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- 6£ STRATEGIC MANAGEMENT Opening Case Lecture 2 :·Why is the Pharmaceutical Industry so profitable Dr John Kraft ~o.•.•.• e AI".d

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Unformatted text preview: 6£ STRATEGIC MANAGEMENT Opening Case Lecture 2 ·:·Why is the Pharmaceutical Industry so profitable? Dr. John Kraft ~o ....•..•...•.. e....-.. AI"--...d 311 ~ C l~ 1 o IiftIin e .-p .n ,." " " '--t. 312 Opening Case Abell's Framework-Defining the Business ·:·Boom and Bust in Telecommunications \~ie!!> e<s'c>o C>~'\ \-..P '- Norte! Networ1<s ~ O.F.AbcD.~_~~~Pol#tlcf~ \ •.•..- \ ........, , \ ::::.:= I • 0iQcl.... ' 'J i W tlo~"'" ..•.•... OSCD S)'stetns JDS Uniphase Level 3 Communications O O ~ ;,\~ e:,'O"O~ AT&T ~o ..•.••... ..-;n~."""-.-l,. 313 ~ O H D u g h lllln I M lin c . r . p . n , . A ln g t lI I - - s . 3,. Porter's Five Forces Model Risk of Entry by Potential Competitors &-rgahWn.g ..-of ...•••...-----' :::=.i ,~ Iu n .j ,-~ '_of "==~ "'"" ThrutDr "I .--.1 '-'-"--' "-'Gaining ..-'" •.....•.. ·:·Barriers to entry • Brand loyalty • Absolute cost advantage » Superior production operations and processes It Control of particular inputs required for production It Access to cheaper funds because existing companies represent lower risks than new entrants s--: M apt.d_~ b,~ olH --.i~ /W tM w . m ."'K ow ~ Forc:a SbIpc ~.w by IroIicIIMI E. P o ttt..H .-d BK*w.D Rmnr. M.dtIApill979 0 by 1bc ~.""""'''''~.AlrW*--' 315 ~"I~~=:"'J".;;51'~ 7 3" 40 1 Risk of Entry (confd) Entry Barriers ·:·Barriers to entry (cont'd) • Economies of scale It Cost reductions from mass producing a standardized output It Discounts on bulk purchases of inputs » Advantages of spreading fixed costs over a large production volume » Cost savings from marketing and advertising for a large volume of output • Customer switching costs • Government regulation ~~~~~. 317 ·:·Circumventing Entry Barriers into the Soft Drink Industry ~CI~""'~.,. •• _ 318 Strategy in Action The Bargaining Power of Buyers Buyers are most powerful when • The indstry that is supplying a particular product or service is composed of many small companies and the buyers are large and few in number • Buyers purchase in large quanlilies • The supply industry depends on the buyers for a large percentage of its total orders :. Switching costs art! low • It is economically feasible for buyers to play one supplier against another • Buyers can threaten to produce the product themselves Rivalry Among Established Companies • Industry competitive structure • Fragmented YS. consolidllled (oligopoly or monopoly) Industry demand Exit barriers Strategy in Action Price W ars in the Breakfast Cereal Industry Entry Barriers into the Japanese Brewing Industry C apyrigftC l~ ~ ~ .,.riltD -.c:I· • Investments in assets of little or no alternative value or that cannot be sold • High fixed costs of exit • Emotional attachments to an industry • Economic dependence • Need to maintain an expensive collection of assets in order to participate effectively in an industry ~~=..-..~~....
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This note was uploaded on 05/12/2010 for the course MAN 6721 taught by Professor Kraft during the Spring '10 term at University of Florida.

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- 6£ STRATEGIC MANAGEMENT Opening Case Lecture 2 :·Why is the Pharmaceutical Industry so profitable Dr John Kraft ~o.•.•.• e AI".d

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