day delivery campaign! Of course, the service comes at a cost but there are people who are ready to pay little extra for that service. This just goes to prove that there was always that scope for improvement but it was made possible by Amazon (a new entrant). New entrants will always try to innovate and provide something ‘extra’ vis-à-vis existing players, which in turn force the existing players to improve. I am sure various factors impacted this deal including cost advantage, Flipkart’s desire to hit the online fashion market in a big way and others. But Amazon’s entry certainly expedited the same! Finally, a word of appreciation for the genius Michael Porter who developed strategy models like ‘Porter’s five forces’ years back but they are still useful/applicable today, providing a basic framework for studying industries’ competitiveness