WPC 480- Chapter 3: External Analysis

Michael Porter developed the five forces model to help firms do what?

1) Determine the profit potential of different industries 2) Gain & Sustain a competitive advantage

Important factors in determining the intensity of rivalry among existing competitors

1) Exit barriers 2) Industry growth 3) Competitive industry structure

When a new firm enters an industry, what happens?

1) Industry profit potential declines 2) incumbent firms lower prices 3) Incumbent firms spend more to satisfy customers

Examples of commonly encountered capital requirements

1) Managing a production process 2) Paying for start-up losses 3) Setting up production facilities

Monopolistically competitive industry

1) obstacles to entry 2) Differentiated product 3) Ability to raise prices for differentiated products

Advantages based on brand loyalty, proprietary tech, preferential access to raw materials, and favorable geo locations are examples of what?

Advantages independent of size

A group of companies that deal with more or less the same set of suppliers and buyers comprise____

An industry

The power of _____ is the pressure they can put on the margins of producers in the industry by demanding a lower price or higher product quality

Buyers

Economies of scale

Cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, etc.

Exit barriers are composed of what 2 factors?

Economic and social

Backward integration

Example: Walmart producing private-label brands such as Equate health and beauty items and Parent's choice baby products

Threat of Subsitutes

Idea that products or services available from outside the given industry will come close to meeting the needs of current customers

Rivarly

Intensity with which companies in an industry jockey for market share and profitability

The stronger the five forces, what happens to the industry's potential profit?

Lowers

Entry barriers

Obstacles that determine how easily a firm can enter an industry

Near monopoly

Occurs when a firm has accured significant market power and is changing the industry structure in its favor

Price discounts, frequent new product releases with minor modifications, and intense promotional campaigns are all tactics indicative of an industry with____growth

Slow or negative

If a business considers changing vendors, but doing so would require that business to alter product specifications, retrain employees, and modify exisiting processes, we would say the business faces significant what?

Switching costs

T or F? According to the five forces model, competition involves not only creating economic value but also capturing a significant share of the economic value created?

TRUE

Network Effect

The positive effect that one user of a product or service has on the value of that produce or service for other users

A firm's strategic position relates to its ability to create_____for customers while containing the______to do so.

Value, cost