Week 2 Notes Business Policy
Week 2 Notes Business Policy BUS 4853
Popular in Business Policy
verified elite notetaker
Popular in Business
This 6 page Class Notes was uploaded by Whitney Smith on Wednesday February 3, 2016. The Class Notes belongs to BUS 4853 at Mississippi State University taught by Hanqing Fang in Spring 2016. Since its upload, it has received 25 views. For similar materials see Business Policy in Business at Mississippi State University.
Reviews for Week 2 Notes Business Policy
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/03/16
2/3/16 What we will cover today Chapter 2 1, External Analysis 2, Major forces in the external analysis (buyer, Evaluating a supplier, rivalry, entry, substitute, complementor) Firm’s 3. Structure-Conduct-Performance Model External 4, Porter’s Five Forces Model 5, Industry structure types Environment Why External Analysis? Some terminologies z Forces External analysis allows firms to: z Buyers • discover threats and opportunities z Suppliers • see if above normal profits are likely in an industry z Complementors z Substitutes • better understand the nature of competition in an industry z Entry (into an industry) • make more informed strategic choices z Exit (from an industry) z Resources (focus of next lesson) 1 2/3/16 MSU, College of Business Difficult to launch Group questions New business school Reduced cost of Schools fight over Entrance exams Entry Grants and funding z As a whole, how effectively does MSU’s College of Business handle those forces? Complementors Rivalry z Which of those “forces” seems most important to Focal focus on? Firm z Are there any other examples of external issues Buyers Industry Substitutes that MSU’s College of Business needs to worry about? Recession – students Suppliers Online education Are more likely to Recession – Video / self learning Go back to school Suppliers want MSU’s books business Industry Analysis The Structure-Conduct-Performance Model The Structure – Conduct – Performance Model • originally developed to spot anti-competitive conditions for anti-trust purposes • came to be used to assess the possibilities for above normal profits for firms within an industry • Porter’s Five Forces Model was developed from this economic tradition 2 2/3/16 Industry Analysis Porter’s Five Forces Model Entry Buyers Industry Rivalry Focal Firm Threat Suppliers Substitutes Lower Average Profits Higher Threat Porter’s Five Forces Model Porter’s Five Forces Model Threat of Entry Threat of Entry Barriers to Entry: • if firms can easily enter the industry, any above • economies of scale—firm that can’t produce normal profits will be bid away quickly the minimum efficient scale will be at a • barriers to entry lower the threat of entry disadvantage • product differentiation—entrants are forced to overcome customer loyalties to existing products • barriers to entry make an industry more attractive - Switching costs • cost advantages independent of scale—incumbents • this is true whether the focal firm is may have learning advantages, etc. already in the industry or thinking about • government policies—governments may impose entering trade restrictions and/or grant monopolies 3 2/3/16 Porter’s Five Forces Model Porter’s Five Forces Model Threat of Rivalry Threat of Substitutes • high rivalry means firms compete vigorously—and • substitutes fill the same need but in a different way compete away above average profits - Coke and Pepsi are rivals, milk is a Industry conditions that facilitate rivalry: substitute for both • large numbers of competitors • slow or declining growth • substitutes create a price ceiling because consumers • high fixed costs and/or high storage costs switch to the substitute if prices rise • low product differentiation • industry capacity added in large increments • substitutes will likely come from outside the • price competition (e.g., Dollar menu) industry—be sure to look Porter’s Five Forces Model Porter’s Five Forces Model Threat of Powerful Suppliers Threat of Powerful Buyers • powerful suppliers can ‘squeeze’ profits in the focal • powerful buyers can ‘squeeze’ profits in the focal industry by increasing prices or decreasing quality industry by demanding lower prices and/or higher levels of quality and service Industry conditions that facilitate supplier power: Industry conditions that facilitate buyer power: • small number of firms in supplier’s industry • small number of buyers for the focal industry’s output • highly differentiated product • industry’s product is undifferentiated • lack of close substitutes for suppliers’ products • industry’s product is significant to buyer • supplier could integrate forward • buyers are not earning above normal profits • no one firm is a significant customer of supplier • buyers can vertically integrate backwards 4 2/3/16 Porter’s Five Forces Model Complementors As Another Force Entry Complementors Increase the Value of the Focal Firms Product Industry • customers perceive more value in the focal firm’s Buyers Rivalry Focal product when it is combined with the complementor’s Firm product Threat • Complementors may be found outside the focal firm’s Suppliers Substitutes industry If all threats are high expect normal profits If all threats are low expect above normal profits (competitive advantage) Most industries are somewhere between the extremes Exploiting Industry Structure Opportunities Exploiting Industry Structure Opportunities Generic Industry Structures 1. Fragmented Industry Structure • at any point in time, the structure of most Industry Characteristics Opportunity industries fits into one of four generic categories Consolidation • large number of small firms Fragmented • acquisitions Emerging • no dominant firms Mature • franchising Declining • local quality is often important • discover economies • each industry structure presents opportunities • low barriers to entry of scale (e.g., brand that may be exploited • few, if any, economies of scale & purchasing) 5 2/3/16 Exploiting Industry Structure Opportunities Exploiting Industry Structure Opportunities 2. Emerging Industry Structure 3. Mature Industry Structure Industry Characteristics Opportunity Industry Characteristics Opportunities • new industry based on break • first mover advantages • slowing growth in demand • refine current products through technology or product • technological • sophisticated repeat customers • improve service • no product standard has leadership • increased international competition been reached • locking-up assets • process innovation • creating switching • slowed capacity growth • no dominant firm has emerged costs • industry-wide profits declining • new customers come from non- consumption not from competitors • fewer new product/service introductions Exploiting Industry Structure Opportunities 4. Declining Industry Structure Industry Characteristics Opportunities • industry sales have sustained • market leadership pattern of decline • niche strategy • some well-established firms have exited (shakeout) • harvest • firms have stopped investing • divest in maintenance 6
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'