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Figure 1.3
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Outline
Defining industry competition The five forces framework Three generic strategies Debates and extensions Implications for strategists
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Industry:
Performance:
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focal firms performance critically depends on the degree of competitiveness of the five forces within an industry. stronger and more competitive these forces are, the less likely the focal firm is able to earn above-average return, and vice versa.
The
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Figure 2.1
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Five forces
Threat of of substitutes
can depress industry profitability Substitutes superior to existing products in quality and quality and function Switching costs to use substitutes are low
Five Forces Framework: Intensity of Rivalry among Competitors Actions indicative of a high degree of rivalry:
frequent price wars proliferation of new products intense advertising campaigns high cost competitive actions and reactions
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Source: Adapted from J. Shamsie, 2003, The context of dominance: An industry-driven framework for exploiting reputation (pp. 214215), Strategic Management Journal, 24: 199215. All data are average US market share data during 198794; numbers are rounded up by the present author.
Table 2.2
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Five Forces Framework: Bargaining Power of Suppliers (contd) Conditions leading to strong bargaining power:
If the supplier industry is dominated by a few firms. If they provide unique differentiated products with few or no substitutes. If the focal firm is not an important customer. If they are willing and able to enter the focal industry by integrating forward.
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Pepsi is not a substitute for Coke; instead, it is a rival in the same industry
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Five Forces Framework: Lessons from the Five Forces Framework Not all industries are equal in terms of their potential
profitability.
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Sources: Based on (1) B. Canzer, 2003, E-Business: Strategic Thinking and Practice, Boston: Houghton Mifflin; (2) M. Porter, 2001, Strategy and the Internet, Harvard Business Review, March: 6378; (3) S. Rangan & R. Adner, 2001, Profits and the Internet: Seven misconceptions, MIT Sloan Management Review, summer: 4453.
Table 2.3
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Table 2.4
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undertaking this strategy are often very innovative on the production process side of the business.
The advantage for a cost leader (such as WalMart) is to minimize the threats from the five forces. Many companies try to become cost leaders, however, only a few succeed.
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forces the leader to continuously search for ways to further reduce costs. the relentless drive to cut costs, a cost leader may make trade-offs that compromise the value customers perceive in its products or services and hurt sales.
In
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low-volume, high-margin approach in targeting smaller, well-defined customer segments willing to pay premium prices. and marketing/sales are important functional areas. less a differentiator resembles its rivals, the more protected its products are.
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Research/development The
The Challenge:
To identify these attributes and deliver value centered on them for each market segment.
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Focusing may be successful when a firm possesses intimate knowledge about a particular segment.
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According to Porter, firms that are stuck in the middle either have no strategy or are drifting strategically. However, this point is debatable
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Figure 2.2
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Subgroups Within the Mass Market Strategic Group in the US Automobile Industry
Source: Adapted from R. Hamilton, E. Eskin, & M. Michaels, 1998, Assessing competitors: The gap between strategic intent and core capability (p. 413, 415), Long Range Planning, 31: 406417.
Figure 2.3
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Subgroups Within the Mass Market Strategic Group in the US Automobile Industry
Source: Adapted from R. Hamilton, E. Eskin, & M. Michaels, 1998, Assessing competitors: The gap between strategic intent and core capability (p. 413, 415), Long Range Planning, 31: 406417.
Source: Adapted from M. W. Peng, J. Tan, & T. Tong, 2004, Ownership types and strategic groups in an emerging economy (p. 1110), Journal of Management Studies, 41 (7): 11051129.
Table 2.5
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Key Terms
backward integration bargaining power of suppliers complementors conduct cost leadership differentiation dominance duopoly economies of scale entry barriers excess capacity experience curves five forces framework flexible manufacturing technology focus forward integration generic strategies hypercompetition incumbents industrial organization (IO) economics
industry industry positioning institution-based view know-how mass customization mobility barriers monopoly network externalities non-scale-based low cost advantages oligopoly outsourcing perfect competition performance product differentiation resource-based view scale-based low cost advantages strategic groups structure structure-conduct-performance (SCP) model substitutes
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