Analyzing Industry StructureAnalyzing Industry Structure
Opportunities and threats are competitive Opportunities and threats are competitive challenges arising for changes in industry challenges arising for changes in industry conditions.conditions.
Analytic tools such as theAnalytic tools such as the five forces modelfive forces model help help
New entrants into an industry threaten incumbent New entrants into an industry threaten incumbent companies.companies.
Barriers to entry:Barriers to entry: Brand loyaltyBrand loyalty Absolute cost advantagesAbsolute cost advantages Economies of scaleEconomies of scale Switching costsSwitching costs Government regulationGovernment regulation
Entry barriers reduce the threat Entry barriers reduce the threat of new and additional competition.of new and additional competition.
Rivalry Among Established Rivalry Among Established CompaniesCompaniesThe intensity of competitive rivalry in an The intensity of competitive rivalry in an industry arises from:industry arises from:
Industry’s competitive structure.Industry’s competitive structure. Demand (growth or decline) conditions in industry.Demand (growth or decline) conditions in industry. Height of industry exit barriers.Height of industry exit barriers.
The Bargaining Power of BuyersThe Bargaining Power of Buyers
Buyers are most powerful when:Buyers are most powerful when: There are many small sellers and few large buyers.There are many small sellers and few large buyers. Buyers purchase in large quantities.Buyers purchase in large quantities. A single buyer is a large customer to a firm.A single buyer is a large customer to a firm. Buyers can switch suppliers at low cost.Buyers can switch suppliers at low cost. Buyers purchase from multiple sellers at once.Buyers purchase from multiple sellers at once. Buyers can easily vertically integrate to compete with Buyers can easily vertically integrate to compete with
The Bargaining Power of The Bargaining Power of SuppliersSuppliersSuppliers have bargaining power when:Suppliers have bargaining power when:
Their products have few substitutes and are important Their products have few substitutes and are important to buyers.to buyers.
The buyer’s industry is not an important customer to The buyer’s industry is not an important customer to the supplier.the supplier.
Differentiation makes it costly for buyers to switch Differentiation makes it costly for buyers to switch suppliers.suppliers.
Suppliers can vertically integrate forward to compete Suppliers can vertically integrate forward to compete with buyers and buyers can’t integrate backward to with buyers and buyers can’t integrate backward to supply their own needs.supply their own needs.
The competitive threat of substitute products The competitive threat of substitute products increases as they come closer to serving increases as they come closer to serving similar customer needs.similar customer needs.
Strategic Groups Within Strategic Groups Within IndustriesIndustriesThe concept of strategic groupsThe concept of strategic groups
Within an industry, a competitor grouping using Within an industry, a competitor grouping using similar strategies that differ from other industry similar strategies that differ from other industry groups.groups.
Implications of strategic groupsImplications of strategic groups The closest industry competitors are those in the The closest industry competitors are those in the
group.group. The various industry groups are differentially and The various industry groups are differentially and
competitively advantaged and positioned.competitively advantaged and positioned. Mobility barriers inhibit the movement of competitors Mobility barriers inhibit the movement of competitors
from one strategic group to another.from one strategic group to another.
Limitations of the Five Forces and Limitations of the Five Forces and Strategic Group ModelsStrategic Group Models
Both models are static and ignore innovation.Both models are static and ignore innovation.Their focus is on industry and group Their focus is on industry and group structures rather than individual companies.structures rather than individual companies.
Innovation creates change in Innovation creates change in industry structures, altering theindustry structures, altering thecompetitive environment.competitive environment.
Industry structure cannot Industry structure cannot fully explain the performance fully explain the performance differences between industry differences between industry competitors.competitors.
Network Economics As a Network Economics As a Determinant of Industry ConditionsDeterminant of Industry Conditions
The demand for primary industry products The demand for primary industry products depends on the size of the total market for depends on the size of the total market for complementary products.complementary products. Network economics result inNetwork economics result in
positive feedback loops that positive feedback loops that foster rapid demand increases.foster rapid demand increases.
Market competitors are Market competitors are protected by switching protected by switching cost entry barriers.cost entry barriers.
Globalization and Industry Globalization and Industry StructureStructureGlobalizationGlobalization
Globally dispersed production lowers Globally dispersed production lowers costs and increases quality.costs and increases quality.
Global markets are replacing Global markets are replacing national markets.national markets.
Trend implicationsTrend implications No isolated national marketsNo isolated national markets More competitors, more intense competitionMore competitors, more intense competition More rapid innovation and shorter product life cyclesMore rapid innovation and shorter product life cycles
