In industries that are easy to enter, sources of competitive advantage tend to wane quickly.
On the other hand, in industries that are difficult to enter, sources of competitive advantage last longer, and firms also tend to benefit from having a constant set of competitors.
Powerful buyers can exert pressure on small businesses by demanding lower prices, higher quality, or additional services, or by playing competitors off one another.
The power of buyers tends to increase when single customers account for large volumes of the business's product, when a substitutes are available for the product, when the costs associated with switching suppliers are low, and when buyers possess the resources to move backward in the chain of distribution."All firms in an industry are competing, in a broad sense, with industries producing substitute products.
Ease of entry refers to how easy or difficult it is for a new firm to begin competing in the industry.
Product substitution occurs when a small business's customer comes to believe that a similar product can perform the same function at a better price.
Some of the major barriers to market entry include economies of scale, high capital requirements, switching costs for the customer, limited access to the channels of distribution, a high degree of product differentiation, and restrictive government policies.
Suppliers can gain bargaining power within an industry through a number of different situations.
Ratios are calculated by dividing one measurable business factor by another, total sales divided by number of employees, for example. By comparing a particular ratio for one company with that of the industry as a whole, a business owner can learn much about where her business stands in comparison with the industry average.
Many of these ratios may be calculated for an entire industry with data available from many reports and papers published by the U. For example, a small nursing home business can compare its "payroll per employee" ratio with the average for all residential care operators in the U. in order to determine if it is within a competitive range.