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How Competitive Forces Shape Strategy (Multifaceted rivalry (Corporate…

- - - - Economies of scale:large scale or to accept a cost disadvantage Economies of scale can also act as hurdles in distribution, utilization of the sales force, financing, and nearly any other part of a business.
      - Product differentiation: spend heavily to overcome customer loyalty.
      - Capital requirements—The need to invest large financial resources in order to compete creates a barrier to entry, particularly if the capital is required for unrecoverable expenditures in up-front advertising or R&D
      - Cost disadvantages independent of size available to potential rivals can stem from the effects of the learning curve (and of its first cousin, the experience curve),
      - Access to distribution channels—The newcomer on the block must, of course, secure distribution of its product or service The more limited the wholesale or retail channels are and the more that existing competitors have these tied up, Sometimes this barrier is so high that, to surmount it, a new contestant must create its own distribution channels, as Timex
      - Government policy—The government can limit or even foreclose entry to industries with such controls as license requirements and limits on access to raw materials.
  - - - Is dominated by a few companies and is more concentrated than the industry it sells to.
      - product is unique or at least differentiated, or if it has built up switching costs
      - It is not obliged to contend with other products for sale to the industry.
      - It poses a credible threat of integrating forward into the industry’s business
      - The industry is not an important customer of the supplier group.
    - - Large volume buyers are particularly potent forces if heavy fixed costs characterize the industr
      - The products it purchases from the industry are standard or undifferentiated
      - The products it purchases from the industry form a component of its product and represent a significant fraction of its cost
      - The industry’s product is unimportant to the quality of the buyers’ products or services.
      - MThe industry’s product does not save the buyer money
      - The buyers pose a credible threat of integrating backward to make the industry’s product
      - buyer power can be attributed to consumers as a group as well as to industrial and commercial buyers
    - - A company can improve its strategic posture by finding suppliers or buyers who possess the least power to influence it adversely. in other words, buyer selection
      - As a rule, a company can sell to powerful buyers and still come away with above-average profitability only if it is a low-cost producer in its industry or if its product enjoys some unusual
  - - - (a) are subject to trends improving their price-performance trade-off with the industry’s product
      - (b) are produced by industries earning high profits.
    - - Competitors are numerous or are roughly equal in size and power.
      - Industry growth is slow,
      - The product or service lacks differentiation or switching costs,
      - Fixed costs are high or the product is perishable, creating strong temptation to cut prices.
      - Capacity is normally augmented in large increments.
        
        Technological innovation can boost the level of fixed costs in the production process
      - Exit barriers are high. Exit barriers, like very specialized assets or management’s loyalty to a particular business, keep companies competing even though they may be earning low or even negative returns on investment
      - The rivals are diverse in strategies, origins, and “personalities.” They have different ideas about how to compete and continually run head-on into each other in the process
        
        An acquisition can introduce a very different personality to an industry
      - As an industry matures, its growth rate changes, resulting in declining profits and (often) a shakeout
  - - - takes the offensive
      - meant to alter their causes.
      - Innovations
    - - brings with it changes in the sources of competition I have identified
      - companies tend to integrate vertically.
      - This in turn is raising barriers to entry and may drive some smaller competitors out of the industry once growth levels off
      - competition that I have described can also be used to predict the eventual profitability of an industry.
      - examine each competitive force, forecast the magnitude of each underlying cause, and then construct a composite picture of the likely profit potential of the industry
      - The framework for analyzing industry competition has direct benefits in setting diversification strategy. It provides a road map for answering the extremely difficult question inherent in diversi fication decisions: “What is the potential of this business?”