Industry & Sector Flashcards
Who are the people most affected by the industry environment?
Suppliers
Competitors
Customers
What are the determinants of industry profitablity?
1) Value of product to customers
2) Intensity of competition
3) Bargaining power of industry members relative to their buyers/suppliers.
What are the different types of industry structures?
Perfect competition - many firms
Oligopoly - few firms
Duopoly - two firms
Monopoly - one firm
Explain how industry structures differ in terms of their concentration, entry/exit barriers, product differentiation and information availability
Perfect competition has many firms, no entry/exit, homegenous product (near identical except brand colour etc) and perfect information.
Oligopoly & Duopoly are same except oligopoly is few firms and Duopoly is two, significant barriers to entry/exit, potential for product differentiation and imperfect availability of information.
Monopoly is one firm, High barriers to entry/exit, potential for product differentiation and Imperfect availability of information.
Describe Porters Five Forces of Competition framework
———————Potential entrants——————
|
Suppliers —— Competitive Rivarly ——- Buyers
|
Threat of substitutes
What are the main reasons for increased barriers to entry in an industry?
- Capital requirements
- Economies of scale
- Absolute cost advantage
- Product differentiation
- Access to channels of distribution
- Legal and regulatory barriers
- Retaliation
Explain buyers and their position when it comes to barganining power to organisations
Buyers are the organisation’s immediate customers, not necessarily the ultimate consumers.
If buyers are powerful, they can demand cheap prices or product/service improvements.
High Bargaining power when:
* Buyers are concentrated.
* Buyers have low switching costs.
* Buyers can supply their own inputs (backward vertical integration).
* Low buyer profits (under pressure to improve profits) and the purchased inputs have a low impact on quality (can cut costs without loss of quality).
Explain suppliers and their position when it ocmes to barganining power to organisations
They supply what organisations need to produce the product or service. Powerful suppliers can reduce an organisation’s profits.
Supplier power is likely to be high when:
* The suppliers are concentrated (few of them).
* Suppliers provide a specialist or rare input.
* Switching costs are high (it is disruptive or expensive to change suppliers).
* Suppliers can integrate forwards (e.g. low-cost airlines have cut out the use of travel agents).
Explain the smartphone industry in China using Porters five forces of competition framework (High/Low)
- High Competitive rivalry - spread out Huawei, Xiaomi, Apple etc.
- High Supplier power - processors and essential components,
- High Buyer power - Many choices for retailers and price sensitive with different brands serving different price ranges
- Low Threat of substitutes - Phone serves clear purpose, tablet etc used differently.
- Low Threat of new entrants - High Barrier to entry (making a phone)
What can industry analysis be used to do?
Predict industry profitability and develop strategies to improve industry attractiveness.
Explain how Five forces can be used to Forecast an industries profitability and develop strategy
- If we can forecast changes in industry structure, we can predict likely impact on competition and profitability.
- Once we know which structural features of the industry support/depress profitability, we can choose a favorable positioning within the industry and try to implement strategies individually or collectively to improve profitability.
What are blue and red ocean strategies and which is better?
- ‘Blue Oceans’ are new market spaces where competition is minimised.
- ‘Red Oceans’ are where industries are already well defined and rivalry is intense.
Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served thus avoiding intense rivarly and lower profitability.
What is a strategy canvas and what can it be used for?
A ‘strategy canvas’ compares competitors according to their performance on key success factors in order to establish the extent of differentiation.
Thus, if their is someway that something is being underserved then a competitor can capitalise on this and differentiate themselves from similiar rivals.
What are Critical success factors?
factors that are either particularly valued by customers or which provide a significant advantage in terms of cost, thus giving a competitive advantage or disadvantage if a company doesnt have them.
What are the two main pre-requisities for CSF’s
1) How does the firm survive competition?
2) What do our customers want?
