Topic2.StrategyRevisited

Industry 1 context industry industry 2 the structural

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Unformatted text preview: NT * Suppliers * Competitors Demographic * Customers 10 28/04/12 UPF - International Strategic Management 2012 21 Not all industries are equal…. INDUSTRY 1 Context INDUSTRY ... INDUSTRY 2 The structural characteristics of each industry and its interactions with the relevant context are determinants of industry attractiveness! UPF - International Strategic Management 2012 22 Industry Analysis: Profitability •  The value of product to customers •  Consumer surplus versus producer surplus •  The bargaining power of the producers relative to their suppliers •  The intensity of competition 11 28/04/12 23 UPF - International Strategic Management 2012 Analysis of Industry Attractiveness Average ROIC (%) for global industries 1963-2003 20 15 10 5 Average ROIC (%) for global industries 1963-2003 0 Source: Koller et al., 2005 24 UPF - International Strategic Management 2012 Structural Variables Influencing Competition And Profitability Perfect competition Oligopoly Concentration Many firms A few firms Entry & exit barriers No barriers Product differentiation Information availability Duopoly Two firms Significant barriers Monopoly One firm High barriers Homogenous product (commodity) Potential for product differentiation No impediments to information flow Imperfect availability of information Source: Grant, 2008 12 28/04/12 25 UPF - International Strategic Management 2012 PORTER: “Different forces affect the potential profitability of the industry…” SUPPLIERS POTENTIAL ENTRANTS RIVALRY INDUSTRY SUBSTITUTES BUYERS 26 UPF - International Strategic Management 2012 Porter’s Five Forces (1) Suppliers THREAT OF ENTRY * Economies of scale * Product differentiation * Capital requirements * Absolute cost advantages * Access to distribution channels Industry competitors Substitutes * Government and legal barriers Buyers 13 28/04/12 UPF - International Strategic Management 2012 27 1. The Threat of Entry 1. Economies of scale Firms want to enter an industry if they consider that they can gain above-normal economic profits 2. Product differentiation 3. Capital requirements … and with the absence of any barriers, entry will continue until all incumbent firms are earning normal returns… 4. Cost disadvantages independent of size 5. Access to distribution channels 6. Government policy UPF - International Strategic Management 2012 28 1.1. Economies of scale Consider an industry: • There are five incumbent firms (each has only one plant) • The optimal level of production in each of these plants is 4.000 units (x=4.000 units). • Total demand for the output of this industry is fixed at 22.000 units • There are few, if any, opportunities to differentiate products in this industry Should possible entrants consider to enter? 14 28/04/12 UPF - International Strategic Management 2012 29 1.1. Economies of scale •  Other possible actions? •  Try to expand primary demand (e.g. from 22.000 to 24.000) and enter at the optimal size •  Try to develop new pr...
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This note was uploaded on 10/18/2012 for the course BUSI 102 taught by Professor X during the Spring '12 term at Universitat Pompeu Fabra.

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