Competitive environment

Question 1

what does Porter’s 5 forces analysis look at?

Answer 1

firm’s competitive environment within an industry by analysing five key areas

together these forces determine overall profit potential for industry, look at a single firm, its ability to earn higher profit margins will be determined by whether or not it can manage the 5 forces more effectively than competitors

Question 2

barriers to entry

Answer 2

how difficult it is for a new company to be set up in an industry

Question 3

what is barriers to entry influenced by? (3 things)

Answer 3

• ability to achieve EOS with unit costs declining as volume increases
• having a brand image
• need for heavy investment

Question 4

power of suppliers

Answer 4

supplier’s ability to demand higher prices for their materials

Question 5

what is power of suppliers influenced by? (3 things)

Answer 5

• presence of one/two dominant suppliers controlling material prices
• ability to switching to a cheaper supplier
• extent to which materials offered have unique features

Question 6

threat of substitutes

Answer 6

availability of product to a that a customer can purchase instead of the industry’s product.
substitute product is a product from another industry that offers similar benefits to customer as the product produced by the firms within the industry

Question 7

what is threat of substitutes influenced by? (3 things)

Answer 7

• ability of customer to purchase the substitute instead of industry’s product
• price of substitute compared to original product
• quality of substitute in relation to how closely it matches customers’ needs

Question 8

power of customers

Answer 8

powerful customers can force price cuts and/or quality improvements

Question 9

what is power of customers influenced by? (2 things)

Answer 9

• if buyers’ purchases are a high proportion of the company’s total revenue
• if buyer makes a low profit and therefore, is very price sensitive

Question 10

rivalry

Answer 10

the degree of competitive pressure a company operating in an industry will experience

Question 11

what is rivalry influenced by? (2 things)

Answer 11

• presence of large established rivals

- extent of market growth

Question 12

Porter’s value chain

Answer 12

determine whether and how a firm’s activities contribute towards a CA

Question 13

What is the approach to Porter’s value chain?

Answer 13

breaking the firm down into 5 primary activities, and four support activities, then looking at each to see if they give a cost/quality advantage. depending on which strategy the company is pursuing

Question 14

What are primary activities in Porter’s Value Chain?

Answer 14

• inbound logistics (receiving, storing and handling raw materials processes)
• operations (transformation of raw materials into products)
• outbound logistics (storing, distributing and delivery of finished goods)
• marketing and sales (making customers aware of products and encouraging to purchase them)
• after sales service (dealing with customer inquiries, return, repairs and warranty)

Question 15

What are support activities in Porter’s Value Chain?

Answer 15

• infrastructure (strategy, finance and overall admin)
• HR management (relates to managing staff through recruitment, training and rewards policies)
• tech. (how company uses tech in products and processes)
• procurement (relationships with suppliers)