ch15 - Chapter 15 Strategic Elements of Competitive...

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Unformatted text preview: Chapter 15 Strategic Elements of Competitive Advantage Introduction * This chapter looks at * Industry analysis * Competitor analysis * Competitive advantage at the industry and national levels Industry Analysis: Forces Influencing Competition * Industrygroup of firms that produce products that are close substitutes for one another * Five forces influence competition in an industry described by Michael Porter Porters Force 1: Threat of New Entrants * New entrants mean downward pressure on prices and reduced profitability * Barriers to entry determine the extent of threat of new industry entrants Threat of New Entrants: Barriers to Entry * Economies of scale * Refers to the decline in per-unit product costs as the absolute volume of production per period increases * Product differentiation * The extent of a products perceived uniqueness * Capital requirements * Required investment for manufacturing, R&D, advertising, field sales and service, and so on * Switching costs * Costs related to changing suppliers or products Threat of New Entrants: Barriers to Entry * Distribution channels * Are there current distribution channels available with capacity? * Government policy * Are there regulations in place that restrict competitive entry? * Cost advantages independent of scale economies * Is there access to raw materials, large pool of low-cost labor, favorable locations, and government subsidies? * Competitor response * How will the market react in anticipation of increased competition within a given market? Porters Force 2: Threat of Substitute Products * Availability of substitute products places limits on the prices market leaders can charge * High prices induce buyers to switch to the substitute Porters Force 3: Bargaining Power of Buyers * Buyers = manufacturers and retailers, not consumers * Buyers seek to pay the lowest possible price * Buyers have leverage over suppliers when * They purchase in large quantities (enhances supplier dependence on buyer) * Suppliers products are commodities * Product represents significant portion of buyers costs * Buyer is willing and able to achieve backward integration Bargaining Power of Buyers We do not quibble or argue with anyones right to sing what they want, to print what they want, and say what they want. But we reserve the right to sell what we want. Wal-Marts response to the accusation that it is using its financial power to dictate what is appropriate music and art Porters Force 4: Bargaining Power of Suppliers * When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers * Leverage accrues when * Suppliers are large and few in number *...
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ch15 - Chapter 15 Strategic Elements of Competitive...

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