University:
California State University, Northridge
Course:
MGT 460 | Strategic Human Resource Management
Academic year:

2024
Views:

56

Pages:

31
Author:

skeniranur2m

CHAPTER 2 EXTERNAL ANALYSIS: THE IDENTIFICATION OF OPPORTUNITIES AND THREATS LEARNING OBJECTIVES  Review the primary technique used to analyze competition in an industry environment: the Five Forces model  Explore the concept of strategic groups and illustrate the implications for industry analysis  Discuss how industries evolve over time, with reference to the industry life-cycle model  Show how trends in the macroenvironment can shape the nature of competition in an industry 2 OPPORTUNITIES AND THREATS Opportunities • Elements in a company’s environment that allow it to formulate and implement strategies to become more profitable Threats • Elements in the external environment that could endanger a firm’s integrity and profitability 3 DEFINING AN INDUSTRY  Industry: Group of companies offering products or services that are close substitutes for each other  Sector: Group of closely related industries  Market segments - Distinct groups of customers within a market that can be differentiated on the basis of their:  Individual attributes  Specific demands 4 FIGURE 2.1 - THE COMPUTER SECTOR: INDUSTRIES AND SEGMENTS 5 FIGURE 2.2 - COMPETITIVE FORCES 6 RISK OF ENTRY BY POTENTIAL COMPETITORS Potential competitors • Companies that are currently not competing in the industry but have the potential to do so Economies of scale • Reductions in unit costs attributed to a larger output Brand loyalty • Preference of consumers for the products of established companies 7 RISK OF ENTRY BY POTENTIAL COMPETITORS Absolute cost advantage • Enjoyed by incumbents in an industry and that new entrants cannot expect to match Switching costs • Costs that consumers must bear to switch from the products offered by one established company to the products offered by a new entrant Government regulations • Falling entry barriers due to government regulation results in significant new entry, increase in the intensity of industry competition, and lower industry profit rates 8 RIVALRY AMONG ESTABLISHED COMPANIES  Competitive struggle between companies within an industry to gain market share from each other  Intense rivalry among established companies constitutes a strong threat to profitability  Factors that impact the intensity of rivalry among established companies within an industry  Industry competitive structure - number and size distribution of companies in it 9 RIVALRY AMONG ESTABLISHED COMPANIES  Demand conditions - Increasing demand moderates competition by providing greater scope for companies to compete for customers  Cost conditions - When fixed costs are high, profitability is highly leveraged to sales volume  Exit barriers - Economic, strategic, and emotional factors that prevent companies from leaving an industry High exit barriers - Companies become locked into an unprofitable industry where overall demand is static or declining 10 BARGAINING POWER OF BUYERS  Bargain down prices or raise costs by demanding better product quality and service  Choose sellers and purchase in large quantities  Supplier industry is dependent on them for a major portion of sales  With low switching costs and ability to purchase an input from several companies at once, buyers can pit companies against each other  Threat of entering the industry and producing the product 11 BARGAINING POWER OF SUPPLIERS  Suppliers’ ability to raise input prices or industry costs through various means  Product has no substitutes and is vital to the buyer  Not dependent on one particular industry for their sales  Companies would incur high switching costs if they moved to a different supplier  Threat of entering customers’ industry  Knowledge that companies cannot enter the suppliers’ industry 12 SUBSTITUTE PRODUCTS AND COMPLEMENTORS  Substitute products - Those of different businesses that satisfy similar customer needs  Limit the price that companies in an industry can charge for their product  Complementors - Companies that sell products that add value to the other products  Strong complementors - Provide a increased opportunity for creating value  Weak complementors - Slow industry growth and limit profitability 13 STRATEGIC GROUPS WITHIN INDUSTRIES  Companies in an industry differ in the way they strategically position products in the market  Product positioning is determined by the:  Product quality, distribution channels and market segments served  Technological leadership and customer service  Pricing and advertising policy  Promotions offered 14 FIGURE 2.3 - STRATEGIC GROUPS IN THE COMMERCIAL AEROSPACE INDUSTRY 15 IMPLICATIONS OF STRATEGIC GROUPS  Since all companies in a strategic group pursue a similar strategy:  Customers view them as direct substitutes for each other  Immediate threat to a company are rivals within its own strategic group  Different strategic groups have different relationships to each of the competitive forces 16 MOBILITY BARRIERS  Within-industry factors that inhibit the movement of companies between strategic groups  Managers must:  Determine if it is cost-effective to overcome mobility barriers  Realize that companies in other strategic groups become their competitors if they overcome mobility barriers 17 FIGURE 2.4 - STAGES IN THE INDUSTRY LIFE CYCLE 18 EMBRYONIC INDUSTRY  Development stage  Growth is slow owing to:  Buyer’s unfamiliarity with the product and poor distribution channels  High prices due to companies’ inability to reap significant scale economies  Barriers to entry are based on access to technological expertise 19 GROWTH INDUSTRY  First-time demand expands rapidly due to new customers in the market  Prices fall since:  Scale economies have been attained  Distribution channels have developed  Threat from potential competitors is highest at this stage  Rivalry is low - Companies are able to expand their revenues without taking market share away from other companies 20 INDUSTRY SHAKEOUT  Demand approaches saturation levels  There are fewer potential first-time buyers  Rivalry between companies intensifies  Price war results in bankruptcy of inefficient companies and deters new entry 21 FIGURE 2.5 - GROWTH IN DEMAND AND CAPACITY 22 MATURE INDUSTRIES  Market is totally saturated, demand is limited to replacement demand, and growth is low or zero  Barriers to entry increase and threat of entry from potential competitors decreases  Industries consolidate and become oligopolies  Companies try to avoid price wars 23 DECLINING INDUSTRIES  Growth becomes negative due to:     Technological substitution Social changes Demographics International competition  Rivalry among established companies increases  Falling demand results in excess capacity 24 LIMITATIONS OF MODELS FOR INDUSTRY ANALYSIS  Life-cycle issues  Industries do not always follow the pattern of the industry life-cycle model  Time span of the stages vary from industry to industry  Innovation  Punctuated equilibrium - Long periods of equilibrium are punctuated by periods of rapid change 25 LIMITATIONS OF MODELS FOR INDUSTRY ANALYSIS  Because competitive forces and strategic group models are static, they cannot capture periods of rapid change in the industry environment when value is migrating  Company differences  Overemphasize importance of industry structure as a determinant of company performance  Underemphasize importance of variations among companies within a strategic group 26 FIGURE 2.6 - PUNCTUATED EQUILIBRIUM AND COMPETITIVE STRUCTURE 27 FIGURE 2.7 - THE ROLE OF THE MACROENVIRONMENT 28 MACROECONOMIC FORCES Growth rate of the economy Interest rates Currency exchange rates Inflation or deflation rates 29 GLOBAL AND TECHNOLOGICAL FORCES  Global forces - Falling barriers to international trade have enabled:  Domestic markets enter to foreign markets  Foreign enterprises to enter the domestic markets  Technological forces - Technological change can:  Make products obsolete  Create a host of new product possibilities  Impact the height of the barrier to entry and reshape industry structure 30 DEMOGRAPHIC, SOCIAL, AND POLITICAL FORCES  Demographic forces - Outcomes of changes in the characteristics of a population  Social forces - Way in which changing social morals and values affect an industry  Political and legal forces - Outcomes of changes in laws and regulations 31

External Analysis: The Identification of Opportunities and Threats

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