Chapter 7 Competition And Markets

Question 1

What is Market?

Answer 1

• A market is a place where buying and selling takes place.
• A market can be defined by the:
- Products or services that are sold (e.g clothes market, banking market, air travel)
- customers or potential customers (e.g consumer market, youth market)
- geographical area (e.g North American market or European market global vs local)

Question 2

Define industry and sectors?

Answer 2

“Industry”
An industry consists of suppliers who produce similar goods and services. (e.g. aerospace industry, automobile manufacturing industry, a construction industry etc.)
“Segments”
• Within industry there are maybe different segments.
• an industry segment is a separately identify your part of a larger industry. (e.g. insurance industry has several sectors including general insurance and life insurance)
• management need to recognise which industries and segments they operate in.

Question 3

What are the generic types of industry (by porter) ?

Answer 3

There are five generic types
• Fragmented industries
• Emerging industries
• Mature industries
• Declining industries
• Global industries

Question 4

Define fragmented industries

Answer 4

• an industry in which businesses are small and each sells to a small portion of the total market.
• examples for dry cleaning services, hair dressing services, and shoe repairs

Question 5

Define emerging industries

Answer 5

• An industry that have only just started to develop and likely to become much bigger
• Examples for space travel industry and telecommunication industry in Africa

Question 6

Define mature industries

Answer 6

• an industry where products have reached the mature phase of their life cycle.
• examples are automobile manufactur and soft drinks manufacture

Question 7

Define declining industry?

Answer 7

• Total sales are falling and a number of competitors in market is also falling.
• e.g landline telephone services

Question 8

Define global industries

Answer 8

• operate on a global scale
• examples of microprocessor industry and professional football industry

Question 9

Define five forces model by porter

Answer 9

• five forces model provides a Framework for analysing strength of competition in market
• it can also be used to explain why some industries are more profitable
• 5 forces given by porter are as follows:
- threats of new entrants
-bargaining power of supplier
-bargaining power of buyer
-threat of substitute products or services
- industry rivalry

Question 10

What are the factors affecting profitability of company (argued by porter)

Answer 10

Porter argued that two factors affect the profitability of the company
• industry structure or competition in industry
• sustainable competitive advantage

Question 11

Discuss the threat of new entrants and also List the factors influencing this force

Answer 11

//DESCRIPTION//
This force discuss how easy or difficult it for new competitors to enter the industry
//FACTORS//
•economies of scale
-established companies benefit from lower cost per unit, making it hard for new commers to compete
•capital requirement
- high startup cost can deter new entrants
•excess to distribution channels
- established relationships with distributors can block new entrants
•patents or brand loyalty
- strong brand identity and customers loyalty can be significant barriers
• government policy
- licences, permits and regulations can restrict entry
•Reaction of existing firm

Question 12

Discuss bargaining power of suppliers and also List the factors influencing this force

Answer 12

//DESCRIPTION//
This force analysis the influence that suppliers can have on price or quality of inputs.
//FACTORS//
• number of suppliers
- fewer suppliers increase their bargaining power
•uniqueness of supplier’s product
- if suppliers provide unique or differentiated products their power increases
• switching costs
- high costs associated with switching suppliers enhance supplier power
•supplier threat of forward integration
- if suppliers can start producing the final product their power increases

Question 13

Discuss the bargaining power of buyers and also List the factors influencing this force

Answer 13

//DESCRIPTION//
This force looks at the power customers have to influence pricing and quality
//FACTORS//
1. Number of buyers
- fewer, larger buyers have more power
2. Product differentiation
- less different creation increases buyer power as they can switch more easily
3. Price sensitivity
- buyers who are highly sensitive to price can exert more pressure
4. Buyers threat of backward integration
- if buyers can start producing the product themselves their power increases

Question 14

Discuss threat of substitute products or services and also List the factors influencing this force

Answer 14

Threat of Substitute Products or Services

//Description//  This force considers the availability of alternative products or services that can meet the same need.
//Factors Influencing This Force// •Availability of Substitutes
- The more substitutes available, the higher the threat.  •Relative Price and Performance of Substitutes
- If substitutes offer a better price-performance ratio, the threat increases. •Switching Costs
- Low switching costs for consumers increase the threat of substitutes

Question 15

Discuss the Industry rivalry and also List the factors influencing this force

Answer 15

Industry Rivalry

//Description//  This force examines the intensity of competition among existing competitors in the market.
//Factors Influencing This Force//•Number of Competitors
-More competitors typically lead to higher rivalry. •Industry Growth Rate
- Slow growth can intensify rivalry as firms fight for market share. •Fixed Costs and Storage Costs
 -High fixed or storage costs pressure firms to sell inventory quickly, increasing competition. •Product Differentiation
 - Low differentiation leads to higher rivalry as products become more interchangeable. •Exit Barriers
 -High exit barriers keep firms in the industry, intensifying competition.