chap 2 evaluating a Firm's External Environment Flashcards
the analysis of the 5 environmental threats can be used only to anticipate what?
the average level of firm performance in an industry
what does the structure in the SCP model refer to?
it refers to the industry structure, measured by number of competitiors in industry, the heterogeneity of products in an industry, the cost of entry and exit in industry, etc.
what are 5 indicators of the threat of buyers influence in an industry?
- number of buyers is small 2. products sold to buyers are undifferentiated and standard 3. products sold to buyers are a significant percentage of a buyers final costs 4. buyers are not earning significant economic profits 5. buyers threaten backward vertical integration
the benefits of implementing a consolidation strategy in a fragmented industry come from what?
the advantages larger firms in such industries gain from their larger market share such as as cost advantages and helping a firm differentiate its products
when incumbent firms have patented or secret tech that reduces their costs below the costs of potential entrants, potential new competitors much do what in order to compete?
develop substitute new tech
what is the opportunity in a emerging industry structure?
first mover advantages
what are 3 methods potential new competitors could use to enter a market that currently has the barrier to entry of economies of scale?
- they could attempt to expand the total size of the market so they can enter at the optimal size 2. they could attempt to develop new production technology to shift the economies of scale curve to the left reducing the optimal plant size so they can enter 3. they could try to make their produccts seem very speical to their customers so they can charge higher prices to offset higher production costs associated with smaller than optimal plant
economies of scale exist in an industry when ?
a firms costs fall as a function of its volume of production
what is a shakeout period?
period in which overcapacity is reduced and capacity is brought in line with demand. happens to industry in decline
what are 4 ways market leaders in declining industries can faciliate other firms exits?
- purchase and deemphasize competitors product lines 2. purchase and retire competitors manufacturing capacity 3. manufacture spare parts for competitiors product lines 4. send unambiguous signals of their intention to stay in an industry and remain a dominant firm
emerging industries are newly created or newly recreated industries formed by what possible 3 things?
- technological innovations 2. changes in demand 3. the emergence of new customer needs
what are the 5 most common threats faced by firms in their local competitive environmnets?
- competition from existing companies 2. new competition 3. buyers influence 4. supplier leverage 5. superior or lower cost substitute products
suppliers can threaten the performance of firms in one of what 2 ways?
- increasing the price of their supplies 2. reducing the quality of their supplies
what are the 4 common barriers to entry?
- economies of scale 2. product differentiation 3. cost advantages independent of scale 4. government regulation of entry
what are 6 ways firms can implement a harvest strategy?
- reduce range of products they sell 2. reduce their distribution network 3. eliminate less profitable customers 4. reduce product quality 5. reduce service quality 6. defer maintenance and equipment repair
incumbent firms possess brand identification and customer loyalty that potential new competitors do not. what kind of barrier to entry is this?
product differentiation
niche and leadership strategies in declining industries have what attribute in common?
they intend to remain in the industry despite its decline
what is the opportunity in a fragmented industry structure?
consolidation
direct competition threatens firms by doing what?
reducing their economic profits
the extent to which new competitiors act as a threat to an incumbent firms performance depends on what?
the cost of entry
what are 4 attributes of an industry that are likely to generate high levels of direct competition?
- large number of competing firms that are roughly the same size 2. slow industry growth 3. lack of product differentiation 4. capacity added in large increments
first mover advantages can arise from what 3 primary sources?
- technological leadership 2. preemption of strategically valuable assets 3. the creation of customer switching costs
first movers that move to tie up strategically valuable resources in an industry can gain sustained competitive advantages if they do so before what?
the resources full value is widely understood
what does product differentiation mean when it is a barrier to entry?
incumbent firms possess brand identification and customer loyalty that potential new competitors do not
what do firms following a harvest strategy in a declining industry do?
engage in a long, systematic, phased withdrawal, extracting as much value as possible during the withdrawal period
what are 6 common characteristics of a mature industry?
- slowing growth in total industry demand 2. slowdown in increases in production capacity 3. slowdown in the intro of new products 4. reduction in the profitability of firms in the industry 5. increase in the amount of international competition 6. development of experienced repeat customers
what is a first mover disadvantage?
uncertainty
what does the performance in the SCP model refer to? (2)
- the perforamnce of individual firms 2. the performance of the economy as a whole
what are substitutes?
they meet approximately the same customer needs but do so in different ways
what is a complementor?
a firm is a complementor if your customers value your product more when they have this other firms product than when they have your product alone
buyers threaten the performance of firms how?
by decreasing their revenues
what does the conduct in the SCP model refer to ?
the strategies that firms in an industry implement
what are 2 ways consolidation can occur?
- an incumbent firm can discover new economies of scale 2. incumbent firms can adopt new ownership structures to help consolidate an industry like franchise agreements
what are 4 reasons industries can be fragmented?
- they may have few barriers to entry encouraging numerous small firms to enter 2. they may have few if any economies of scale 3. they may have important diseconomies of scale encouraging firms to remain small 4. close local control over enterprises may be necessary to ensure quality and to minimize losses from theft
what are the 4 opportunities in a declining industry structure?
- leadership 2. niche 3. harvest 4. divestment
what are the 4 generic industry structures?
- fragmented 2. emerging 3. mature 4. declining
what is the purpose of becoming the market leader in a declining industry?
to try and facilitate the exit of firms that are not likely to surevive a shakeout thereby obtaining a more favorable competitive environment as quickly as possible
opportunity analysis begins by identifying and describing what?
identifying several generic industry structures and describing the strategic opportunities that are available in each of these different kinds of industries
what are the 2 advantages generated in emerging industries by implementing a technological leadership strategy?
- firms that have implmented these strategies may obtain a low cost position based on their greater cumulative volume of production with a particular technology 2. firms that make early investments in a technology may obtain patent protections that enhance their performance
T/F patents seem to provide relatively small profit opportunities for first moving firms in most emerging industries
T
attributes of an industrys structure that increase the cost of entry
barriers to entry
what kind of firms may find divestment a superior option to harvest?
those that dont have established competitive advantages
what are 4 cost advantages that serve as barriers to entry outside of economies of scale?
- proprietary technology 2. managerial know how 3. favorable access to raw materials 4. learning curve cost advantages
what does the SCP model stand for?
structure conduct performance
the 5 environmental threats have 3 important implications for managers who are choosing and implementing strategies?
- they describe the most common sources of local environmental threat in industries 2. they can be used to characterize the overall level of threat in an industry 3. they are related to and therefore can be used to anticipate the average level of performance of a firm in an industry
diseconomies of scale exist when?
a firms costs rise as a function of its volume of production
what are barriers to entry?
attributes of an industrys structure that increase the cost of entry
what is the most important step that a firm must do in a declining industry if they want to wait out the storm in hopes of better environmental conditions in the future?
establish itself as a market leader in the pre shakeout industry usually by becoming the firm with the largest market share
what are the 6 elements of a firms general environment?
- technological change 2. demographic trends 3. cultural trends 4. economic climate 5. legal and political conditions 6. specific international events
what is the difference between a complementor and a competitor in regards to the market?
a complementor helps to increase the size of the market while compeitors divide the market among a set of firms
high levels of direct competition are indicated by what 4 actions?
- frequent price cutting 2. freuqent introduction of new products 3. intense advertising campaigns 4. rapid competitive actions and reactions in an industry
the alternating pattern of prosperity followed by recession and back again is called ?
the business cycle
what is a declining industry?
one that has experienced an absolute decline in unit sales over a sustained period of time
what are 3 reasons besides industry decline that a firm would use a divestment strategy?
- divest certain operations to focus their efforts on remaining operations 2. divest to raise capital 3. divest to simplify operations
opportunities for firms in mature industries typically shift from the development of new tech and products in an emergin industry to a greater emphasis on what 3 things?
- refining a firms current products 2. increasign the quality of service 3. reducing manufacturing costs and increasing quality through process innovations
a firms general environment often has an impact on a firms threats and opportunities through its impact on a firms ?
local environment
what does a firm in a declining industry following a niche strategy do?
reduces its scope of operations and focuses on narrow segments of the declining industry
what are the 3 opportunities in a mature industry structure?
- product refinement 2. investment in service quality 3. process innovation
what are 5 supplier attributes that can lead to high levels of threat?
- suppliers industry is dominated by small number of firms 2. suppliers sell unique or highly differentiated products 3. suppliers are not threatened by substitutes 4. suppliers threaten forward vertical integration 5. firms are not important customers for suppliers
why is brand identification and customer loyalty an entry barrier?
because new competitors have to absorb the costs associated with overcoming incumbent firms differentiation advantages
