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77 Cards in this Set
- Front
- Back
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fiver forces
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-rivalry
-substitutes -buyers -subistutes -new entry |
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threat of entry
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-economies of scale
-product differentatiation(brand identification and customer loyalty) -cost advatnages indep. of scale (proprietary techo, managerial know-how, learn curve advantages, favorable access to raw materials) -gov't regualation of entry |
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threat of rivalry
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-lots of firms, all similar size
-industry growth is slwo -firms are unable to differentiate |
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threat of subsittues
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meets consumer's needs but in diff ways
-places a celing price that firms can charge |
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threat of suppliers
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-supplier's industry is dominated by small # of firms
-supply is unique/highly differentiated -suppleirs not threatened by substitutes -can enter into and begn competing in a firm's industry (forward vertical integration) -firms aren't an important part of suppier's business |
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threat of buyers
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-# of buyers is small
-products sold from firm are undifferentaited and std. -products sol are signifacnt percentafe of a buyer's final costs (buyer=sensitve to costs) -buyer's aren't earngin signifcicant economic profits (senesiteve to costs) -buyers threaten backwards vertical itnegration |
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fragmented industries
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industries in which a large number of small or medicum-sized firm operate and no small set of firms ahs dominant market share or c reates doming atechnoloiges
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fragmented industries opp:
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cosolidation
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cosonlidation occurs
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adop new ownership structures(franchising), discover new economices of scale in an industry,
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emerging industries
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newly created or newly re-created industries formed by tech. innovations, changes in demand, emergence of new customer needs and so fourth
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emerging industries opp
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first-mover advantages, preemption of strategic valuable assets, creation of customer-switchign costs
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fir mover advantages
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tech. leadership strategy, low-cost position based o their greater cumulative volume, 2. may obatin patent protectors
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strategically valuable assets
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resoursces required to scuessfully compete in an industry-first movers can get this first.
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mature industries
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slowing growth in total industry demand
-dvpt. of experienced repeat customers -slowdown in increases in production capacity -slowdown in the introduction of new products or services -an increase in the amt. of int' copmetition -an overall reduction int he priftabiity of firms in the industry |
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mature industry opp
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refine current products, emphais on service, process innovation
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declinign industry
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industry that has experienced an absolute decline in unit sales over a susttained period of time
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declinging industry opp
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market leadership., market niche, harvest, divestment
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shakeoutperiod
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when total supply in an inudstry is reduced by bankruptices, acquisitons, and business closing
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harvest
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dont' expect to stay too long, extracting as mucha value as possible during the withdrawal period, strategy by elimiangin less profitable customers, reducing product quality, reducing service quality, deferrign amintentance and equpiment repair
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dviestment
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sell off
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int'l thretsa
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tarrifs, quotas, nontarriff trad barriers
why: gov't can get more money and strenght demand for products and services prodced by domestic firms |
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puruse multinational opp.
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1. enables firms to respond rapdily to changing conditions in a country or region
2. impressive resources can be gathered to exploit opp. or neutralize threat |
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global op
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manufacturing/labor costs are low.
-need to be good at coordiation -high transportation costs -lower response rate to local threats |
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capabilities
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subset of a firm's resoursces and are defiend as tangible and intangible assets that enable a firm to take full advantage of other resources it cotnrols
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resource heterogeneity
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implies that ofr a given business activity, some firms may be more skilled in accomplishing this activity than other firms
-some of these resuche and capability differenes among firms may be long lasting-resource immobility |
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VRIO framework
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-Vlaue, rarity, imitatibilyt, organization
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question of value
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do resources and capabilities enable a firm to exploit an external opportunity or neturalize an eternal threat?
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question of rarity
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is a resource currently controlled by only a small number of competing firms?
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question of imitability
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do firms w/o a resource face a cost disadvantage in obtiaingi nor developing it?
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defend against imitability
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-respone: ignore the cometptive advantages or try to understna dand duplicate
-casually ambiguous-realtionship b/t firm resources and capabilities and competitive advantage-not understandable (could be taken for granted, unable to evaluate exactly what makes it work) -social complexity-beyond the ability of firms to imitate |
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how get sustained competitive advantage
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-first in an indsutry to recongize and exploit opp. (first mover advnateg)
-second, path dependent when events early in the evoluion of a rpcoess have significant effects on subsequent events |
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why not respond to another firm's competitive advantage?
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1. might have own competitive advantages
2. may not respond to another firm's copm. advantage b/c it doesn't have the resources and capaiblities to do so 3. b/c trying to reduce the level of rivalry in industry(can benefit industry-increasing the avg. level of performance for a firm, firms in industry must be homogeneous with repsect to products they sell and cost structure |
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tacit cooperation
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do so w/o directly communicate/negotiate
-small number of empeting firms -homogenous products and costs -market share leader -hgih barriers to entry |
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tacit collusion
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effect of reducing supply and inrecreasing prices
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business level strategies
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actions firms take to gain competitive advantages in a single arket or industry
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corporate-level strategies
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actions firms take to gain competitive advantages by operating in multiple markets or industries ismultaneously
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cost leadership business straetgy
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focuses on gaining advantages by reducing its costs to below those of all its competitiors
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sources of cost advantages for firms
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-size differences and economies of scale
-size differences and diseconomies of scale -expereince differences and learning-curve economies -differential low-cost access to productive inputs -technological advantages independent of scale -policy choices |
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with higher production volume..
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-firms can use specialized machines
-build larger plants -can increase employee specialization -can spread overhead costs across more units produced(lower cost perunit producation costs) |
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sources of diseconomies of scale
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when the volume of production gets too large--
-physical limits to efficient size -managerial diseconomies -worker de-motivation -distance to market and supliers-can increase per-unit costs |
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how to move down a curve
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-need to be producing high volume
-one way is to acquire more market share->doing so is expensive->not goign to work well |
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how does cost leadership affect the five forces?
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-threatt of rivalry->can price at par or lower
-threat of substitutes->cost goes down, substittues are less attractive -threat of suppliers-can absorb high costs, firm has greater flexibility. (becomes a threat)->if goes higher, firm has to charge highter -threat of buyers-reduces threat, since most insist on low cost. |
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likely to be rare sources of costa advantage
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leaving-curve economies of scale (esp. in emergin businesses
-differential low-cost access to productive inputs -tech. "software" |
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less likelt to be rare sources of cost advantage
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-economies of scale (except when efficient plant size approx. equals total industry demand)
-diseconomies of scale -techno. hardware (unless prorperitary) -policy choices |
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policy choices
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make choices about the kinds of products and services they will sell
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int'l opersations can reduce a firm's cost ..
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-increasing sales to realize econimes of scale
-by gaining access to low-cost labor -by gaining access to low-cost raw materials |
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hedonic prices
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that part of price of a product/service that is attributable to a particular characteristic of tha tproduct or service
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ways to differentiate
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-product features
-product complexity(Bic pen or Mount Blanc pen) -timing of product introduction -location -product customization -consumer marketing -product reputation -linkages among functions within a firm -linkages with other firms -product mix -distribution channels -service and support |
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how product differentiation affects the five forces
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-reduce threat of new entry by forcing potential entratnts to an industry to absorb not only the std. cots of beginning business but also the additional costs associated w/ overcoming incumbent 's advantages
-reduces threst of rivalry-unique niche -reduce threat of sbustites-more attracive than substitute -reduce threat of supplires-easier to pass on costs -depends on how advantageous-based on how costly to duplicate -can all be substitutes for each other |
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backward vertical intergration
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wehn it incorporates more stages of the value cahain within its boundaries and those stages bring it closer to the beg. of the value chain, closer to gaining access to raw material
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forward vertical integration
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when it incopormates more atages of the avlue chain within its boundaries and those stages bring it closer to the end of the value chain, that is, closer to tinteracting directly wih final customers
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opporutnism
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exists when a firm is unfairly exploited in an exchange
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transaction-specific investment
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any investment in an exhchange that has significantly more value in the current exchange than it does in alt. exhcanges.
-integrate if this will happen-you will be at a disadvantage for sure given the situation |
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you should integrate
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-integrate if transaction-specific investment will happen-you will be at a disadvantage for sure given the situation
-integrate whereever you posses valuable, rare, and costly-to-imitate resources and capabiliteies - |
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flexibilyt
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refers to how costly it is for a firm to alter its strategic and org. decisions
-vertically itnegrating is less flexible than not vertically integrating -only valuable when the decision-making setting a firm is facing is uncertain. -uncertain when the future value of an exchange cannot be konwn when investments in that exhcnage are being made. -->consider alliance |
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rare vertical integration
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-may have developed a new tech. or a new approach to doing business, that requires its business partners to make substantial transaction-specific investments.
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limited corporate diversificaiton
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when all or most of its business activities fall within a single indstury and geographic market
-single-business (total sales in a single product market) and dominant-business firms (70-95% of total sales in single product market |
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related corporate diversification
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less than 70% of sales in same product market
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related-constratined
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if all the businesses in which a firm operates share a sig. number of inputs, production technolgies, distribution channels, similar custmers, and so forth.
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unrelated corporate diversivication
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less than 70% of a firm's revneues is generated in a single product market, share few common attributes
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economies of scope
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exist in a firm when th evalue of the products or services it sells increase as a function of the number of businesses that firm operates in
-valuabe that hey increase a firm's revenues or decreases its cost compared to what would be the case if these economies of scope were not exploited. |
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operational economies of scope
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share activities and shared core competitenceis
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financial economies of scope
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internal capital allcoation, risk reduction, tax advantages
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anticompetitive economies of scope
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multipoint competition, exploiting market power
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employee and stakeholder incentives for diversification
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maximizing mgt. compensation
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value chain activities shared
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-input activities
-production activities -warehousing/distribtuion -sales and marketing -dealer support and service |
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shared actiivies can also increase rev. in diversified firms' business
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-shared product dvpt. and sales activities may enable 2 or more business in a diversified fir to offer a bundeld set of products to customers
-shared activities can enhance business revenues by exploiting the strong, positive reputation of some of a firm's buesinses in other of its buesinses |
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sharing activities may limit the
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ability of aparicult r business to meet its specific custoermers' neds
-one buesins has poor rep, sharing activies w/ that buiness can dreduce the quality of the rep of antoher business |
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diversification to exploit financial economies of scope
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creates an internal capital market in which businesses in a dviersified firm compete for corporate capital ->must offer some efficiency advantages over an external capital market
-incentive to report negative and positive information w/o giving too much info to competitiors - |
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limits on internal capital markets
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-level and type of diversificaiton that a firm pursues can affect the efficiency of this allocation process
-increased efficiency of itnernal capital allocation depends on manager in a diversified firm having better info for capital than the ainfo available to external sources |
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advantages of diversificaiton
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-risk reduction(overall portfoilo risk down)
-tax advantages -reduce possibility of goign bankrupt |
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multipoint competition
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when diversified firms compete with each other in different industries
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mutual forbrearnace
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tacit collusion-reduce rivalry below the level expeted under perfect competition
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less costly to duplicate economies of scope
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shared activities
-risk reduction -tax advantages -employee compensantion |
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costly to duplicate economies of schope
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-core competitencies
-internal capital alloocation -multipoint competition -exploiting market power |
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substittuions for diversification
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-grow and develop each of buseinss separately instead of explointing economies of scope across business
-strategic alliances |
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strategy
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an integrated set of choices that match a firm's internal resources and capabilities to the threats and opportunities in its external environmentthta tfirm makes to pursue superior and sustainable profits
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