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Chapter topics: Industry analysis Factors that shape competition Competitive advantage at the industry and national levels Hypercompetition
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Barriers to Entry
Economies of Scale Refers to the decline in p per-unit p product costs as the absolute volume of production per period increases Product P d t diff differentiation ti ti The extent of a products perceived uniqueness Capital requirements Required investment for manufacturing, R&D, advertising, ad e t s g, field e d sa sales es a and d se service, ce, etc etc. Switching costs Costs related to making g a change g in suppliers pp or products
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2011 Pearson Education, Inc.
New entrants mean downward pressure on prices and reduced profitability Barriers to entry determine the extent of f th threat t of f new i industry d t entrants t t 16-5
2011 Pearson Education, Inc.
Barriers to Entry
Distribution channels Are there current distribution channels available with capacity? it ? Government policy Are there regulations in place that restrict competitive entry? Cost advantages independent of scale economies Is there access to raw materials, large pool of lowcost labor, favorable locations, and government subsidies? b idi ? Competitor response How will the market react in anticipation of increased competition within a given market? 16-7
2011 Pearson Education, Inc.
Low
High
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2011 Pearson Education, Inc.
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Competitive Advantage
Achieved when there is a match between a firms distinctive p and the factors critical for competencies success within its industry Two ways to achieve competitive advantage
Low-cost Low cost strategy Product differentiation
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2011 Pearson Education, Inc.
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2011 Pearson Education, Inc.
Cost Leadership
Based on a firms position as the industrys l low-cost t producer d Must construct the most efficient facilities Must obtain the largest market share so that per unit cost is the lowest in the industry y its p Only works if barriers exist that prevent competitors from achieving the same low costs
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
Product Differentiation
Product that has an actual or perceived uniqueness in a broad market has a differential advantage Extremely effective for defending market position Extremely effective for obtaining aboveaverage financial returns; unique products command a premium price
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Cost Focus
Firms lower cost position enables it to offer ff a narrow t target t market k tl lower prices than the competition Sustainability is the central issue for this gy strategy
Works if competitors define their target market more broadly y Works if competitors cannot define the segment g even more narrowly y
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
Focused Differentiation
The product not only has actual uniqueness, but it also has a very narrow target market Results from a better understanding g of customers wants and desires Ex: High High-end end audio equipment
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2011 Pearson Education, Inc.
Network Relationships
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
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Collaborating
U Use the th know-how k h developed by other companies Licensing agreements, agreements joint ventures, or partnerships
National Diamond
Factor Conditions
Human Resources the quantity of workers available skills possessed by those workers, available, workers wage levels, and work ethic Physical Resources the availability availability, quantity, quantity quality, and cost of land, water, minerals, and other natural resources Knowledge Resources the availability within a nation of a significant population having scientific, technical, and market-related g knowledge
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2011 Pearson Education, Inc.
Factor Conditions
Capital Resources the y amount, cost, and availability, types of capital available; also g rate, interest includes savings rates, tax laws, and government deficit Infrastructure Resources this includes a nation nations s banking, healthcare, transportation, and communication systems 16-29
2011 Pearson Education, Inc.
Demand Conditions
Composition of Home Demand determines how firms perceive, interpret, and respond p to buyer y needs Size and Pattern of Growth of Home Demand large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets
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2011 Pearson Education, Inc.
Demand Conditions
Rapid Home Market Growth another i incentive ti to t i invest ti in and d adopt d t new technologies faster and build large, efficient ffi i t f facilities iliti g pushed p or pulled p do a Products being nations people and businesses go abroad and then demand the nations products and services in those second countries?
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
F actor C on ditio ns
D em a n d C on ditions
G ov ern m ent
similarities wrt whats (i.e., what matters is to win a war) differences in hows (i.e., how to win a war) win by using absolute forces vs. gain victory without fighting
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2011 Pearson Education, Inc.
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Hypercompetition
I do dont tt think were e e moving o g to towards a ds a hypercompetitive world in which there are no trade-offs There are more customer segments than ever before, more technological options, more distribution channels. That ought to create t l lots t of f opportunities t iti f for unique i positions. iti
Michael Porter
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