External Analysis : The Identification of Industry Opportunities and Threats Presented by Group (6) Strategic Management T...
Content <ul><li>Analyzing Industry Structure </li></ul><ul><li>Strategic Groups Within Industries </li></ul><ul><li>Limita...
Analyzing Industry Structure
Potential Competitors <ul><li>Potential competitors - not currently in market but have capability to do if they choose </l...
Potential Competitors <ul><li>Main sources of barriers to new entry </li></ul><ul><ul><li>Brand Loyalty </li></ul></ul><ul...
Potential Competitors <ul><li>Brand loyalty </li></ul><ul><ul><li>Buyers prefer products of incumbent companies because of...
Potential Competitors <ul><li>Economies of Scale </li></ul><ul><ul><li>Cost advantages associated with large output  </li>...
Potential Competitors <ul><li>Government Regulation </li></ul><ul><ul><li>Constituted a major entry barrier in many indust...
Rivalry Among Established Companies <ul><li>If rivalry weak, have opportunities to raise price and earn greater profits  <...
Industry Competitive Structure <ul><li>Refers to number and size distribution of companies in industry </li></ul><ul><li>V...
Industry Competitive Structure <ul><li>Fragmented industries (Example: Video Rental) </li></ul><ul><ul><li>Low entry barri...
Industry Competitive Structure <ul><li>Consolidated industries (Example: Aerospace) </li></ul><ul><ul><li>Interdependent: ...
Demand Conditions <ul><li>Determinant of intensity of rivalry among established </li></ul><ul><li>Growing demand reduce ri...
Exit Barriers <ul><li>Economic, strategic and emotional factors that keep companies in industry even returns are low </li>...
Bargaining Power of Buyers <ul><li>Buyer affect the industry through their ability </li></ul><ul><li>Buyers are most power...
Bargaining Power of Suppliers <ul><li>Suppliers have ability to rise prices or reduce quality over purchased products or s...
Substitute Products <ul><li>Products that serve similar consumer needs </li></ul><ul><li>Existence of close substitute pre...
Complementors <ul><li>Not included in Porter’s Five Forces Model </li></ul><ul><li>Andrew Grove argued Porter ignores sixt...
Complementors <ul><li>Strong foundation in economic theory </li></ul><ul><li>Health of industry depend on supply of comple...
Role of Macroenvironment <ul><li>Macroeconomic Environment </li></ul><ul><li>Technological Environment </li></ul><ul><li>S...
Role of Macroenvironment
Macroeconomic Environment <ul><li>Determine general health and well-being of economy </li></ul><ul><li>Four important fact...
Growth Rate of Economy <ul><li>Produce a general easing of competitive pressures </li></ul><ul><li>Give opportunities to e...
Interest Rates <ul><li>Determine level of demand for company’s products </li></ul><ul><li>If interest rates low, consumers...
Currency Exchange <ul><li>Value of different national currencies against each other </li></ul><ul><li>Direct impact on com...
Inflation Rates <ul><li>Destabilize the economy: slower economic growth, higher interest rates and volatile currency movem...
Technological Environment <ul><li>Both creative and destructive - both opportunity and threat </li></ul><ul><li>Most impor...
Social Environment <ul><li>Create opportunities and threats </li></ul><ul><li>Immense impact and early recognized companie...
Demographic Environment <ul><li>Changing composition of population </li></ul><ul><li>Example : for Baby boomers born in 19...
Political and Legal Environment <ul><li>Deregulation can reduce barriers to entry, and </li></ul><ul><li>Lead to intense c...
Concept of Strategic Groups <ul><li>Strategic group - group of companies; each follows the same basic strategy as other co...
Implications of Strategic Groups <ul><li>Companies closet competitors are those in the same strategic group </li></ul><ul>...
Implications of Strategic Groups <ul><li>Different strategic groups have different standing with respect to each of compet...
Implications of Strategic Groups <ul><li>Managers must evaluate that company would be better off competing in a different ...
Limitations of Five Forces and Strategic Group Models <ul><li>Five forces and Strategic group provide useful way of thinki...
Innovation and Industry Structure <ul><li>Many industries competition can be viewed as a process driven by innovation </li...
Innovation and Industry Structure <ul><li>Innovations seem to lower barriers to entry, allow more companies into industry ...
Industry Structure and Company Differences <ul><ul><li>Underemphasized importance of company differences within an industr...
Competitive Changes During an Industry’s Evolution <ul><ul><li>Most industries pass through a series of stages, from growt...
Stages of Industry Life Cycle
Embryonic Industries <ul><ul><li>Growth at this stage is slow because of buyer’s unfamiliarity and poorly developed distri...
Growth Industries <ul><li>First-time demand expands rapidly as many new consumers enter the market </li></ul><ul><li>Contr...
Growth Industries <ul><li>Threat from potential competitors is highest </li></ul><ul><li>Rivalry to be low </li></ul><ul><...
Industry Shakeout <ul><li>Demand approaches saturation levels </li></ul><ul><li>Demand is limited to replacement demand </...
Industry Shakeout <ul><ul><li>However, demand no longer grows at historic rates </li></ul></ul><ul><ul><li>As a result, em...
Mature Industries <ul><li>Market is totally saturated </li></ul><ul><li>Demand is limited to replacement demand </li></ul>...
Mature Industries <ul><li>To survive the shakeout,  </li></ul><ul><ul><li>Focus both on cost minimization and on building ...
Mature Industries <ul><li>As a result of shakeout, </li></ul><ul><ul><li>most companies in the mature stage have consolida...
Mature Industries <ul><li>As a benefit,  </li></ul><ul><ul><li>Reduce the threat of rivalry among them </li></ul></ul><ul>...
Declining Industries <ul><li>Growth can be negative including technological substitution, social changes, demographics and...
Declining Industries <ul><li>Main problem is falling demand leads to the emergence of excess capacity </li></ul><ul><li>Cu...
Variations on the Theme <ul><li>Important to remember that industry life cycle is generalized </li></ul><ul><li>In practic...
Network Economics as a Determinant of Industry Conditions <ul><li>Primary determinant of competitive conditions in high- t...
Network Economics as a Determinant of Industry Conditions <ul><li>Set up positive feedback loop when increased in demand o...
Network Economics as a Determinant of Industry Conditions <ul><li>Tend to be winner take all market </li></ul><ul><li>Powe...
Globalization And Industry Structure <ul><li>Advantage of national differences in cost and quality of factors of productio...
Globalization And Industry Structure <ul><li>Crucial for company to recognize that industry’s boundary do not stop at nati...
The Nation-State and Competitive Advantage <ul><li>Despite globalization, many of most successful companies still cluster ...
The Nation-State and Competitive Advantage
The Nation-State and Competitive Advantage <ul><li>Factor endowments </li></ul><ul><ul><li>Prime determinant of competitiv...
The Nation-State and Competitive Advantage <ul><li>Competitiveness of related and supporting industries  </li></ul><ul><ul...
The Nation-State and Competitive Advantage <ul><li>Nation can achieve international success in certain industry is functio...
 
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External Analysis: The Identification of Industry Opportunities and Threats

  1. 1. External Analysis : The Identification of Industry Opportunities and Threats Presented by Group (6) Strategic Management Theory
  2. 2. Content <ul><li>Analyzing Industry Structure </li></ul><ul><li>Strategic Groups Within Industries </li></ul><ul><li>Limitations of the Five Forces and Strategic Group Models </li></ul><ul><li>Competitive Changes During an Industry’s Evolution </li></ul><ul><li>Network Economics as a Determinant of Industry Conditions </li></ul><ul><li>Globalization and Industry Structure </li></ul><ul><li>The Nation-State and Competitive Advantage </li></ul>
  3. 3. Analyzing Industry Structure
  4. 4. Potential Competitors <ul><li>Potential competitors - not currently in market but have capability to do if they choose </li></ul><ul><li>More companies enter, more difficult to hold market share and to generate profits </li></ul><ul><li>Barriers to entry – factors make costly to enter industry </li></ul>
  5. 5. Potential Competitors <ul><li>Main sources of barriers to new entry </li></ul><ul><ul><li>Brand Loyalty </li></ul></ul><ul><ul><li>Absolute Cost Advantages </li></ul></ul><ul><ul><li>Economies of Scale </li></ul></ul><ul><ul><li>Switching Costs </li></ul></ul><ul><ul><li>Government Regulation </li></ul></ul>
  6. 6. Potential Competitors <ul><li>Brand loyalty </li></ul><ul><ul><li>Buyers prefer products of incumbent companies because of brand loyalty (Example : Patent, Continuous Advertising etc.) </li></ul></ul><ul><ul><li>Make difficult for new entrants </li></ul></ul><ul><li>Absolute Cost Advantages </li></ul><ul><ul><li>Derive from three main sources 1) superior production operations, 2) control of particular inputs and 3) access to cheaper funds </li></ul></ul><ul><ul><li>Having absolute cast advantages can prevent from new entrants </li></ul></ul>
  7. 7. Potential Competitors <ul><li>Economies of Scale </li></ul><ul><ul><li>Cost advantages associated with large output </li></ul></ul><ul><ul><li>Because of discount on purchase, fixed cost </li></ul></ul><ul><ul><li>New entrant face dilemma of either small scale or large scale </li></ul></ul><ul><ul><li>Threat of entry is reduced </li></ul></ul><ul><li>Switching Cost </li></ul><ul><ul><li>Arise when customer cost to switch from one to another product </li></ul></ul><ul><ul><li>When cost is high, consumers still use old products even new provide better </li></ul></ul>
  8. 8. Potential Competitors <ul><li>Government Regulation </li></ul><ul><ul><li>Constituted a major entry barrier in many industries </li></ul></ul><ul><li>Entry Barriers and Competition </li></ul><ul><ul><li>Because of above facts, risk of potential competitors is diminished </li></ul></ul><ul><ul><li>When risk low, established can charge higher prices and earn greater profits </li></ul></ul><ul><ul><li>Height of barrier to entry is most important </li></ul></ul>
  9. 9. Rivalry Among Established Companies <ul><li>If rivalry weak, have opportunities to raise price and earn greater profits </li></ul><ul><li>Intense rivalry among established constitutes a strong threat to profitability </li></ul><ul><ul><li>Competitive Structure </li></ul></ul><ul><ul><li>Demand Conditions </li></ul></ul><ul><ul><li>Exit Barriers </li></ul></ul>
  10. 10. Industry Competitive Structure <ul><li>Refers to number and size distribution of companies in industry </li></ul><ul><li>Vary from fragmented to consolidated </li></ul><ul><li>Fragmented contains large number of small or medium-sized </li></ul><ul><li>Consolidated dominated by small number of large companies known as oligopoly </li></ul>
  11. 11. Industry Competitive Structure <ul><li>Fragmented industries (Example: Video Rental) </li></ul><ul><ul><li>Low entry barriers and commodity-type products that hard to differentiate </li></ul></ul><ul><ul><li>Result in boom-bust cycles </li></ul></ul><ul><ul><li>Create excess capacity because of low entry barriers and high profits </li></ul></ul><ul><ul><li>Result in price war </li></ul></ul><ul><ul><li>Constitute threat than opportunity </li></ul></ul><ul><ul><li>Best strategy – cost minimization </li></ul></ul>
  12. 12. Industry Competitive Structure <ul><li>Consolidated industries (Example: Aerospace) </li></ul><ul><ul><li>Interdependent: competitive action of one directly affect others </li></ul></ul><ul><ul><li>High rivalry and price war constitute a major threat </li></ul></ul><ul><ul><li>Try to compete on non-price factors when price war is threat </li></ul></ul><ul><ul><li>Effectiveness depends how easy to differentiate products although some products are not </li></ul></ul><ul><ul><li>In practice, non-price competition can be damage and expensive </li></ul></ul>
  13. 13. Demand Conditions <ul><li>Determinant of intensity of rivalry among established </li></ul><ul><li>Growing demand reduce rivalry and get high profit </li></ul><ul><li>Declining demand be major threat; increase more rivalry between established </li></ul>
  14. 14. Exit Barriers <ul><li>Economic, strategic and emotional factors that keep companies in industry even returns are low </li></ul><ul><li>Common exit barriers </li></ul><ul><ul><li>Investments have no alternative uses and can’t be sold </li></ul></ul><ul><ul><li>High fixed cost </li></ul></ul><ul><ul><li>Emotional attachments </li></ul></ul><ul><ul><li>Economic dependence </li></ul></ul>
  15. 15. Bargaining Power of Buyers <ul><li>Buyer affect the industry through their ability </li></ul><ul><li>Buyers are most powerful in the following </li></ul><ul><ul><li>There are many small sellers and few large buyers. </li></ul></ul><ul><ul><li>Buyers purchase in larger quantities. </li></ul></ul><ul><ul><li>Supplier’s industry depends on buyers’ large % of total order. </li></ul></ul><ul><ul><li>Buyers switch order base on low cost. </li></ul></ul><ul><ul><li>Buyers purchase from multiple sellers at once. </li></ul></ul><ul><ul><li>Buyers can easily vertically integrate to compete with suppliers. </li></ul></ul>
  16. 16. Bargaining Power of Suppliers <ul><li>Suppliers have ability to rise prices or reduce quality over purchased products or services </li></ul><ul><li>Suppliers are most powerful in the following </li></ul><ul><ul><li>Few substitutes and important to buyers </li></ul></ul><ul><ul><li>Buyer’s industry is not an important customer to the supplier </li></ul></ul><ul><ul><li>Costly for buyers to switch one supplier to another </li></ul></ul><ul><ul><li>Suppliers can vertically integrate forward to compete </li></ul></ul><ul><ul><li>Buyers cannot integrate backward to supply their own needs </li></ul></ul>
  17. 17. Substitute Products <ul><li>Products that serve similar consumer needs </li></ul><ul><li>Existence of close substitute present strong competitive threat </li></ul><ul><li>Strategies should be designed to take advantage of this fact </li></ul>
  18. 18. Complementors <ul><li>Not included in Porter’s Five Forces Model </li></ul><ul><li>Andrew Grove argued Porter ignores sixth force - Complementors </li></ul><ul><li>Complementors – companies that sell complements to enterprise’s own product offerings </li></ul><ul><li>Without supply of complementary result in low demand and profit </li></ul>
  19. 19. Complementors <ul><li>Strong foundation in economic theory </li></ul><ul><li>Health of industry depend on supply of complementary products </li></ul>
  20. 20. Role of Macroenvironment <ul><li>Macroeconomic Environment </li></ul><ul><li>Technological Environment </li></ul><ul><li>Social Environment </li></ul><ul><li>Demographic Environment </li></ul><ul><li>Political and Legal Environment </li></ul>
  21. 21. Role of Macroenvironment
  22. 22. Macroeconomic Environment <ul><li>Determine general health and well-being of economy </li></ul><ul><li>Four important factors </li></ul><ul><ul><li>Growth rate of economy </li></ul></ul><ul><ul><li>Interest rates </li></ul></ul><ul><ul><li>Currency exchange </li></ul></ul><ul><ul><li>Inflation rates </li></ul></ul>
  23. 23. Growth Rate of Economy <ul><li>Produce a general easing of competitive pressures </li></ul><ul><li>Give opportunities to expand company’s operations and earn higher profits </li></ul><ul><li>Economic decline </li></ul><ul><ul><li>lead to reduction in consumer expenditures </li></ul></ul><ul><ul><li>increase competitive pressures </li></ul></ul><ul><ul><li>cause price wars in mature industries </li></ul></ul>
  24. 24. Interest Rates <ul><li>Determine level of demand for company’s products </li></ul><ul><li>If interest rates low, consumers borrow money to finance their purchases </li></ul><ul><li>Rising interest rates are a threat and falling rates an opportunity </li></ul>
  25. 25. Currency Exchange <ul><li>Value of different national currencies against each other </li></ul><ul><li>Direct impact on competitiveness of products in global </li></ul><ul><li>Low or declining dollar reduces the threat from foreign competitors and while creating opportunities for increased sales overseas </li></ul>
  26. 26. Inflation Rates <ul><li>Destabilize the economy: slower economic growth, higher interest rates and volatile currency movements </li></ul><ul><li>Inflation increases, investment become hazardous </li></ul><ul><li>Key characteristic - makes the future less predictable </li></ul><ul><li>High inflation threat to companies </li></ul>
  27. 27. Technological Environment <ul><li>Both creative and destructive - both opportunity and threat </li></ul><ul><li>Most important impact is that it can make height of barriers to entry </li></ul><ul><li>As result, radically reshape industry structure </li></ul><ul><li>Example : Because of internet technology, </li></ul><ul><ul><li>Online Service (Opportunity) </li></ul></ul><ul><ul><li>Travel agent (Threat) </li></ul></ul>
  28. 28. Social Environment <ul><li>Create opportunities and threats </li></ul><ul><li>Immense impact and early recognized companies get opportunities </li></ul><ul><li>Example : Increase health consciousness in US in 1970s and 1980s </li></ul><ul><ul><li>Recognized industry (Opportunity) – low-calories beer </li></ul></ul><ul><ul><li>Tobacco industry (Threat) </li></ul></ul>
  29. 29. Demographic Environment <ul><li>Changing composition of population </li></ul><ul><li>Example : for Baby boomers born in 1960s </li></ul><ul><ul><li>Now – aged </li></ul></ul><ul><ul><li>In 1980s, get married, </li></ul></ul><ul><ul><li>Increased demand in consumer appliances, </li></ul></ul><ul><ul><li>Threats for toy industry </li></ul></ul>
  30. 30. Political and Legal Environment <ul><li>Deregulation can reduce barriers to entry, and </li></ul><ul><li>Lead to intense competition </li></ul><ul><li>Example: Air Line industry in US </li></ul>
  31. 31. Concept of Strategic Groups <ul><li>Strategic group - group of companies; each follows the same basic strategy as other companies in group </li></ul><ul><li>Proprietary group </li></ul><ul><ul><li>High-risk because of expensive research and development </li></ul></ul><ul><ul><li>High-return for being monopoly on its production and sales </li></ul></ul><ul><li>Generic Group </li></ul><ul><ul><li>low-risk for not heavy investment in R & D </li></ul></ul><ul><ul><li>Low-return means unable charge high price </li></ul></ul>
  32. 32. Implications of Strategic Groups <ul><li>Companies closet competitors are those in the same strategic group </li></ul><ul><li>Companies in strategic group pursue similar strategies </li></ul><ul><li>Consumers can view products of such companies as direct substitutes for others </li></ul><ul><li>Example: </li></ul><ul><ul><li>Gold Roast </li></ul></ul><ul><ul><li>Super </li></ul></ul><ul><ul><li>Premier </li></ul></ul>
  33. 33. Implications of Strategic Groups <ul><li>Different strategic groups have different standing with respect to each of competitive forces </li></ul><ul><li>All five forces vary in intensity among different strategic groups within the same industry </li></ul>
  34. 34. Implications of Strategic Groups <ul><li>Managers must evaluate that company would be better off competing in a different strategic group </li></ul><ul><li>If environment of another group is more benign, moving into that group which can be regarded to gain opportunity </li></ul><ul><li>Mobility barriers – factors that inhibit movement between groups </li></ul><ul><li>Include both barriers to entry and barriers to exist </li></ul>
  35. 35. Limitations of Five Forces and Strategic Group Models <ul><li>Five forces and Strategic group provide useful way of thinking about and analyzing nature of competition </li></ul><ul><li>Need to aware of their shortcomings </li></ul><ul><ul><li>Present a static picture of competition and slights innovation </li></ul></ul><ul><ul><li>De-emphasize significance of differences while overemphasizing importance of industry and strategic group structure </li></ul></ul>
  36. 36. Innovation and Industry Structure <ul><li>Many industries competition can be viewed as a process driven by innovation </li></ul><ul><li>New and small enterprises can compete with large established by innovation </li></ul><ul><li>Successful innovation can revolutionize industry structure </li></ul><ul><ul><li>When stabilizes in its new configuration, the five forces and strategic group concepts can once more be applied </li></ul></ul>
  37. 37. Innovation and Industry Structure <ul><li>Innovations seem to lower barriers to entry, allow more companies into industry </li></ul><ul><li>As a result lead to fragmentation rather than consolidation </li></ul>
  38. 38. Industry Structure and Company Differences <ul><ul><li>Underemphasized importance of company differences within an industry or strategic group </li></ul></ul><ul><ul><li>Individual resources and capabilities of company are far more important determinants of its profitability than industry and strategic group </li></ul></ul><ul><ul><li>A company will not be profitable just because it is based in an attractive industry or strategic group </li></ul></ul>
  39. 39. Competitive Changes During an Industry’s Evolution <ul><ul><li>Most industries pass through a series of stages, from growth through maturity and eventually into decline </li></ul></ul><ul><ul><li>Changes in potential competitors and rivalry give rise to different opportunities and threats at each stage </li></ul></ul><ul><ul><li>Embryonic industry </li></ul></ul><ul><ul><li>Growth industry </li></ul></ul><ul><ul><li>Shakeout </li></ul></ul><ul><ul><li>Mature industry </li></ul></ul><ul><ul><li>Declining industry </li></ul></ul>
  40. 40. Stages of Industry Life Cycle
  41. 41. Embryonic Industries <ul><ul><li>Growth at this stage is slow because of buyer’s unfamiliarity and poorly developed distribution channels </li></ul></ul><ul><ul><li>Barriers to entry at this stage base on access to key technological know-how </li></ul></ul><ul><ul><li>Rivalry based on perfecting products, educating customers, and opening up distribution channels </li></ul></ul><ul><li>` </li></ul>
  42. 42. Growth Industries <ul><li>First-time demand expands rapidly as many new consumers enter the market </li></ul><ul><li>Control over technological knowledge as barrier diminish time </li></ul><ul><li>Growth of industry increase when </li></ul><ul><ul><li>Consumers become familiar with product </li></ul></ul><ul><ul><li>Prices fall, experience and scale economies attained </li></ul></ul><ul><li>Example: U.S cellular telephone industry </li></ul>
  43. 43. Growth Industries <ul><li>Threat from potential competitors is highest </li></ul><ul><li>Rivalry to be low </li></ul><ul><li>Rapid growth in demand expands companies’ revenues and profits </li></ul><ul><li>Opportunity to expand company’s operations </li></ul>
  44. 44. Industry Shakeout <ul><li>Demand approaches saturation levels </li></ul><ul><li>Demand is limited to replacement demand </li></ul><ul><li>During this stage, </li></ul><ul><ul><li>Rivalry become intense </li></ul></ul><ul><ul><li>Continue to add capacity at rate consistent with past growth </li></ul></ul><ul><ul><li>Use historic growth rates to forecast further growth rates and expansion plans </li></ul></ul>
  45. 45. Industry Shakeout <ul><ul><li>However, demand no longer grows at historic rates </li></ul></ul><ul><ul><li>As a result, emergence of excess of productive capacity </li></ul></ul><ul><ul><li>To utilize this capacity, companies cut prices that lead to a price war </li></ul></ul>
  46. 46. Mature Industries <ul><li>Market is totally saturated </li></ul><ul><li>Demand is limited to replacement demand </li></ul><ul><li>During this stage, </li></ul><ul><ul><li>Growth is zero or low </li></ul></ul><ul><ul><li>Entry barriers increase and the threat of entry from potential competitors decreases </li></ul></ul><ul><ul><li>Competition for market share develops, driving down prices. ( in order to maintain historic growth rates) </li></ul></ul>
  47. 47. Mature Industries <ul><li>To survive the shakeout, </li></ul><ul><ul><li>Focus both on cost minimization and on building brand loyalty (airlines example) </li></ul></ul><ul><ul><li>Higher entry barriers gives the opportunity to increase prices and profits </li></ul></ul>
  48. 48. Mature Industries <ul><li>As a result of shakeout, </li></ul><ul><ul><li>most companies in the mature stage have consolidated and become oligopolies </li></ul></ul><ul><ul><li>they tend to recognize their interdependence and try to avoid price wars </li></ul></ul><ul><ul><li>Stable demand gives the opportunity to enter into price-leadership agreements </li></ul></ul>
  49. 49. Mature Industries <ul><li>As a benefit, </li></ul><ul><ul><li>Reduce the threat of rivalry among them </li></ul></ul><ul><ul><li>Greater profitability </li></ul></ul><ul><li>However, stability of a mature industry is always threatened by further price wars </li></ul>
  50. 50. Declining Industries <ul><li>Growth can be negative including technological substitution, social changes, demographics and international competition </li></ul><ul><li>Rivalry increases </li></ul><ul><li>Competitive pressures become fierce depending on the speed of the decline and height of exit barriers </li></ul>
  51. 51. Declining Industries <ul><li>Main problem is falling demand leads to the emergence of excess capacity </li></ul><ul><li>Cut prices again </li></ul><ul><li>The greater the exit barriers, the harder it is for companies to reduce capacity </li></ul><ul><li>The greater is the threat of severe price competition </li></ul>
  52. 52. Variations on the Theme <ul><li>Important to remember that industry life cycle is generalized </li></ul><ul><li>In practice, industry life cycle do not always follow the pattern </li></ul>
  53. 53. Network Economics as a Determinant of Industry Conditions <ul><li>Primary determinant of competitive conditions in high- technology industries </li></ul><ul><li>Arise where size of “network” of complementary products is a primary determinant of demand for industry’s product </li></ul><ul><li>Example: demand for telephones depend on size of telephone network </li></ul>
  54. 54. Network Economics as a Determinant of Industry Conditions <ul><li>Set up positive feedback loop when increased in demand of complementary products </li></ul><ul><li>Positive feedback loop can </li></ul><ul><ul><li>generate repaid demand growth </li></ul></ul><ul><ul><li>result in becoming very concentrated and potential competitors being locked out by high switching cost </li></ul></ul>
  55. 55. Network Economics as a Determinant of Industry Conditions <ul><li>Tend to be winner take all market </li></ul><ul><li>Powerful network economics are important ,positive feedback loop tend to operation relative to buyer s and suppliers </li></ul><ul><li>Trick is to find right strategy in order to set up positive feedback loop </li></ul>
  56. 56. Globalization And Industry Structure <ul><li>Advantage of national differences in cost and quality of factors of production, example: Boeing </li></ul><ul><li>From national markets that have distinct entities and isolated from trade barriers, barriers of distance ,time and culture to a system in which national markets are merging into huge global market </li></ul><ul><li>Consumer use same basic product offerings (only global market) </li></ul>
  57. 57. Globalization And Industry Structure <ul><li>Crucial for company to recognize that industry’s boundary do not stop at national borders </li></ul><ul><li>Shift from national to global markets has intensified competitive rivalry in industry after industry </li></ul><ul><li>Rate of innovation affect competitive intensified </li></ul><ul><li>Even globalization has increased both threat of entry and intensity of rivalry, it has also created enormous opportunities </li></ul>
  58. 58. The Nation-State and Competitive Advantage <ul><li>Despite globalization, many of most successful companies still cluster in small number of countries </li></ul><ul><li>Need to understand how national factors can affect competitive advantage </li></ul><ul><li>Also known as diamond model </li></ul><ul><li>Four attributes of a nation-state that have important impact on global competitiveness </li></ul>
  59. 59. The Nation-State and Competitive Advantage
  60. 60. The Nation-State and Competitive Advantage <ul><li>Factor endowments </li></ul><ul><ul><li>Prime determinant of competitive advantage </li></ul></ul><ul><ul><li>Basic factors (e.g.: land, labor), Advanced factors (e.g.: physical infrastructure, managerial sophistication) </li></ul></ul><ul><li>Local demand conditions </li></ul><ul><ul><li>Get competitive advantage if local consumers are demanding and sophisticated </li></ul></ul><ul><ul><li>Local consumers pressure local companies to meet high quality standard and produce innovative products. </li></ul></ul>
  61. 61. The Nation-State and Competitive Advantage <ul><li>Competitiveness of related and supporting industries </li></ul><ul><ul><li>Presence in country of suppliers or related industries that are internationally competitive </li></ul></ul><ul><ul><li>Example: technological leadership in U.S semiconductor provide the success in personal computers </li></ul></ul><ul><li>Strategy, Structure and Rivalry </li></ul><ul><ul><li>Different management ideologies which either help or don’t help them build national competitive advantage </li></ul></ul><ul><ul><li>Domestic rivalry create pressures to innovate, to improve quality </li></ul></ul>
  62. 62. The Nation-State and Competitive Advantage <ul><li>Nation can achieve international success in certain industry is function of combined impact of factor </li></ul><ul><li>Government can influence each of four components either positively or negatively </li></ul>
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