Suppliers are individuals and companies that provide an organization with the input resources (such as raw materials, component parts, or employees) that it needs to produce goods and services. In return, the supplier receives compensation for those goods and services. An important aspect of a manager‘s job is to ensure a reliable supply of input resources. An organization may need some resources which make it dependent to a large degree on the suppliers of those resources, some of whom operate in markets which are structured to a considerable extent. The activities of a supplier can have a fundamental impact on an organization‘s success. The success of suppliers is often intimately connected with the decisions and/or fortunes of their customers. Some organizations may seek to gain an advantage in price, quality or delivery by purchasing resources from overseas, while others might consider dealing with suppliers within the country of its operation.
Distributors are organizations that help other organizations sell their goods or services to customers. The decisions that managers make about how to distribute products to customers can have important effects on organizational performance. The changing nature of distributors and distribution methods can bring opportunities and threats for managers. If distributors become so large and powerful that they can control customers‘ access to a particular organization‘s goods and services, they can threaten the organization by demanding that it reduce the price of its goods and services.
Customers are individuals and groups that buy the goods and services of an organization. A customer may be an individual, an institution such as a school, hospital, and other organizations or government agency. Customers are important to all organizations. The ability to identify and meet customers‘ needs is the main reason for the survival and prosperity of an organization. Customers are often regarded as the most critical stakeholder group since if a company attract them to buy its products, it cannot stay in business. Organizations must work towards achieving customers‘ satisfaction and attract new ones. They can do this by producing goods and services effectively and efficiently. By so doing they will be able to sell quality goods or services at a fair price to customers.
Many laws are there to protect customers from companies that attempt to provide dangerous or shoddy products. Laws exist that enable consumers to sue companies whose products cause them harm such as a defective vehicle or tire. There are laws that force companies to disclose the interest rates they charge on purchases. Companies may be prosecuted for breaking such laws.
When customers are so powerful, they can influence or force down prices or demand higher quality and better service, which will increase an organization‘s operating costs and reduce their profitability. However when customers are weak, this might give a company the opportunity to increase prices and make more profit.
Competitors are organizations that produce similar goods and services to an organization. In other words, competitors are organizations compete for the same customers. For example, Dell‘s competitors include other PC manufacturers such as Apple, Compaq, Sony, and Toshiba. Competition both direct and indirect is an important part of the environmental context in which firms operate. How firms respond to competitive forces affect their market share and their overall performance.
Rivalry between competitors is potentially the most threatening force that organizations must deal with. A high level of rivalry often results in price competition, and fallen prices reduce access to resources and lower profits. Competition is not only limited to existing firms in the industry rather it also includes potential competitors which are organizations that are not presently in the task environment but have the capability to enter the industry if they wish. In general, the potential for new competitors to enter a task environment and thus boost the level of competition within the industry depends on the barriers to entry. Barriers to entry are factors that make it difficult and costly for an organization to enter a particular industry. It is important to note that the more difficult and costly it is to enter an industry; the higher are the barriers to entry. In other words, the more difficult and costly it is to enter the task environment, the higher are the barriers to entry, the fewer the competitors in that industry and thus the lower the threat of competition. With fewer competitors, it is easier to obtain customers and keep prices high.
Barriers to entry result from three main sources: economies of scale, brand loyalty, and government regulations that impede entry. Economies of scale are cost advantages associated with large operations. Economies of scale result from factors such as manufacturing products in very large quantities, buying inputs in bulk, or making more effective use of organizational resources than do competitors by fully utilizing employees‘ skills and knowledge. Large Organizations who are already in the industry and who operate with economies of scale will enjoy lower costs than the costs of potential entrants; this will discourage potential entrants from entering the industry. Brand loyalty is customers‘ preference for the products of organizations currently existing in the industry. If established organizations enjoy significant brand loyalty, then a new entrant will find it extremely difficult and costly to build customer awareness of the goods or services they intend to provide. Some government regulations may be a barrier to entry. Many industries that were deregulated experienced a high level of new entry after deregulation. This will force existing companies in those industries to operate more efficiently or risk being put out of business.