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External Analysis (G9 (Fion, Levi, Jerry, Adiyasa GAO, Anna, Phoebe, Pete)…

- - - - The outer layer
      - Industry Environment
        
        The Firm
        
        The inner layer
        
        The middle layer
        
        Industry
        
        Suppliers & Buyers + Substitute Products / Services + Complementors
        
        Broad → Narrow
        
        Ex : Nintendo
        
        Entertainment Industry → Video games
  - - - S
        
        Socio-cultural
        
        Ex : Nintendo
        
        S
        
        Game market rises. People tend to accept gaming as a leisure activity.
        
        T
        
        R&D (Research and Development) investment will help technological innovation.
        
        SG&A expense fluctuation annually grows 16.43%.
        
        E
        
        70% of Nintendo's product export globally.
        
        Net income fluctuation annually grows 46.74%.
        
        E
        
        COVID-19 makes people stay home and create demand for entertainment.
        
        P
        
        These markets have stable political climate.
        
        L
        
        Improving patent regulations will help established players.
        
        geographically
        
        Major market
        
        Japan, American and Europe
        
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      - T
        
        Technolongical
      - E
        
        Economic
      - E
        
        Ecological
      - P
        
        Political
      - L
        
        Legal
    - - Bias
        
        western / anglo-American perception
        
        It isn't a perfect model to analyze all cases.
      - Firms
        
        operate in different fields
        
        Change in order to adapt the framework.
  - - - What is industry?
        
        A group of companies.
        
        Provide similar products / services or substitute / complementary.
        
        A set of similar firms associated with a single products-market.
        
        The fact is more complicated in reality.
        
        Industries don't usually have clear boundaries
      - Why should we care about industry analysis?
        
        A powerful tool.
        
        estimate
        
        if one industry is more or less profitable
        
        if and when the profitability of one industry might change
        
        decision making
        
        resource allocation
        
        investment / divestment toward one industry
        
        intervene
        
        strategically improve attractiveness / profitability of one industry
        
        structure-conduct-performance paradigm
        
        EX:English Premier League
        
        Global marketing
        
        Readily accessible English-speaking
        
        League structured
        
        The revenues from these TV deals are shared more or less equally among the different teams.
        
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        In recent years, the League has put in place a set of financial fair play rules.
        
        1 more item...
        
        The League negotiates TV rights contracts centrally on behalf of all the teams.
        
        1 more item...
      - What is industry analysis?
        
        A systematic approach.
        
        different types of factors
        
        Predict one industry's profitability.
        
        structural features
      - SCP Paradigm
        
        Conduct
        
        4｜Development
        
        5｜Pricing
        
        3｜New product
        
        6｜Capital investment
        
        2｜R&D spending
        
        7｜Bargaining
        
        1｜Advertising
        
        Performance
        
        Economic profits
        
        Structure
        
        1｜Products
        
        2｜Differentiation
        
        3｜Buyers & Sellers
        
        4｜Barriers to entry
        
        5｜Cost structure
        
        6｜Demand growth
        
        7｜Switching costs
        
        The foundation for "Five Forces Framework."
        
        The most widely used industry analysis framework.
        
        Introduced by Professor Michael Porter.
      - Five Forces Framework
        
        The structure of FFF
        
        Suppliers
        
        Competitors
        
        Buyers
        
        Entrants
        
        Substitutes
        
        Applying FFF
        
        Dynamic industry analysis
        
        Boundaries of the industry
        
        Five Forces Framework
        
        Access
        
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        Industry profits
        
        Pivotal force
        
        The weakest of the five forces
        
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        Pivotal force
        
        Keep an eye on
        
        Directly impact the industry's profitability
        
        Compliments
        
        Sixth force :!:
        
        Conceptual opposite
        
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        Industry players
        
        Learn
        
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        Industry life cycle
        
        Scale economies :fire:
        
        Product innovation :fire:
        
        Demand growth :fire:
        
        Differentiation :fire:
        
        Defining the industry
        
        too broad or too narrow :red_cross:
        
        developing better judgment :check:
        
        focus too much on hard structural attributes:red_cross:
        
        software behavioral attributes:!:
        
        use one force in the five forces model to explain another. :red_cross:
        
        to stop after evaluating each of the five forces and not evaluate overall industry profitability :red_cross:
        
        evaluate how profitable or attractive an industry :check:
        
        Structure-Conduct-Performance
        
        Drives profit performance⮭⮭⮭⮭⮭⮭⮭
        
        Combine the five forces to predict industry performance :red_flag:
        
        PESTEL,
        
        provides a good checklist for analyzing the macro environment :star:
        
        Mitigating industry pivotal force
        
        Industry profitability⮭⮭⮭⮭⮭⮭⮭
        
        Airlines
        
        Unprofitable
        
        Rivalry
        
        Perishable
        
        High fixed Cost
        
        undifferentiated service
        
        Price Wars
        
        Entry
        
        Easy to lease plane and crew
        
        Almost no scale or scope economies and airplane and crew can be easily leased and hired.
        
        Suppliers
        
        Fuel and labor suppliers have some bargaining power
        
        1 more item...
        
        Pharmaceuticals
        
        Hard to the pharmaceutical industry.
        
        it requires significant and risky R&D investment and even firms that have done R&D, like biotechnology firms.
        
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        More Profitable
        
        No rivalry
        
        1 more item...
        
        Customer dont have the incentives to bargain over price.
        
        The elements of FFF
        
        3｜Threat of Substitutes
        
        Logic of substitutes, Substitute products limit potential profits by constraining prices that an industry can charge.
        
        4｜Bargaining Power of Buyers
        
        Buyers are a bigger threat when
        
        Buyers are concentrated.
        
        Product is a large % of costs/income for buyer.
        
        Product is not important for buyer quality or performance.
        
        Few switching costs for the buyer.
        
        Buyers can backward integrate.
        
        2｜Rivalry among Industry Firms
        
        Intensity of Rivalry is higher when
        
        Industry Concentration is low.
        
        Product Differentiation is low.
        
        Fixed/Storage costs are high.
        
        Demand Growth is slow.
        
        Over-capacity is high.
        
        Exit Barriers are high.
        
        Destructive Price Competition
        
        It is easily matched by rivals and lowers profits for all firms.
        
        Barriers to price rivalry
        
        Industry Concentration
        
        Product Differentiation
        
        Low Fixed/Storage Costs
        
        Demand Growth
        
        Limited Over-Capacity
        
        Low Exit Barriers
        
        5｜Bargaining Power of Suppliers
        
        Suppliers are a bigger threat when
        
        Suppliers are concentrated.
        
        Suppliers face few substitute products.
        
        Suppliers can forward-integrate.
        
        The supplier's product is important for the focal industry.
        
        Suppliers products are differentiated or present high switching costs.
        
        1｜Threat of Entrants
        
        Natural Entry Barriers
        
        Scale & Scope economies
        
        Scale economies
        
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        Scope economies
        
        1 more item...
        
        Learning curve economies
        
        Costs decline with total cumulative production over time.
        
        Capital requirements
        
        Further compounded by high risk.
        
        Product differentiation
        
        Customers are loyal to existing products & brands.
        
        Intangible product attributes and emotional attachment.
        
        Access to distribution channels
        
        Shelf space may be limited.
        
        Logistics of distribution may be difficult.
        
        Other Advantages
        
        Privileged access to raw materials or favorable location.
        
        Government regulations make it costly to enter.
        
        Difficult-to-imitate technologies and processes.
        
        Expected Retaliation
        
        Existing firms respond with aggressive pricing, new products, etc.
        
        Reputation for retaliation, slow industry growth and high exit cost make retaliation more likely.
        
        Also called "strategic" entry barriers.
        
        Stronger firms with resources and excess capacity are better able to retaliate.
    - - Fieldglass
        
        1.Technology
        
        Traditional on-premise enterprise software
        
        ASP (Sass-type model)
        
        Cloud Software
        
        2｜HR (workforce)
        
        Then- Full-time employees
        
        Now- Contingent workers (50%)
        
        staffing companies
        
        SOW consulting companies
        
        platform for all contigent labour
        
        Microsoft :fire:
        (permit type case)
        
        temporary workers won in a lawsuit against Microsoft
        
        3｜Compliance oriented Sale :unlock:
    - - External Environment
        
        1｜Regulatory
        
        Risks
        
        Federal Reserve (Office of Controller of Currency)
        
        FINRA
        
        FCC
        
        State Regulator (Illinois Department of Insurance)
        
        Rules
        
        The Fiduciary Rule (Department of Labor)
        
        Advisor (Retirement)
        
        Stability :red_cross:
        
        Interests :check:
        
        2｜Normal Disruptive
        
        Competitors
        
        industry press
        
        information
        
        get customers (where they come from)
        
        lose customers (where they go)
    - - 1｜Young company(3 yrs old)
        
        1,000 people (50 full- time compliance employees)
      - 2｜Product
        
        consumer friendly
        
        Nature of change (regulatory schemes & financial crisis)
        
        regulatory friendly
      - Consumer Financial Protection Bureau (Consumer Finance Providers)
      - 3｜Regulations Oriented
        
        Former company (no lawyer)
        
        Present Company (10+ 50 combines people)
      - 4｜Transparent (Insurance)
        
        file quarterly financials
        
        information available ( holdings in investment portfolios)
        
        ratings
        
        difficullt