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International Business Environment > Assessing Global Industries > Flashcards

Assessing Global Industries Flashcards

1
Q

What is an industry?

A

All firms producing a similar good or service

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2
Q

What is a market?

A

A market can be conceptualised in different ways:

  • Firms in the industry
  • A set of products produced by those firms
  • The customers for a product or a set of products
  • A geographical area where customers and competitors are located
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3
Q

Why is it difficult to define a market?

A

Some firms may be in the industry, but not serve or target the same market

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4
Q

Which products are in the same market?

A
  • Competitor products - with high cross price elasticity of demand
  • XED measures the responsiveness of change in demand of good X following a change in the price of good Y
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5
Q

What are strategic groups?

A

A group of firms in an industry that pursue a similar strategy e.g target the same market

Strategic group analysis clusters different firms into groups based upon key strategic dimensions

Strategic group analysis is used to differentiate firms within the same industry

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6
Q

What dimensions within industry clustering exist?

A

Scope of activities: product diversity, geographical coverage

Resource commitment: branding, marketing, R and D

Strategic focus: cost leadership, differentiation, pricing

Green awareness: recycling, eco sourcing, sustainability, fair-trade

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7
Q

What are mobility barriers?

A

Factors that inhibit movement between strategic groups

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8
Q

What are the implications of strategic groups?

A
  • Each strategic groups faces a different set of opportunities and threats
  • The closest competitors for a firm are those in its strategic group i.e the most immediate threat to profitability
  • Managers should focus more on their direct competitors, rather than the whole industry
  • Intra group rivalry exceeds inter group rivalry
  • The external environment affects strategic groups differently
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9
Q

How is the geographical scope of a market defined?

A

Through investigating the extent to which a price increase in one area:

  • Attract competition from firms elsewhere - seeking greater profits
  • Drive customers away to cheaper areas, looking for lower prices
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10
Q

What are the characteristics of perfect competition?

A

Many firms
No barriers to entry
Homogenous product

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11
Q

What are the characteristics of monopoly?

A

One firm
High barriers to entry
Unique product

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12
Q

What are the characteristics of monopolistic competition?

A

Many firms
No barriers to entry
Heterogeneous

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13
Q

What are the characteristics of oligopoly?

A

Few firms
Often high barriers to entry
Homogenous/differentiated

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14
Q

Why are market structure important?

A

They can influence…

  • Nature and intensity of competition
  • The performance/profitability of firms
  • The behaviour of firms
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15
Q

What is market concentration?

A
  • Measure the market share of firms in the industry
  • Indicates the distribution of power between firms in the market: high levels indicate power is concentrated in few hands
  • Low levels/very diluted: power is more evenly distributed
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16
Q

How does market concentration vary through the four market structures?

A

Perfect competition - very diluted

Monopolistic competition - similarly diluted

Oligopoly - more concentration

Monopoly - high concentration

17
Q

What are concentration ratios?

A

Share of the n biggest firms

18
Q

What is the Herfindahl Hirschman HHI index?

A

Sums the squares of the individual market shares of all firms in the industry - takes into account all firms

19
Q

What does the Porter’s Five Forces model focus on?

A
  • Industry rivalry
  • Threat of new entrants
  • Threat of new substitutes
  • Bargaining power of customers
  • Bargaining power of suppliers
20
Q

When is competition and industry rivalry more intense?

A
  • Larger number of firms compete
  • Firms are of a similar size/market share (resources)
  • Market is growing slowly
  • Low product differentiation - XED easily substitute
  • Capacity added in large increments
21
Q

What is the threat of new entrants affected by?

A
  • Absolute cost barriers (to setting up)
  • Legal and policy restrictions
  • Economies of scale
  • Excess capacity (in existing firms)
  • Extent of product differentiation
  • Ability of existing firms to retaliate
22
Q

What is the threat of substitutes affected by?

A
  • Substitutes are goods or services: produced by a different industry which carry out the same function for customers but provide the service in a different way
  • Customers likely to buy substitutes when: costs of switching are low, the substitute has a superior price/performance
23
Q

How is power of buyers affected?

A
  • Number and size of firms
  • Level of differentiation among firms: ease of buyer switching
  • Buyer profitability - tolerance of price increases
  • Importance of the product to the buyer - % of cost constituted by the product
  • Ability to vertically integrate
24
Q

How is power of suppliers affected?

A
  • Number and size of supplying firms
  • Differentiation of supplies (switching)
  • Ability to integrate vertically forward
  • Importance of the customer to suppliers - bulk buying
25
Q

What could the sixth force be?

A

Complements: products that are used together by customers

26
Q

When will firms in an industry be profitable?

A
  • Threat of entrants is low
  • Threat of substitutes is low
  • Bargaining power of suppliers is low
  • Bargaining power of buyers is low
  • Existing rivalry is low
27
Q

When will be firms in an industry be less profitable?

A
  • Threat of new entrants is high
  • Threat of substitutes is high
  • Bargaining power of suppliers is high
  • Existing rivalry is high
28
Q

How does Porter’s Five Forces work in practice?

A
  • Industry boundaries become blurred
  • It is more useful to focus on specific product lines
  • A scale 1-5 should be used to assign the threat of each force
  • Scores should be plotted on a radar chart to get a pictorial view of attractiveness
  • It is of better value when doing industry comparisons
29
Q

What are the implications of the five forces framework?

A
  • What industries to enter or leave
  • Who benefits most: firm, customer or supplier
  • How can dependencies and exposures be better managed? How do you manage a powerful supplier?
  • Industry competition varies from industry to industry and country to country

International Business Environment (11 decks)

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