Strategy chapter 3 - Evaluating a company’s external environment - MM

Whether suppliers provide a differentiated input that

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Whether suppliers provide a differentiated input that enhances the performance of the industry’s product. Industry members’ costs for switching among suppliers Size of suppliers relative to size of industry members Fraction of the cost of the supplier’s product relative to the total cost of the industry’s product Number of suppliers relative to the number of industry members Possibility of backward integration into suppliers’ industry Availability of good substitutes for suppliers’ products Whether industry members are major customers of suppliers. 3–25
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FIGURE 3.7 Factors Affecting the Bargaining Power of Suppliers 3–26
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COMPETITIVE PRESSURES STEMMING FROM BUYER BARGAINING POWER AND PRICE SENSITIVITY Buyer Bargaining Power Considerations: Strength of buyers’ demand for sellers’ products Degree to which industry goods are differentiated Buyers’ costs for switching to competing sellers or substitutes Number and size of buyers relative to number of sellers Buyers’ knowledge of products, costs and pricing Threat of buyers’ integration into sellers’ industry Buyers’ discretion in delaying purchases Buyers’ price sensitivity due to low profits, size of purchase, and consequences of purchase 3–27
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FIGURE 3.8 Factors Affecting the Bargaining Power of Buyers 3–28
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IS THE COLLECTIVE STRENGTH OF THE FIVE COMPETITIVE FORCES CONDUCIVE TO GOOD PROFITABILITY? Is the state of competition in the industry stronger than “normal”? Can industry firms expect to earn decent profits given prevailing competitive forces? Are some of the competitive forces sufficiently powerful to undermine industry profitability? Even one powerful force may be enough to make the industry unattractive in terms of its profit potential 3–29
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CORE CONCEPT CORE CONCEPT The strongest of the five forces determines the extent of the downward pressure on an industry’s profitability. Having more than one strong force means that an industry has multiple competitive challenges with which to cope. 3–30
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MATCHING COMPANY STRATEGY TO COMPETITIVE CONDITIONS Effectively matching a firm’s business strategy to prevailing competitive conditions has two aspects: 1. Pursuing avenues that shield the firm from as many competitive pressures as possible. 2. Initiating actions calculated to shift competitive forces in the firm’s favor by altering underlying factors driving the five forces. 3–31
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STRATEGIC MANAGEMENT PRINCIPLE STRATEGIC MANAGEMENT PRINCIPLE A company’s strategy is increasingly effective the more it provides some insulation from competitive pressures, shifts the competitive battle in the company’s favor, and positions firms to take advantage of attractive growth opportunities.
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