Quiz 1 - Chapter 2 Flashcards
External Analysis allows a firm to:
- Discover threats and opportunities
- see if above normal profits are likely in an industry
- better understand the nature of competitors
- make more informed strategic choices
6 threats and 6 factors
1) rivalry and demographic trends
2) substitute and cultural trends
3) suppliers and economic climate
4) buyers and legal political/condition
5) complementors and international events
6) entry and technology change
Structure-Conduct-Performance Model
Originally developed for spotting anti competitive conditions
Came to be used to assess possibilities for above normal profits within an industry
Higher threat ——->
Lower average profits
Barriers to entry and types
Lower threat of entry but also make an industry attractive.
- economies of scale
- product differentiation
- cost advantage independent of scale
- govt. Policies
Economies of scale
Can’t produce minimum scale
Cost advantage independent of scale
Incumbent may have learning advantage
Substitute
Firm fills same need in a different way. Creates a price cieling
Existing competitors
Large number of competitors, slow growth, high fixed costs, product differentiation
Threat of supplier leverage
Powerful suppliers can lower profits for the focal firm
With small number of suppliers and highly differentiated product
Threat from buyer influence
Powerful buyers can lower profits (McDonald’s and coke)
If threats are high ——>
If threats are low —–>
High: normal profits
Low: above normal profits
4 generic industry structures
1) Fractured
2) Emergent
3) mature
4) declining
General Environment
Broad trends in the context within which a firm operates that can have an impact on a firms strategic choice
Harvest strategy
Don’t expect a firm to remain in industry for long
