The degree of rivalry among competing companies within a particular industry will have an impact on how competitive you can become in that industry should you wish to compete in that area. According to Porter, the more intense the rivalry is in an industry or business sector, the more challenging it will be for firms to become competitive.
Degree of rivalry can result to the following:
Price war. Firms will have the tendency to try to outdo each other in attracting customers. One avenue to do that is by lowering their price. Although this is always beneficial to customers, this can become potentially destructive as lowering the prices too low will negatively affect the profitability of the competing firms.
Race to enhance quality of products and services. This in itself is a positive development in an industry. Business-wise, however, a tight race along this line could be very taxing to corporate resources. Quality can always be equated to higher production costs. To raise the standards of quality may mean hiring more talented people who command higher salaries, more expensive raw materials, and other production inputs.
More expensive marketing system. Intense rivalry will bring the challenge will bring the challenge to the marketing arena. Firms in very tight competition will have to invest more resources in promoting their products to sustain their visibility in the market and keep their existing customers’ loyalty.
In general, degree of rivalry can have beneficial impact on the consumers as they can expect more quality of products and services at lower costs. However, viewed from your point of view as an entrepreneur, this is an area you need to be concerned about in putting up a business. How intense is the rivalry in that particular business sector? Do you have the capability and the resources to join the fray? If you have, then go for it! Otherwise, you may need to think twice and look instead for an industry where the rivalry is less intense and you can better position yourself to become a dominant player in the future.