UNIT II - Industry Analysis

Question 1

it refers to the organized efforts and activities of individuals or entities to produce, distribute, and sell goods and services to generate profit.

Answer 1

Business

Question 2

refers to a group of businesses that produce similar goods or services and operate within the same sector of the economy.

Answer 2

Industry

Question 3

are sets of firms within an industry that pursue similar competitive strategies

Answer 3

Strategic groups

Question 4

They compete similarly, focusing on brand recognition, global distribution, and product diversification.

Answer 4

Global soft drink giants

Question 5

Global soft drink giants compete similarly, focusing on _____, _____, and _______.

Answer 5

brand recognition
global distribution
product diversification

Question 6

He defined industry analysis.

Answer 6

Michael Porter

Question 7

the process of assessing the competitive forces that shape an industry’s structure and profitability.

Answer 7

Industry Analysis

Question 8

This was introduced by Michael Porter.

Answer 8

5 Forces Framework

Question 9

The book of Michael Porter remains a key tool in strategic management.

Answer 9

Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980)

Question 10

To determine the attractiveness and profitability of an industry

Answer 10

Industry Analysis: Michael Porter’s 5 Forces Model

Question 11

Bases in formulating strategic responses

Answer 11

Industry Analysis: Michael Porter’s 5 Forces Model

Question 12

Porter’s 5 Forces:

Answer 12

Threat of New Entrants
Threat of Substitutes
Customer Bargaining Power
Supplier Bargaining Power
Internal Competition (Rivalry)

Question 13

This competitive force assesses how easy or difficult it is for new companies to enter the industry.

Answer 13

Threat of new entrants

Question 14

Enumerate the barriers to entry:

Answer 14

a. high capital requirements - logistics; promotional activities; R&D
b. strong brand identities
c. government regulations
d. economies of scale
e. customer switching costs
f. access to distribution channels, middlemen

Question 15

arise when it costs customers time, energy, and money to switch from the products offered by established companies.

Answer 15

customer switching costs

Question 16

Sources of Economies of Scale

Answer 16

1. Mass producing of a standardized output.
2. Discounts on bulk purchases of raw material inputs and component parts.
3. Reduce fixed production costs by producing large volumes.
4. Cost saving associated with spreading marketing and advertising cost.

Question 17

The power of customers to demand lower prices or better quality.

Answer 17

Bargaining Power of Buyers

Question 18

Conditions of High Bargaining Power

Answer 18

Volume Purchases
Low Switching Costs
Vertical Integration Threat

Question 19

Buyers hold significant power when they make purchases in substantial quantities.

Answer 19

Volume Purchases

Question 20

When buyers face minimal costs in changing their suppliers for a considerable portion of their orders, their bargaining power increases.

Answer 20

Low Switching Costs

Question 21

Buyers become strong when they have the capability to enter the industry, manufacturing the product and meeting their own needs. This ability strengthens their position in negotiations.

Answer 21

Vertical Integration Threat

Question 22

Buyers become strong when they have the capability to enter the industry and manufacture the product to supply their own needs.

Answer 22

Vertical Integration Threat

Question 23

the ability of the suppliers to raise input prices or to raise the costs of the industry in other ways-for example providing poor quality inputs or poor service.

Answer 23

The Bargaining Power of Suppliers

Question 24

the entities providing essential inputs like materials, services, and labor, hold the potential to significantly influence an industry’s cost structure and quality standards.

Answer 24

Suppliers

Question 25

Situations Where Suppliers Hold Significant Power

Answer 25

a. Scarce or Non-Substitutable Inputs b. Supplier Profit Independence c. High Switching Costs d. Threat of Vertical Integration

Question 26

Suppliers exert substantial power when their offerings have few, if any, viable substitutes and are indispensable to the industry's operations.

Answer 26

Scarce or Non-Substitutable Inputs

Question 27

If a supplier's profitability remains largely unaffected by the purchases of companies within a specific industry, their bargaining power escalates.

Answer 27

Supplier Profit Independence

Question 28

Industries face a substantial hurdle in the form of significant switching costs when considering a transition to an alternative supplier.

Answer 28

High Switching Costs

Question 29

Suppliers gain leverage when they have the potential to enter their customer's industry, utilizing their inputs to directly compete with existing companies.

Answer 29

Threat of Vertical Integration

Question 30

are products of different businesses or industries that can satisfy similar customer needs.

Answer 30

Threat of Substitute Products

Question 31

are products or services from different industries that can satisfy similar needs.

Answer 31

Substitutes

Question 32

The availability of ______ can limit the price that can be charged for a product or service.

Answer 32

Substitutes

Question 33

This is the most direct and obvious force.

Answer 33

Rivalry Among Established Companies/Competitive Rivalry

Question 34

refers to the competitive struggle between companies within an industry to gain market share from each other.

Answer 34

Rivalry

Question 35

It is influenced by the number and capability of competitors in the market.

Answer 35

Rivalry

Question 36

The more competitors, the a.) more b.) less intense competition.

Answer 36

a. more intense

Question 37

If the competitors are equal in size and capability, the rivalry is a.) unlikely b.) likely to be more intense.

Answer 37

b. likely

Question 38

The intensity of rivalry among established businesses within an industry is largely a function of:

Answer 38

Industry competitive structure Demand conditions The height of exit barriers

Question 39

is determined by the number and size of companies within it.

Answer 39

Industry competitive structure

Question 40

are obstruction that makes it difficult for a company to exit the industry, e.g. economic, strategic, and emotional factors which prevent companies to leaving the industry.

Answer 40

Exit barriers

Question 41

The Common Exit Barriers

Answer 41

1. Investments in assets 2. High fixed cost of exit 3. Emotional attachments 4. Economic dependence

Question 42

Exit Barriers. specific machines, equipment and operating facilities that are little or no value in alternative uses or cannot be sold off.

Answer 42

Investments in assets

Question 43

Exit Barriers. severance pay, health benefits and pensions that have been paid to workers

Answer 43

High fixed cost of exit

Question 44

Exit Barriers. when a company’s owners or employees are unwilling to exit from an industry for sentimental reasons or pride.

Answer 44

Emotional attachments

Question 45

Exit Barriers. company relies on a single industry for its revenue and profit.

Answer 45

Economic dependence

Question 46

If exit barriers are a.) high b.) low, businesses become locked into a/an a.) unprofitable b.) profitable industry where overall demand is a.) variable or increasing b.) static or declining. This may result to excess production capacity, which leads to even more intense rivalry and price competition as companies cut prices to obtain the customer orders needed to use their idle capacity and cover their costs.

Answer 46

high, unprofitable, static or declining

Question 47

Examination of the strategic groups in the industry provides a firm’s business leaders and executives with a better understanding of their closest rivals, reveals alternative paths to success, and highlights untapped opportunities.

Answer 47

Strategic group analysis

Question 48

Reasons for understanding the nature of strategic groups within an industry

Answer 48

1. First is to gain familiarity with the closest rivals 2. Second, the strategies pursued by firms within strategic groups highlight alternative paths to success. 3. Third, the analysis of strategic groups can reveal gaps in the industry that represent untapped opportunities.

Question 49

Executives can assess the performance of rival firms and their strategic moves.

Answer 49

to gain familiarity with the closest rivals

Question 50

A firm may get an idea from another strategic group and use this idea to improve its situation.

Answer 50

alternative paths to success

Question 51

the analysis of strategic groups can reveal _____ in the industry that represent untapped opportunities

Answer 51

gaps