Strat Chapter 2
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Strat Chapter 2
Strat Chapter 2
How does an analysis of the external environment typically begin?
examination of the general environment
What is the purpose of analyzing the general environment?
identify conditions or trends that may present opportunities or threats to a firm
Why industry analysis?
identify market imperfections that can be exploited or threats that can be neutralized through strategy
What does it mean if an industry analysis reveals few, if any, opportunities?
Firms are most likely to achieve competitive parity
From what view is a five forces analysis done?
view of the local firm, a client, an employer, or your own company
True or false, In Porters five forces the lower the revenue, higher the costs, and greater the competitiveness.
True or false, In Porters 5 forces, the greater the competitiveness of an industry, the lower the average industry profitability?
What happens if above normal profits exist in an industry?
firms outside the industry will want in
What happens if firms can easily enter the industry?
above normal profits will quickly disappear, newer firms will lower prices and costs of production to gain market share and survive
What happens if above normal profits can be preserved?
only if possible entrants face a cost disadvantage in entering
What do barriers to entry do according to cost?
create the cost disadvantage necessary to minimize the threat of new firms entering the industry.
What about high barriers?
they are good for people that are in the industry and also good for those that want to get in.
What is product differentiation?
customers can recognize a difference between products and therefore have a preference for the product of one firm over another
What problems do new entrants have to face in regards to differentiation?
having to both offer a newer, better product, and convince consumers. Plus additional costs
What about incumbent firms?
may enjoy cost advantages over possible entrants due to supplier relationships, learning curve, technology, location, raw material access.
What about a large number of competitors?
no recognized industry leader, because of this firms are slow to recognize interdependence. There is little restraint. No polite rules of engagement.
What about slow or declining industry growth?
new customers must be taken from competitors,
ex: cell phone market
What about high storage costs?
Firms will be highly motivated to make each sale.
What about the foreign competition with lower costs and or government subsidies?
makes rivalry more intense because such rivals have a strong incentive to compete on price.
What creates a price ceiling?
What threat do suppliers provide?
subtract from profits
What are the conditions of threat of buyers?
small number of buyers
product is a commodity (no preference for one specific firm, it is standardized)
What about complementors?
firm's industry is more attractive if they exist
Can a single firm be both a rival and complementor?
How to neutralize threats?
most firms can't unilaterally change the threats in an industry
by altering relationships
What is consolidation?
opportunity that leads to more coordination among rivals
What are risks associated with first mover advantage?
copy your innovation
Caveat: first mover disadvantage, reverse engineering and imitation of product
What opportunities are available?
become a market leader
find a niche
begin a harvest strategy
divesting the business (selling it off) after the first sign of decline