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LN3-The General Environment & Industry Analysis, LN4-Competitive…
LN3-The General Environment & Industry Analysis
SCP
Conduct
MFG
Merger (hor./vert.) or Contracts (make or buy)
Collusion (Cartel)
Plant Investment
R&D
Product & Process Innovation (for value & cost)
Patents & Licensing, Legal tactics
MKT
Pricing behavior 3rd (diff. users), 2nd (diff units), 1st (degree price discrimination)
Advertising Info. or Pursu. (search or exp. goods)
Product choice (proliferation or niche), Bundling
Structure
Industry Boundary/Scope
Barriers to entry & exit of new firms (or diversified incumbents from other industries)
Numbers of buyers and sellers
Concentration
Product differentiation
(market size, installed base & penetration rate, replacement & new purchase)
Barriers to entry & exit
Econ. of scale (large MES), Econ. of scope (synergy, proliferation, cross-subsidize), Econ. of learning (time compression diseconomy)
Goodwill, Consumer loyalty (switching cost), Network externalities, Location (preemption)
Capital requirement (large FC, sunk cost), Technology req., Standards or Regulation
Entry deterrence: Excess capacity (signaling), Limit or Predatory pricing (deep pocket), Foreclosure, Multi-market contacts, etc.
Performance
Efficiency
Production efficiency, Allocative efficiency (social welfare)
Advance
Product quality, Technical progress
Profitability
Price, Profits, Equity
Government Policy
Incentives
Investment or Employment incentives
Taxes and Subsidies
Barrier to entry & exit
Regulation
Standards (Green), Regulation (Safety)
Antitrust (2nd Fin. Reform or Scandal)
Macroeconomic policies, Allocative efficiency (social welfare)
Basic Conditions
Demand
Location, Method of purchase, Lumpiness of orders
Segmentation
Seasonality, Rate of growth
(Corporate users, Government/Education, SOHO, Consumers)
Elasticity of demand, Substitutes, Perceived value
Supply
Raw materials, Unionization, Location, Scale econ.
Scope economies
Technology, Product Durability (obsolescence)
Cost Structure (AVC. vs AFC.) value-added
What is Competition?
Rivalry
Awareness x Motivation x Capability
Cooperation
value creation
with customers,suppliers,even competitors
Competition
Oligopoly Market
efficiency X effectiveness
Perfect Competitive Market
allocation X configuration → positioning
Do better:efficiency X Competitors or customers
Industry
Definition
A set of firms providing(producing, supplying) substitute or complement.
When the products supplied by the manufacturer are highly substituted or
complementary (measured by price elasticity), they are competitors or partners.
Sector
Example
Computer Sector
Computer Hardware Industries
Mainframe Industry
Personal Computer Industry
Hand-held Computer Industry
Notebook PC Market Segment
Desktop PC Market Segment
Server Market Segment
Computer Component Industries
Disk drive Industry
Semiconduct or Industry
Modern Industry
Computer Software Industry
Market
It's a set combining with supply side (seller, producer) and demand side
(buyer, consumer) of product or services.
Suppliers
Factors
Consumers
Product Market
Macro-level Environment
PESTEL for MNCs
Social
Technological
Economic
Environmental
Political
Global World
Legal
Creating the Environmentally Aware Organization
Environmental Monitoring
Competitve Intelligence
Environmental Scanning
Forecasts
Analyzing Profit Drivers
Airlines
Profitability = Yield x Load Factor- Unit Cost
Incomes = Revenue x RPMs - Expenses
Retailing
Return on Sales
Avoiding markdowns through tight inventory control
Sales mix of Products
Max. buying power to minimize cost of goods purchased
Sales over Invested Capital
Max. inventory turnover through:
Close Vendor Relationships
Fast Delivery
Electronic Data interchange
Minimize capital development through outsourcing and leasing
Max. sales/sq. foot through:
Product Mix
Customer Service
Location
Quality Control
Industry
Industy Value Chain
Structure-conduct-performance Paradigm
conduct
price taking
product differentiation
tacit collusion
exploitation of market power
performance
productive efficiency
allocative efficiency
profitability
structure
entry/exit barriers
product differation
concentration
Perfect competition
Oligopoly
Duopoly
Monopoly
information availablility
Five force framework
Five factors may generate competitive forces
Bargaining power of suppliers
Bargaining power of buyers
Threat of new entrants
Threat of substitutes
Competition in the industry
Corporate Value Chain
secondary activities
human resource management (HRM)
procurement and purchasing
company infrastructure
technological development
primary activities
operations
marketing and sales
service
inbound logistic
outbound logistics
Business Landsacpe
The relevance of Industry Analysis to the firm’s strategy
Business Strategy
establishing competitive advantage
Corporate Strategy
deciding which industries the firm should engaging in
LN4-Competitive Analysis & Competitive Dynamics
Industry Classification
Three-sector model
Primary sector of the economy (extraction and agriculture)
Secondary sector of the economy (manufacturing)
Tertiary sector of the economy (services)
NAICS←SIC
Taiwan
2006-Eighth revision
Accounting and Accounting Office, Executive Yuan.
For statistical purposes
ISIC(United Nations)
Systematically classify various economic activities
Co-opetition &
Competitive Dynamics
Co-opetition
The act between competing companies by forming a strategic alliance designed to help both companies.
e.g.
Pfizer Inc. (NYSE: PFE) and BioNTech SE (Nasdaq: BNTX) announced a collaboration to jointly develop a COVID-19 vaccine.
Coopetition= cooperation and competition
Competitive Dynamics
Analyze competitors
Market commonality
Refers to the degree of overlap and confrontation between an enterprise and its competitors in each market.
Resource similarity
Every enterprise should make good use of its own unique capabilities and strengthen its own capabilities limits.
Drivers of competitive behavior
Awareness
Motivation
AMC model
Capability
Five elements of a Game Theory
PARTS
A
dded values
Collaborative value addition.
R
ules
Identifying beneficial and detrimental rules.
P
layers
Are there any parties you could potentially form a strategic alliance with?
T
actics
Are the behaviors taken by participants to establish the perception of other participants.
S
cope
Industries are often not isolated but are linked to other industries instead.
Value Net Model
Customers,Suppliers,Competitors, could directly influence your company
Competitor
What :question:
Product Market
Market Commonality(M/C)
Market Segments
Product
Geography
Demography
Multi-business Corporations
Asymmetry
Multi-market contacts
Factor Market
Resource Similarity(R/S)
Resources& Capabilities
Tangible
Intangible
direct competition
Competitive Rivalry
a series of Actions/Attacks and Responses(A-R)
what's your way and weapon :question:
Motivation
Capability
Awareness
Action & Response
Likelihood of Attack
Quality
Size and Stack
First Mover, Second Mover or later Mover
Likelihood of Response
Market Dependency
Actor’s Reputations
Theories for Analysis
(Market)
A. Cost Curves
B. Market Power
b. Profit Maximization
max. π (P) = PQ – TC = PQ(P) – C(Q(P)
at equilibrium, MR = MC = P (1 + 1/ε)
ε = (dQ/Q) / (dP/P); ~ inverse slope & location of demand curve
c. Lerner Index
(estimated at firm- or industry-level)
L = (Pm – MC) / Pm = 1 / (-ε) market power
Monopoly can set the price above MC
Perfect competition, (-ε) ∞
C. Concentration
d. Market Share
si = qi / Q x 100%; Q = ∑ si ,i = 1 ~ N
s1 >= s2 >= ...... >= SN
d. Concentration
CR4 = ∑ si ,i = 1 ~ 4
HHI (Herfindahl-Hirshman Index) = ∑ si2 ,i = 1 ~ N
→relationship between Lerner Index & HHI
Entropy = ∑ [si*(ln si)], i = 1 ~ N
D. Market Structure
e. Monopoly
Monopoly’s Price Discrimination
f. Duopoly
Duopoly’s Stackelberg Competition
Duopoly’s Bertrand Competition
Duopoly’s Cournot Competition
Industry Analysis and Competitive Strategy
Strategic Groups
The sets of companies form the
groups
that follow
similar and identical strategies
within an
industry
Mapping Groups
:three: Locate firms on map
:four: Comparison
:two: Choose two for map
:one: Best dimensions (Bubble size = market share)
Industry
Evolution of Industry Structure
The changes in the relationships and competitive landscape among firms within an industry
4 Stages
Growth
Maturity
Introduction
Demand, Technology, Prducts, Manufacturing...
Decline
Industry Lifecycle
Embryonic :arrow_right:
Growth :arrow_right:
Shakeout :arrow_right:
Mature :arrow_right:
Decline:arrow_right:
The overall development process
Time
Applying Industry Analysis
Defining Industry Boundary
Describing Industry Structure
The appropriate time frame
Average profitability over 3-5 years or longer
Industry business life cycle
Consider quantitative and qualitative factors
Quantify Five forces factors
Percentages of cost or sales
Forecasting Industry Profitability
Strategies to Alter Industry Structure
Product Classification
Customs Import Tariff and Import and Export Commodity Classification of the Republic of China
Harmonized Commodity Description and Coding System (HS code)
Mobility Barrier
Obstacles that affect the entry of new firms into a market or the exit of existing firms from the market.
Capital requirements, restrictions, brand loyalty, technology
4P
2.Priority
4.Gaining & sustaining Profit
3.Competitive Posture
1.Positioning
Value-Price-Cost Framework
price
customer’s perceived value of the product
perceived value
how a customer sees the benefits and value of a product
cost
Average Fixed Cost(AFC)
Average Variable Cost(AVC)
Market Penetration
Innovators 1%:arrow_right:
Early adopters 5%:arrow_right:
Early majority 24%:arrow_right:
Late majority 45%:arrow_right:
Laggards 24%
People
Bargaining Power of Suppliers
Threat of New Entrants
Bargaining Power of Buyers
Threat of Substitutes
competitive intensity
ASMs
RPMs
1.Strength of competition on routes
2.Responsiveness to challenging market conditions
3.% business travellers
4.Achieving differentiation advantage
1.Efficiency of route planning
2.Flexibility and responsiveness
3.Customer loyalty
4.Meeting customer requirement
1.Wage rates
2.Fuel efficiency of planes
3.Employee productivity
4.Load factors
5.Administrative overhead
ASMs
ASMs
ASM = Available Seat Miles
RPM = Revenue Passenger Miles
marketing
manufacturing
research & development
Demand
