Abstract
Competition presents not only threats but also opportunities to firms. We argue that the extent to which a firm is able to see opportunities in competition is likely to have a positive impact on firm performance, as viewing competition in this way can motivate a firm to set up a concrete plan and take steps to pursue new opportunities. However, the performance effect of seeing opportunities in competition depends on how a firm performs industry analysis. Based on a content analysis of public firms’ annual reports, we develop measures to capture a firm’s opportunity orientation toward competition and the quality of its industry analysis in line with Porter’s five forces model. Drawing on a sample of 5,293 firms across all 12 industries in the Fama-French Industry classification for the period of 1999 to 2014, we find that a firm can improve its performance by seeing opportunities in competition if the firm conducts a comprehensive and centrally connected industry analysis. Our findings inform the strategy literature on competition and reveal how firms actually use Porter’s five forces model for industry analysis.
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