chapter 5

Question 1

industry analysis

Answer 1

business research that focuses on the potential of an industry.

Question 2

industry

Answer 2

a group of firms producing a similar product or service.

Question 3

competitor analysis

Answer 3

a detailed evaluation of a firm’s competitors.

Question 4

company level

Answer 4

a firm’s position determines how the company is situated relative to its competitors.

Question 5

studying industry trends

Answer 5

environmental and business trends are the most important to evaluate.

Question 6

environmental trends

Answer 6

economic trends, social trends, technological advances, and political and regulatory changes are the most important for entrepreneurs to assess. environmental changes can set the stage for an industry’s future.

Question 7

business trends

Answer 7

other trends that affect industries that are not environmental per se. eg. some industries benefit from an increasing ability to outsource manufacturing or service functions, while other industries do not share this advantage. similarly, some industries can move customer procurement and service functions online. such trends can favour some industries over others.

Question 8

five forces model

Answer 8

a framework entrepreneurs use to understand an industry’s structure. the framework is comprised of the forces that determine industry profitability. the forces determine the average rate of return for the firms competing in a particular industry or segment of an industry by applying pressure on industry profitability. well-managed companies try to position their firms in ways to avoid or diminish these forces.

Question 9

threat of substitutes

Answer 9

industries are more attractive when the threat of substitutes is low. this means that products or services being made and sold in the focal firm’s industry. industries with close substitutes industry profitability is suppressed because consumers will opt not to buy if the price is too high. this problem is particularly accute if the substitute is free or nearly free. the extent to which sustitutes suppress profitability depends on the propensity of buyers to substitute alternatives. this is why firms often offer customers amenities to reduce the likelihood they will switch to a substitute.

Question 10

threat of new entrants

Answer 10

industries are more attractive when the threat of new entrants is low. this means that competitors cannot easily enter the industry and successfully copy what the industry incumbents are doing to earn profits. the biggest threat to a new firm’s viability is that larger, better-funded firms will step up and copy what it is doing.

Question 11

barrier to entry

Answer 11

techniques to keep the number of new entrants low in an industry. it is a condition to that creates a disincentive for a new firm to enter an industry. these are economies of scale, product differentiation, capital requirements, cost advantages independent of size, access to distribution channels, and government and legal barriers. the ideal barrier to entry is a patent, trademark, or copyright.

Question 12

non-traditional barriers to entry

Answer 12

barriers particularly suited for start-up firms, including factors such as the strength of a company’s management team, first-mover advantage, unique business model, or inventing a new approach to an industry.

Question 13

rivalry among existing firms

Answer 13

the level of competition among firms already competing in an industry is a major determinant of industry profitability in most industries. there are four primary factors that determine the nature and intensity of the rivalry; (1) number and balance of competitors, (2) degree of difference between products, (3) growth rate of an industry, and (4) level of fixed costs.

Question 14

bargaining power of buyers

Answer 14

industries are more attractive if bargaining power is low. buyers can suppress profitability by demanding price concessions or increasing in quality. several factors affect buyers’ ability to exert pressure on suppliers and suppress the profitability of the industries, including buyer group concentration, buyer’s costs, degree of standardisation of a supplier’s products, threat of backward integration.

Question 15

bargaining power of suppliers

Answer 15

industries are more attractive when bargaining power is low. several factors impact the ability of suppliers to exert pressure on buyers and supress profitability, including supplier concentration, switching costs, attractiveness of substitutes, and threat of forward integration.

Question 16

emerging industry

Answer 16

a new industry in which standard operating procedures have yet to be developed. the firm that pioneers or takes the leadership of an emerging industry often captures a first-mover advantage. because a high level of uncertainty characterises emerging industries, any opportunity that is captured may be short-lived.

Question 17

first-mover advantage

Answer 17

a sometimes insurmountable advantage gained by the first company to establish a significant position in a new market.

Question 18

fragmented industry

Answer 18

one that is characterised by a large number of firms of approximately equal size. the primary opportunity for start-ups in fragmented industries is to consolidate the industry and as a result establish industry leadership. the most common way to do this is through a geographic roll-up strategy.

Question 19

geographic roll-up strategy

Answer 19

when a firm starts acquiring similar firms that are located in different geographic areas.

Question 20

mature industry

Answer 20

an industry that is experiencing slow or no increase in demand, has numerous repeat customers, and limit product innovation. the lure is that they are often large industries with seemingly vast potential if product and/or process innovations can be effectively introduced and if the industry can be revitalised.

Question 21

declining industry

Answer 21

an industry or part of an industry that is experiencing a reduction in demand. entrepreneural firms employ three different strategies in declining industries; (1) leadership strategy, (2) niche strategy, and (3) cost reduction strategy.

Question 22

leadership strategy

Answer 22

one in which the firm tries to become the dominant player in the industry (rare for start-ups).

Question 23

niche strategy

Answer 23

focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation.

Question 24

cost reduction strategy

Answer 24

accomplished through achieving lower costs than industry incumbents through process improvements.

Question 25

global industry

Answer 25

an industry that is experiencing significant international sales. many start-ups enter global industries and from day one try to appeal to international as well as domestic markets. the two most common strategies in global industries are; (1) multidomestic strategy, and (2) global strategy. the choice between those depends on how similar consumers’ tastes are from market to market.

Question 26

multidomestic strategy

Answer 26

firms compete for market share on a country-by-country basis and vary their product or service offerings to meet the demands of the local market.

Question 27

global strategy

Answer 27

firms use the same basic approach in all foreign markets.

Question 28

direct competitors

Answer 28

businesses offering identical or similar products. they are the most important competitors.

Question 29

indirect competitors

Answer 29

businesses offering close substitute products.

Question 30

future competitors

Answer 30

businesses that are not yet direct or indirect competitors but could be at any time.

Question 31

competitive intelligence

Answer 31

the information that is gathered by a firm to learn about its competitors.

Question 32

competitive analysis grid

Answer 32

a tool for organising the information a firm collects about its competitors. it can help a firm see how it stacks up against competitors, provide ideas for markets to pursue, and identify its primary sources of competitive advantage. to be a viable company, a new venture must have at least one clear competitive advantage over its major competitors. to complete it, a firm must first understand its competitors’ strategies and behaviours.

Question 33

competitor analysis

Answer 33

the first step is to determine who the competition is. it is impossible for a firm to identify all its direct, indirect, and future competitors. creating meaningful value and sharp differentiation from competitors as small firms in crowded industries can help to remain competitive and gain market share.