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SMMCG1[BS-2] External Analysis ([1] Module 2 Overview Lecture (the idea of…

- - - - The reason of more or less profit
      - The driver of industry attractiveness
      - Industry's profitability change
      - Resorce allocation
      - Entry or divestment decisions
      - Intervene strategically to change profitability
  - - - Firm's conduct
        
        Performance
- - - - 5-Forces Framework's central idea
        
        Structural attributes of forces drive competition over industry profits.
      - Industry predicts 12-13 percent of overall profitability
      - Structure – Conduct – Performance is a key foundation for industry analysis.
    - - Rivarly
        
        Differentiated product
        
        Patent protected
        
        Brand loyalty
      - High Entry barriers
        
        High risky on R&D investment
        
        Patents proctectation
        
        marketing and regulatory capabilities
      - Suppliers
        
        Mostly Commodities
        
        Suppliers exert very little bargaining power
      - Buyers
        
        Vital health need
        
        Insurance coverage
        
        Fragmented Decision-making
      - Substitutes
        
        Less competitive until recent years
        
        generic drugs
  - - - Low Entry barriers
        
        Easy to lease plane and crew
        
        Easy to entry the market
        
        no scale or scope economies
        
        new entrants can get access to airline ticketing systems
      - Rivalry
        
        Undifferentiated service
        
        Price war on airline market
        
        High fixed cost
        
        seats are a perishable commodity
        
        Empty seat,Lose Revenue
      - Buyer and Subsititutes
        
        Matter to a lesser extent
      - Suppliers
        
        Fuel and Labor suppliers have bargaining power
- - - - brand loyalty
      - lack of access to distribution
    - - product differentiation
    - - don't have that much bargaining power
    - - good at getting into these
        substitute beverage markets
        
        introduce their own products
        
        buy up companies or brands
- - - - All of these external structures and entities which the firm is embedded
    - - OT part of SWOT refers to the external environment
    - - Alignnimg a business' internal attributes with its external environment.(cornerstone of strategy)
  - - - company's macro-environment
    - - company's industry environment
  - - - how industries might change over time
      - how we can continue to analyze them when they do
      - use the framework correctly and well
- - - - L ( legal )
        
        different areas of law international laws and treaties
      - E ( ecological )
        
        issues related to the impact of business on the natural environment
      - T ( technological )
        
        broad trends in innovation and business models based on new technologies that might affect a company
      - E ( economic )
        
        economic growth, employment, inflation as well as interest rates and exchange rates
      - S ( social-cultural )
        
        demographic trends,values and culture and individual aspirations and expectations
      - P ( political )
        
        political sensitivities around different issues
        
        political stability, security and corruption
        
        governments at different levels
- - - - Attuned to the regulatory environment
    - - Lose customer where we go
      - Getting customer where they come from
  - - - A lot of temporary workers
- - - - five forces
  - - - scale & scope economies
      - learning curve economies
      - capital requirements
      - product differentiation
      - advantages
        
        material / location
        
        process / regulation
        
        proprietary technology
    - - Scale Economies
        
        costs decline with scale of production
      - Scope Economies
        
        costs decline when multiple products are made
      - Learning Curve Economies
        
        costs decline with total cumulative production over time
      - Capital requirements
        
        further compounded by high risk
      - supply-side
        
        hard to develop cost-competitive production base
      - entry barriers effectively
        
        LARGE
        
        cost advantages
        
        capital requirements
      - Access to Distribution Channels
        
        logistics of distribution are difficult
      - Advantages
        
        difficult-to-imitate technologies and processes
      - Product Differentiation
        
        customers' loyalty
      - Expected Retaliation
        
        “strategic” entry barriers
        
        reputation for retaliation
      - [2] rivalry among industry firms
        
        Intensity of Rivalry is higher
        
        low
        
        industry concentration
        
        product differentiation
        
        high
        
        exit barriers
        
        fixed/storage costs
        
        over-capacity
        
        Destructive price competition
        
        lowers profits
        
        barriers to price rivalry
        
        Low fixed/storage costs
        
        decreases incentives
        
        dropping price
        
        Demand growth
        
        grow sales
        
        without eating into each other’s market share
        
        Product differentiation
        
        brand loyalty / segmented needs
        
        Limited over-capacity
        
        decreases incentives
        
        increase sales
        
        Industry concentration
        
        4-firm concentration ratio
        
        market share of the top-4 firms combined
        
        HHI
        
        sum of squared market share
        
        Low exit barriers
        
        exit the industry
        
        fight for market share at a loss
        
        [3] threat of substitutes
        
        Logic of substitutes
        
        constraining prices
        
        substitute products limit potential profits
        
        more innovative or value providing
        
        better cost structure
        
        improving quickly in cost/ performance
        
        meets similar needs
        
        [4&5] bargaining power of buyers and suppliers
        
        Buyers are a bigger threat
        
        few switching costs for the buyer
        
        buyers can backward integrate
        
        Suppliers are a bigger threat
        
        products are differentiated
        
        high switching costs
        
        suppliers can forward integrate
- - - - generally prioritize doing something about – weakest of the five forces
      - at the very least closely monitoring – the weakest of the five forces
    - - pivotal force:rivalry
        
        a few major mergers
        
        increase industry concentration
        
        yield management
        
        reducing the need to slash prices to fill all those empty seats
  - - - simultaneously cooperate and compete