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- is composed of dimensions (segments) in the broader society that influence an industry and the firms within it.
- Physical Environment
is the set of factors that directly influences a firm and its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors.
Firm's direct & indirect competitors. Competitive dynamics expected to impact a firm's efforts to generate above-average returns.
Competitor Analysis Definition
How companies gather & interpret information about their competitors
Competitor Analysis & Organization Response: The firm seeks to understand the following:
- – What drives competitors
- Shown by organization's future objectives
- – What the competitor is doing and can do
- Revealed in organization's current strategy
- – What the competitor believes about the industry
- Shown in organization's assumptions
- – What the competitor’s capabilities are
- Shown by organization's strengths and weaknesses
slide 14 pg. 60
is a condition in the general environment that if exploited effectively, helps a company achieve strategic competitiveness.
is a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness.
To increase understanding of general environment, firms engage in external environmental analysis which has...
- 4 parts
Group of firms producing products that are close substitutes
What can the 5 Forces Framework be used for?
To identify areas for competitive attack, entry & withdrawal. Determine's attractiveness in terms of potential to earn adequate or superior returns. (Industry's profit potential)
Economic Value Net- Horizontal, Vertical
- Vertical- Suppliers & Customers
- Horizontal- Substitutes & Complements
Set of firms emphasizing similar strategic dimensions to use a similar strategy. The more intense the greater the rivalry. Strengths of the 5 forces differs across strategic groups
Set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities
- Pop size- Doubled in size? Aging pop need workers?
- Age Structure- Baby boomers, mortality rates
- Geographic Distribution- North, South, East, West
- Ethnic Mix- Immigrant workforce, increase mix in countries
- Income Distribution- Dif grp purchasing power. Young, dual-career couple, middle class
Nature and direction of the economy in which a firm competes or may compete.
Political/ Legal Segment
Arena in which org. & interest grps compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies
- Concerned w/ a society's attitudes & cultural values.
- Ex: Growing gender, ethnic & cultural diversity in workforce creates challenges & opportunities, changes in health care, growing of contingency workers, lifestyle changes.
- Institutions & activities involved w/ creating new knowledge & translating that knowledge into new outputs, products, processes, and materials.
- Should identify potential substitutes for technologies that are in current use, as well as to identify newly emerging technologies from which their firm could derive competitive advantage.
includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets.
How can a firm limit their risk in international markets?
- Globalfocusing- moderate levels of international ops who increase their internationalzation on global niche market. (Build on & use their special competencies & resources)
- OR Focus their Operations & Sales in one region of the world. (Build stronger relationships in and knowledge of their markets- harder for comp to enter)
Physical Environment Segment
- refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to & deal w/ those changes.
- Ex: Energy, Global Warming
How can a firm's customer or supplier become its competitor?
- Supplier- Integrate Forward. Go straight to buyer.
- Buyer- Integrate Backwards
5 Forces of Competition
- Threat of new entrants
- Bargaining Power of Suppliers
- Bargaining Power of Buyers
- Threat of Substitute Products
- Rivalry Among Competing Forces
Threat of Entry
- •Capital requirements-facilities, inventories, marketing. ENTRY-must have cap resources avail.
- •Economies of scale- ENTR- risk strong retaliation.
- •Absolute cost advantage- Can't duplicate. product technology, access to raw materials, desirable location, government subsidies.
- •Product differentiation- Firm product unique thru service to customer, effective advertising, being first to market a good/service,loyalty. ENTRY-allocate resources, lower prices. risk- low profits/loss.
- •Access to distribution channels- Built relationships. ENTRY-persuade distributors to carry their products.
- •Legal/ regulatory barriers- Licensing & permits. Gov't can control entry into industry.
- •Retaliation-Expect in slow growth or constrained industry. Solution= (Locate niches not being served)
Bargaining Power of Suppliers: How can they exert power over firms?
Increasing prices & reducing quality of their products
Bargaining Power of Suppliers: Supplier Grp is powerful when
- Dom. by few & is concentrated
- Satisfactory substitutes not avail
- Industry firm not significant customer 4 supplier grp
- Goods r critical to buyer's' mktplace success
- Poses threat if they integrate forward
- High switching costs for industry firms
Bargaining Power of Buyers
- •Size and concentration of buyers relative to producers. Lots of buyers.
- •Buyers’ switching costs- low to switch
- •Buyers’ information
- Buyers’ ability to backward
- PRICE SENSITIVITY
- •Cost of product relative to total cost
- •Product differentiation
- •Competition between buyers
slide 7 pg.56
- • Buyers’ propensity to substitute
- • Relative prices & performance of substitutes
Differentiating a product along dimensions that customers value (Quality, Service after sale & Location) reduces a substitute's attractiveness.
- •Concentration- Few firms equivalent size= Strong rivalry
- •Diversity of competitors- offering different products. high stakes
- •Product differentiation
- •Excess capacity & exit barriers- Max productivity = excess cap over industry wide. Lower prices to keep out of storage. Ex: Perishable foods.
- •Cost conditions