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External Analysis, G4 (Eric, Andy, Abby, Andrea, Jenny, Chloe, Johnson),…

- - - - Buyers are concentrated
        
        the more the buyers rely on the industry and not vice versa the greater their bargaining power
      - Products is large % of cose/income for buyers
      - Product is not important for buyer equality or performance
      - Few switching costs for the buyers
      - Buyers can backward integrated
  - - - strategic entry barriers
        
        high fixed or storage costs for the product or service
        
        slow demand growth
        
        low industry concentration and product differentiation
        
        high over capacity and high exit barriers
        
        a downward spiral of lower prices and lower profits
        
        how to control the market
        
        when industry concentration and product differentiation are high, firms are more likely to resist the temptation to lower price.
        
        a lose-lose proposition
  - - - Supplier are concentrated
      - Suppliers can forward-integrate
      - Suppliers face few substitute products
      - The supplier's product is important for the focal industry
      - Suppliers products are differentiated or present high switching costs
  - - - natural entry barriers
        
        capital requirements
        
        Large investment ,and it will take risk and irreversible
        
        product differentiation
        
        Consumer loyal to some existing products
        
        learning curve economies
        
        producing more and more units
        over time
        
        access to distribution channels
        
        retails stores is very limited or logistics of distribution are quite complicated and expensive to build
        
        scale and scope economies
        
        minimum efficient scale
  - - - More innovative or value-providing
      - Better cost structure
      - Imporving quickly in cost/performance
      - Meet similar needs
- - - - mitigating an industry's pivotal force can directly improve industry profitability.
      - e.g.US airline
        
        the airline industry has gone through a few major merger
        
        increased industry concentration
  - - - work out what it means for the industry by applying five forces analysis under the anticipated new structure.
    - - not being really clear about the industry you're analyzing
      - being either too broad or too narrow in defining the industry
      - you have then is a nice description of the industry but no analysis
      - focus too much on hard structural attributes
        
        not enough on software behavioral attributes
      - five forces
        
        conceptual mistake
        
        use one force in the five forces model to explain another
        
        stop after evaluating each of the five forces and not evaluate overall industry profitability
        
        recommendation
        
        look at the dynamics of how industry structure is changing
        
        ask yourself what managers should do based on your industry analysis
        
        static framework
- - - - Scale and bargaining advantages
    - - Balanced teams and competitive soccer
    - - Limits competition over players salaries
  - - - Performance
        
        Economic profits(return in excess of risk-adjusted cost of capital)
      - Advertising/ R&D spending/ New product development/ Pricing/ Capital investment/ Bargaining
  - - - Which industries are more profitable?
        
        Pharmaceutical drugs 20.3%(1985-97)
        
        Airlines 1.1%(1985-97)
      - McDonald's
        
        Fast food industry
        
        Burger and fries style restaurant
        
        Entire restaurant industry
- - - - It may not be possible
        to include all aspects.
  - - - S
        
        Socio-cultural
        
        Demographic trends, values, culture, expectations
        
        T
        
        E
        
        L
        
        Legal
        
        Different areas of law, the web of international laws
        
        Legal
        
        Treaties for trade, investment and climate change
        
        Ecological
        
        Pollution, environmental degradation, climate change
        
        Ecological
        
        Green living and environmental consciousness
        
        Technological
        
        Trends in innovation and business models
        
        Technological
        
        Electric and hybrid, solar, battery infrastructure
        
        Socio-cultural
        
        Urbanization and growth of the middle class
      - Economic
        
        Growth, employment, inflation, interest rates
      - Economic
        
        Exchange rate between Japan Yen & US Dollar
    - - Political issue, stability, security and corruption
  - - - The evolving transportation and energy policies
    - - so many elements
        
        Systematic external
        analysis by PESTEL
    - - Few instructions on how the
        company itself should respond
      - Not exhaustive, ex. Military
        may be important in business
      - Few guidance on what those
        trends mean for the company
- - - - To see how profitable the industry will be and the reasons why these industries are more or less profitable
        
        Industry profitability whether or when to change
      - resource allocation
        
        entry
        
        divestment
        
        e.g.
        
        Toyota
        
        based on industry analysis
        
        light truck
        
        reduce investments
        
        sports car
        
        increase investments
      - help to improve the attractiveness or profitability of their industry
    - - a marketing process that provides statistics about the market potential of your business products and services.
  - - - substituter
      - Complementors
      - Supplier
      - Producer
    - - industry layer
        
        e.g.
        
        McDonalds
        
        broad definition
        
        fast food restaurants
        
        narrow definition
        
        entire restaurant industry
- - - - U.S. Airline industry
        
        Mergers increased concertration
        
        Better yield management
        
        keep an eye on it
        
        Reshape the pivotal force
  - - - Diffculties
        
        Clear about the industry and identified potential error
        
        Too broad or narrow in disdinduish
        
        Model just a description not analysis
        
        Not enough on sofer behavioral attributes
        
        Use one force to explain another force
        
        Focus on the most competitive professional strength
        
        ignored some participants
    - - limitations
        
        Deep insights once you master it