The Components of a Companys Macroenvironment

1
The Components of aCompanys Macroenvironment
2
Identifying the Industrys Strategy-Shaping
Business and Economic Features

• Market size and growth rate
• Buyer needs and requirements
• Number of rivals
• Scope of competitive rivalry
• Degree of product differentiation
• Product innovation
• Production capacity
• Pace of technological change
• Vertical integration
• Economies of scale
• Learning and experience curve effects

3

• Porters Five Forces Model

4
Is the Entry of AdditionalCompetitors a
Serious Threat ?

• Seriousness of threat depends on
• Size of pool of entry candidatesand available
  resources
• Barriers to entry
• Reaction of existing firms
• Evaluating threat of entry involves assessing
• How formidable entry barriers are for each type
  of potential entrant and
• Attractiveness of growth and profit prospects

5
Common Barriers to Entry

• Sizable economies of scale
• Cost and resource disadvantages independent of
  size
• Brand preferences and customer loyalty
• Capital requirements and/or otherspecialized
  resource requirements
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions

6
When Is the Threat of Entry Stronger ?

• Theres a sizable pool of entry candidates
• Entry barriers are low
• Industry growth is rapid and profit potential is
  high
• Incumbents are unwilling or unable to contest a
  newcomers entry efforts
• When existing industry members have a strong
  incentive to expand into new geographic areas or
  new product segments where they currently do not
  have a market presence

7
The Strength of CompetitivePressures from
Substitute Products
Concept

• Substitutes matter when customers are attracted
  to the products of firms in other industries

Examples

• Eyeglasses and contact lensvs. laser surgery
• Sugar vs. artificial sweeteners
• Newspapers vs. TV vs. Internet

8
Competitive Pressures From Suppliersand
Supplier-Seller Collaboration

• Whether supplier-seller relationships represent
  aweak or strong competitive force depends on
• Whether suppliers can exercisesufficient
  bargaining leverage toinfluence terms of supply
  in their favor
• Nature and extent of supplier-sellercollaboration
  in the industry

9
When Is the Bargaining Power of Suppliers
Stronger ?

• Industry members incur high costs in
  switchingtheir purchases to alternative
  suppliers
• Needed inputs are in short supply
• Supplier provides a differentiated inputthat
  enhances the quality of performanceof sellers
  products or is a valuable partof sellers
  production process
• There are only a few suppliers of a specific
  input
• Some suppliers threaten to integrate forward

10
When Is the Bargaining Power of Suppliers
Weaker ?

• Item being supplied is a commodity
• Seller switching costs to alternative suppliers
  are low
• Good substitutes exist or new ones emerge
• Surge in availability of supplies occurs
• Industry members account for a bigfraction of
  suppliers total sales
• Industry members threaten to integrate backward
• Seller collaboration with selected suppliers
  provides attractive win-win opportunities

11
Competitive Pressures Can Be Createdby
Effective Seller-Supplier Collaboration

• Forging strategic partnershipswith select
  suppliers to
• Reduce inventory and logistics costs
• Speed availability of next-generationcomponents
• Enhance quality of parts being supplied
• Squeeze out cost savings for both parties
• can lower costs or enhance product
  differentiation
• Utilizing supply chain partnerships to lower
  costs and/or enhance product differentiation puts
  rivals under increased competitive pressure
• Sellers who do a significantly better job than
  rivals of managing supply chain partnerships may
  even achieve competitive advantage

12
When Is the BargainingPower of Buyers
Stronger ?

• Buyer switching costs to competing brands
  orsubstitutes are low
• Buyers are large and can demand concessions
• Large-volume purchases by buyers are important to
  sellers
• Buyer demand is weak or declining
• Only a few buyers exists
• Identity of buyer adds prestigeto sellers list
  of customers
• Quantity and quality of informationavailable to
  buyers improves
• Buyers have ability to postpone purchases until
  later
• Buyers threaten to integrate backward

c
c
13
Competitive Pressures Can Be Createdby
Effective Seller-Buyer Collaboration

• Collaborative partnerships may result in mutual
  benefits due to
• Just-in-time deliveries
• Electronic order processing
• Electronic invoice payments
• Data sharing
• When a company delivers added value to customers
  via its collaborative efforts, rivals come under
  increased competitive pressure to provide
  equivalent benefits or risk loss of customer
  patronage
• Competitive advantage potential may accrue to
  sellers who do a better job than rivals of
  managing partnerships with customers

14
Strategic Implications of theFive
Competitive Forces

• Competitive environment is unattractive fromthe
  standpoint of earning good profits when
• Rivalry is vigorous
• Entry barriers are lowand entry is likely
• Competition from substitutes is
  strong
• Suppliers and customers haveconsiderable
  bargaining power

15
Strategic Implications of theFive
Competitive Forces

• An industrys competitive environment is ideal
  from a profit-making standpoint when
• Rivalry is moderate
• Entry barriers are highand no firm is likely to
  enter
• Good substitutesdo not exist
• Suppliers and customers arein a weak bargaining
  position

16
Coping With theFive Competitive Forces

• Objective is to craft a strategy to
• Insulate firm fromcompetitive pressures
• Initiate actions to producesustainable
  competitive advantage
• Allow firm to be the industrys mover and
  shaker with the most powerful strategy that
  defines thebusiness model for the industry and
  that may shape the rules of competition and
  market engagement

17
The Factors Driving IndustryChange and
Their Anticipated Impact

• Industries change because forcesare driving
  industry participantsto alter their actions
• Driving forces are themajor underlying causesof
  changing industry andcompetitive conditions

18
Analyzing Driving Forces

• Identify forces likely to exert
  greatestinfluence over next 1 - 3 years
• Usually no more than 3 - 4 factorsqualify as
  real drivers of change
• Assess impact
• Are the driving forces causing demand for product
  to increase or decrease?
• Are the driving forces acting to make competition
  more or less intense?
• Will the driving forces lead to higher or lower
  industry profitability?