Reading 39: The Five Competitive Forces that Shape Strategy-

Karla Hanover, CEO of Marshall Computers, is gloating during a board meeting. “It’s been a wonderful year, people. First, we received a tax break from the state that allows us to reduce our manufacturing costs. Second, we drove our longtime competitor, Roseland Technology, out of business. Third, we patented a new processor 30% faster than those of our rivals.”

Which of the three victories Hanover cited is least likely to give the firm a lasting advantage over its competitors?

Martin Kemp, owner of a fast-growing food distributor with one of the state’s largest truck fleets, wants to buy up most of its smaller trucking rivals in an effort to increase its scale and efficiency, thus fattening profit margins. Two of Kemp’s advisers warn that the strategy could backfire.

Bart Able says: “If you clear out the competition and increase profit margins, the business could draw the attention of larger companies that have so far stayed out of this region.”

Andrea Baker says: “If you raise prices on truck shipping, more customers will opt to ship in their food by train.”

Both Able and Baker conclude that Kemp’s acquisition strategy could actually end up reducing profit margins. Which arguments are valid?