Topic2.StrategyRevisited

The threat of entry 1 economies of scale 2 product

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Unformatted text preview: le (incumbents vs new entrants) •  Five of these cost advantages are: •  Proprietary technology •  Know-how •  Favorable access to raw materials •  Favorable geographic locations •  Learning-curve cost advantages UPF - International Strategic Management 2012 38 1. The Threat of Entry 1. Economies of scale 2. Product differentiation 3. Capital requirements 4. Cost disadvantages independent of size 5. Access to distribution channels 6. Government policy 19 28/04/12 UPF - International Strategic Management 2012 39 1.5. Access to distribution channels If incumbent firms have all the logical distribution channels in an industry already locked up >> substantial costs to create new distribution channels The more limited the channels are and the more that existing competitors have these tied up, the tougher that entry! UPF - International Strategic Management 2012 40 1. The Threat of Entry 1. Economies of scale 2. Product differentiation 3. Capital requirements 4. Cost disadvantages independent of size 5. Access to distribution channels 6. Government policy 20 28/04/12 UPF - International Strategic Management 2012 41 1.6. Government Policy … even though incumbent firms are earning above-normal economic profits. •  Regulate industries (electricity, gas, telecommunication, liquor retailing, etc) … •  … or establish more “subtle” restrictions (e.g. skiarea development or coal mining) •  … or establish controls such as air and water pollution standards and safety regulations UPF - International Strategic Management 2012 42 Porter’s Five Forces (2) Suppliers Entrants Industry rivalry THREAT OF SUBSTITUTION * Buyer propensity to substitute *Relative prices and performances of substitutes Buyers 21 28/04/12 UPF - International Strategic Management 2012 43 2. Threat of Substitutes •  Buyer propensity to substitute •  Relative prices and performances of substitutes Substitutes place a ceiling: •  •  on the prices firms in an industry can charge •  on the profits firms in an industry can earn UPF - International Strategic Management 2012 44 2. Threat of Substitutes •  No close substitutes > inelastic demand Examples? •  •  Close substitutes > elastic demand •  E.g. Express delivery companies (FedEx, DHL, UPS) vs. alternative document transfer media, including fax machines and e-mail…    Extreme situation: •  When a substitute is clearly superior to previous products?? •  Examples? 22 28/04/12 UPF - International Strategic Management 2012 45 2. Threat of Substitutes Substitutes playing increasingly important role in reducing profit potential in a many industries:   Publishing industry:   Computerized texts vs. printed books   Retail industry:   Supermarkets vs. smaller food shops UPF - International Strategic Management 2012 46 Porter’s Five Forces THREAT OF SUPPLIERS * Factors related to the power of suppliers against producers (see ‘buyer threat) Entrants Substitutes Industry rivalry Buyers 23 28/04/12 UPF - Intern...
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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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