Entrepreneurship Barringer & Ireland Chap. 5

Global industry

A global industry is an industry that is experiencing significant international sales.

Fragmented industry

A fragmented industry is one that is characterized by a large number of firms of approximately equal size. The primary opportunity for start-ups in fragmented industries is to consolidate the industry and establish industry leadership as a result of doing do. The most common way to do this is through geographic roll-up strategy.

Geographic roll-up strategy

A geographic roll-up strategy, is something where one firm starts acquiring similar firms that are located in different geographic areas.

Mature industry

A mature industry is an industry that is experiencing slow or no increase in demand, has numerous repeat (rather than new) customers, and has limited product innovation.

First-mover advantage

A first-mover advantage is a sometimes insurmountable advantage gained by the first company to establish a significant position in a new market.

Global strategy

The two most common strategies pursued by firms in global industries are the multidomestic strategy and the global strategy. Firm pursuing a global strategy use the same basic approach in all foreign markets.

Multidomestic strategy

The two most common strategies pursued by firms in global industries are the multidomestic strategy and the global strategy. Firms that pursue multidomestic strategy compete for market share on a country-by-country bases and vary their product or service offerings to meet the demands of the local market.

Identify the five primary industry types and opportunities they offer

There are five primary industry types of entrepreneurial firms to consider when choosing the industry in which they will compete. These industry types and the opportunities they offer are as follows?: emerging industry/first-mover advantage; fragmented industry/consolidation; mature industry/emphasis on service and process innovation; declining industry/leadership, niche, harvest, and divest; and global industry/multidomestic strategy or global strategy.

How does rivalry among existing firms have the potential to suppress an industry's profitability?

There are four primary factors that determine the nature and intensity of the rivalry among existing firm in an industry: Number and balance of competitors: with a larger number of competitors, it is more likely that one or more will try to gain customers by cutting prices. Price-cutting causes problems throughout the industry and occurs more often when all the competitors in an industry are about the same size and when there is not clear market leader. Degree of difference between products: The degree to which products differ from one producer to another affects industry rivalry. For example, commodity industries such as paper product producers tend to compete on price because there is no meaningful difference between one manufacturer's products and another's. Growth rate of an industry: The competition among firms in a slow-growth industry is stronger than among those in fast-growth industries. Slow-growth industry firms, such as insurance, must fight for market share, which may tempt them to lower prices or increase quality to obtain customers. In fast-growth industries, such as e-book publishing, there are enough customers to satisfy most firm's production capacity, making price-cutting less likely. Level of fixed costs: Firms that have high fixed costs must sell a higher volume of their product to reach the break-even point than firms with low fixed costs. Once the break-even point is met, each additional unit sold contributes directly to a firm's bottom line. Firms with high fixed costs are anxious to fill their capacity, and this anxiety may lead to price-cutting.

Position

At the company level, a firm's position determines how the company is situated relative to its competitors.

Explain the purpose of a competitor analysis and a competitive analysis grid

A competitor analysis is a detailed analysis of a firm's competition. It help a firm understand the positions of its major competitors and the opportunities that are available to obtain a competitive advantage in one or more areas. Direct competitors, indirect competitors, and future competitors are the three groups of competitors a new firm faces. Successful competition demands that a firm understand its competitors and the actions they may take - both today and in the future. There are a number of ways a firm can ethically obtain the information it seeks to have about its competitors, including attending conferences and trade shows; purchasing competitors' products; studying competitors' websites; setting up Google e-mail alerts; reading industry-related books, magazines, and websites; and talking to customers about what motivated them to buy your competitors' product. A competitive analysis grid is a tool for organizing the information a firm collects about its competitors. This grid can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue, and, perhaps most importantly identify its primary sources of competitive advantage.

Competitor analysis

A competitor analysis is a detailed evaluation of a firm's competitors. Once a firm decides to enter an industry and chooses a market in which to compete, it must gain an understanding of its competitive environment.

Declining industry

A declining industry is an industry or a part of an industry that is experiencing a reduction in demand. The renting of DVDs and videao games by mail and producing and distributing hard copy textbooks are examples of products associated with industries or segments of an industry that are in some state of decline.

Why is it important for firms to collect intelligence about their competitors?

A firm must understand its competitors' strategies and behavior.

What is the purpose of a competitor analysis? P. 204

After a firm has gained an understanding of the industry and the target market in which it plans to compete, the next step is to complete a competitor analysis. A competitor analysis is a detailed analysis of a firm's competition. It helps a firm understand the positions of its major competitors and the opportunities that are available to obtain a competitive advantage in one or more areas. These are important issues, particularly for new ventures.

What are the two values created by firms when they successfully use the five forces model?

Along with helping a firm understand the dynamics of the industry it plans to enter, the five forces model can be used in two ways - to help a firm determine (1) whether it should enter a particular industry and (2) whether it can carve out an attractive position in that industry. Let's examine these two positive outcomes. First, the five forces model can be used to assess the attractiveness of an industry or a specific position within an industry b determining the level of threat to industry profitability for each of the forces, as shown in Table 5.2 p. 198. This analysis of industry attractiveness should be more in-depth than the less rigorous analysis conducted during feasibility analysis. For example, if a firm filled out the form shown in table 5.2 and several of the threats to industry profitability were high, the firm may want to reconsider entering the industry or think carefully about the position it will occupy in the industry. Even though a company can have several of forces working against them, it can simply be the nature of the industry. To help sidestep or diminish these threats, it must establish a favorable position. The second way a new firm can supply the five forces model to help determine whether it should enter an industry is by using the model pictured in figure 5.2 p. 200 to answer several key questions. By doing so, a new venture can assess the thresholds it may have to meet to be successful in a particular industry: Question 1: Is the industry a realistics place for our new venture to enter? Question 2: If we do enter the industry, can our firm do a better job than the industry as a whole in avoiding or diminishing the impact of the forces that suppress industry profitability? Question 3: Is there a unique position in the industry that avoids or diminishes the forces that suppress industry profitability? Question 4: is there a superior business model that can be put in place that would be hard for industry incumbents to duplicate? The steps involved in answering these questions are picture in figure 5.2 p. 200. If the founders of a new firm believe that a particular industry is a realistic place for their new venture, a positive response to one or more of the questions posed in figure 5.2 increases the likelihood that the new venture will be successful.

What are the five primary industry types, and what are the opportunities they offer?

Along with studying the above factors, it is helpful for a new venture to study industry types to determine the opportunities they offer. The five most prevalent industry types, depicted in table 5.3 p. 202 are emerging industries, fragmented industries, mature industries, declining industries, and global industries. There are unique opportunities associated with each type of industry: Emerging industries: An emerging industry is a new industry in which standard operating procedures have yet to be developed. The firm that pioneers or takes the leadership of an emerging industry often captures a first-mover advantage. A first-mover advantage is a sometimes insurmountable advantage gained by the first company to establish a significant position in a new market. By a high level of uncertainty characterizes emerging industries, any opportunity that is captured may be short-lived. Still, many new ventures enter emerging industries because barriers to entry are usually low and there is no established pattern of rivalry. Fragmented industries: A fragmented industry is one that is characterized by a large number of firms of approximately equal size. The primary opportunity for start-ups in fragmented industries is to consolidate the industry and establish industry leadership as a result of doing so. The most common way to do this is through a geographic roll-up strategy, in which one firm start acquiring similar firms that are located in different geographic areas. This is an often-observed path for growth for businesses such as auto repair ships and beauty salons. It is difficult for them to generate additional income in a single location, so they grow by expanding into new geographic areas via either organic growth or by acquiring similar firms. Mature industries: A mature industry is an industry that is experiencing slow of no increase in demand, has numerous repeat (rather than new) customers, and has limited product innovation. Occasionally, entrepreneurs introduce new product innovations to mature industries, surprising incumbents who though nothing new was possible in their industries. The lure of mature industries, for start-ups, is that they're often large industries with seemingly vast potential if product and/or process innovations can be effectively introduced and the industry can be revitalized. Declining industries: a declining industry is an industry or a part of an industry that is experiencing a reduction in demand. The renting of DVDs and video games by mail is an example of a product associated with industries or segments of an industry that are in some state of decline. Typically, entrepreneurs shy away from declining industries because the firms in them are not finding the types of attractive opportunities. There are occasions, however, when a start-up will do just the opposite of what conventional wisdom would suggest and, by doing so, stakes out a position in a declining industry that isn't being hotly contested. Entrepreneurial firms employ three different strategies in declining industries. The first is to adopt a leadership strategy, in which the firm tries to become the dominant player in the industry. This is a rare strategy for a start-up in a declining industry. The second is to pursue a niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product of process innovation. The third is a cost reduction strategy which is accomplished through achieving lower costs than industry incumbents through process improvement. Achieving lower costs allows a firm to sell its product or service at a lower price, creating value for the consumers in the process of doing so. Global industries: A global industry is an industry that is experiencing significant international sales. Many start-ups enter global industries and from day one tries to appeal to international as well as to domestic markets. The two most common strategies pursued by firms in global industries are the multidomestic strategy and the global strategy. Firms that pursue a multidomestic strategy compete for market share on a country-by-country basis and vary their product or service offerings to meet the demands of the local market. In contrast, firms pursue a global strategy use the same basic approach in all foreign markets. The choice between these two strategies depends on how similar consumers' tastes are from market to market. Entrepreneurial firms can use both strategies successfully. The key to achieving success is gaining a clear understanding of customers' needs and interests in each market in which the firm intends to compete.

Emerging industry

An emerging industry is a new industry in which standard operating procedures have yet to be developed. The firm that pioneers or takes the leadership of an emerging industry often captures a first-mover advantage.

What is an industry analysis and why is it important for a new form to analyze the industry in which it may choose to compete?

An industry analysis a business research that focuses on the potential of an industry. When studying an industry, an entrepreneur must answer three questions before pursuing the idea of starting a firm. First, is the industry accessible - in other words, is it a realistic pace for a new venture to enter? Second, does the industry contain markets that are ripe for innovation or are underserved? Third, are there positions in the industry that will avoid some of the negative attributes of the industry as a whole? It is useful for a new venture to think about its position at both the company levels and the product or service level. At the company level, a firm's position determines how the company is situated relative to its competitors. It is important to know the competitive landscape (the industry): "We are not fit to lead an army on the march unless we are familiar with the face of the country - its pitfalls and precipices, its marshes and swamps". These words serve a reminder to entrepreneurs that regardless of how eager they are to start a business, they are not adequately prepared until they are 'familiar with the face of the country' - that is, until they understand the industry or industries they plan to enter and in which they intend to compete. It is also important to know that some industries are simply more attractive than others in terms of their annual growth rate and other factors. The overall attractiveness or an industry should be part of the equation when an entrepreneur decides whether to pursue a particular opportunity studying industry trends and using the five forces model are two techniques entrepreneurs have available for assessing industry attractiveness. Once it is determined that a new venture is feasible in regard to the industry and the target market in which it intends to compete, a more in-depth analysis is needed to learn the operational realities associated with the chosen industry. The in-depth analysis helps a firm determine if the niche or target markets it identified during its feasibility analysis are accessible and the ones that represent the best point of entry for a new firm.

Industry analysis

An industry analysis is business research that focuses on the potential of an industry.

What is an industry P. 188

An industry is a group of firms producing a similar product or service, such as music, yoga studios and solar panels.

Industry

An industry is a group of firms producing s similar product or service, such as music or solar panels.

What is the purpose of completing a competitive analysis grid?

Competitive analysis grid is a tool for organizing the information a firm collects about its competitors. It can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue, and perhaps most importantly, identify its primary sources of competitive advantage. To be a viable company, a new venture must have at least one clear competitive advantage over its major competitors.

Economies of scale

Economies of scale occur when mass-producing a product results in lower average costs.

Cost reduction strategy

Entrepreneurial firms employee three different strategies in declining industries. One of them is cost reduction strategy, which is accomplished through achieving lower costs than industry incumbents through process improvements. Achieving lower costs allows a firm to sell its product or service at a lower price, creating value for consumers in the process of doing so.

Leadership strategy

Entrepreneurial firms employee three different strategies in declining industries. The first one is to adopt to leadership strategy, in which the firm tries to become the dominant player in the industry.

Niche strategy

Entrepreneurial firms employee three different strategies in declining industries. The second one is to pursue niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation.

Identify and discuss the five competitive forces that determine industry profitability

Firms use the 'five forces model' to understand an industry's structure. The parts of Porter's five forces model are threat of substitutes, threat of new entrants, rivalry among existing firms, bargaining power of suppliers, and bargaining power of buyers.

How does the bargaining power of suppliers have the potential to suppress an industry's profitability?

In general industries are more attractive when the bargaining power of suppliers is low. In some cases, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the component they provide. If a supplier reduces the quality of the components it supplies, the quality of the finished product will suffer, and the manufacturer will eventually have to lower its price. If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer. Several factors have an impact on the ability of suppliers to exert pressure on buyers and suppress the profitability of the industries they serve. These include the following: Supplier concentration: When there are only a few suppliers to provide a critical product to a large number of buyers, the supplier has an advantage. This is the case in the pharmaceutical industry, where relatively few drug manufactures are selling to thousands of doctors and their patients. Switching costs: are the fixed costs that buyers encounter when switching or changing from one supplier to another. If switching costs are high, a buyer will be less likely to switch suppliers. For example, suppliers often provide their largest buyers with specialized software that makes it easy to buy their products. After the buyer spends time and effort leaning the supplier's ordering and inventory management systems, it will be less likely to want to spend time and effort leaning another supplier's system. Attractiveness of substitutes: supplier power is enhanced if there are no attractive substitutes for the products or services the supplier offers. For example, there is little the computer industry can do when Microsoft and Intel raise their prices, as there are relatively few substitutes for these firms' products (although there is less true today than has been the case historically). Threat of forward integration: the power of a supplier is enhanced if there is a credible possibility that the supplier might enter the buyer's industry. For example, Microsoft's power as a supplier of computer operating systems is enhanced by the threat that it might enter the PC industry if PC makers balk too much at the cost of its software or threaten to use an operating system from a different software provider.

How does the bargaining power of buyers have the potential to suppress an industry's profitability?

In general, industries are more attractive when the bargaining power of buyers (a start-up's customers) is low. Buyers can suppress the profitability of the industries from which they purchase by demanding price concessions or increase in quality. For example, the automobile industry is dominated by a handful of large automakers that buy products from thousands of suppliers in different industries. This anables the automakers to suppress the profitability of the industries from which they buy demanding price reductions. Similarly, if the automakers insisted that their suppliers provide better-quality parts for the same price, the profitability of the suppliers would suffer. Several factors affect buyers' ability to exert pressure on suppliers and suppress the profitability of the industries from which they buy. These include following: Buyer group concentration: If the buyers are concentrated, meaning that there are only a few large buyers, and they buy from a large number of suppliers, they can pressure the suppliers to lower costs and thus affect the profitability of the industries from which they buy. Buyer's costs: The greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price it pays. For example, if the compoent sold by the supplier represents 50 percent of the costs of the buyer's product, the buyer will bargain hard to get the best price for that component. Degree of standardization of suppliers products: the degree to which a supplier's product differs from its competitors' offering affects the buyer's bargaining power. For example, a buyer who is purchasing a standard or undifferentiated product from a supplier, such as the corn syrup that goes into a soft drink, can play one supplier against another until it gets the best combination of features such as price and service. Threat of backward integration: The power of a buyer is enhanced if there is a credible threat that the buyer might enter the supplier's industry. For example, the PC industry can keep the price of computer monitors down by threatening to make its own monitors if the price gets to high.

How can the threat of new entrant suppress an industry's profitability?

In general, industries are more attractive when the threat of entry is low. This means that competitors cannot easily enter the industry and successfully copy what the industry incumbents are doing to earn profits. There are a number of ways that firms in an industry can keep the number of new entrants low. These techniques are referred to as barriers to entry. A barrier to entry is a condition that creates a disincentive for a new firm to enter an industry. Let's look at the six major sources of barriers to entry: Economics of scale: Industries that are characterized by large economies of scale are difficult for new firms to enter, unless they are willing to accept a cost disadvantage. Economies of scale occur when mass-producing a product results in lower average costs. There are instances in which the competitive advantage generated by economies of scale can be overcome. Products differentiation: Industries such as the soft-drink industry that are characterized by firms with strong brands are difficult to break into without spending heavily on advertising. Product innovation is another way a firm can differentiate its good or service from competitors' offerings. Capital requirements: The need to invest large amount of money to gain entrance to an industry is another barrier to entry. The automobile industry is characterized by large capital requirement. Cost advantages independent of size: Entrenched competitors may have cost advantages not related to size that are not available to new entrants. Commonly, these advantages are grounded in the firm's history. For example, the existing competitors in an industry may have purchased land and equipment in the past when the cost was far less than new entrants would have to pay for the same assets at the time of their entry. Access to distribution channels: Distribution channels are often hard to crack. This is particularly true in crowded market, such as the convenience store market. For new sport drink to be placed on a convenience store shelf, it typically has to displace a product that is already there. Government and legal barriers: In knowledge-intensive industries, such as biotechnology and software, patents, trademarks and copyright from major barriers to entry. Other industries, such as banking and broadcasting, require the granting of a license by a public authority. When start-ups create their own industries or create new niche markets within exciting industries, they must create barriers to entry of their own to reduce the threat of new entrant. Is it difficult for start-ups to create barriers to entry that are expensive, such as economies of scale, because money is usually tight. The biggest threat to a new firm's viability, particularly if it is creating a new market, is that larger, better-funded firms will step in and copy what it is doing. The ideal barrier to entry is a patent, trademark, or copyright, which prevents another firm from duplicating what the start-up is doing. But in many instances patents do not apply. There is a category of barriers to entry called nontraditional barriers to entry, which are barriers particularly suited to start-up firms. These barriers include factors such as the strength of a company's management team, a first-mover advantage, a unique business model, or inventing a new approach to an industry.

How can the threat of substitute products suppress an industry's profitability?

In general, industries are more attractive when the threat of substitutes is low. This means that products or services from other industries can't easily serve as substitutes for the products or services being made and sold in the focal firm's industry. For example, there are few if any substitutes for prescription medicines, which is one of the reasons the pharmaceutical industry has historically been so profitable. In contrast, in industries where close substitutes for a product do exist, industry profitability is suppressed because consumers will opt not to buy when the prices are too high. Consider the price of airplane tickets. If the prices get too high, businesspeople will increasingly switch to videoconferencing services such as Skype or Google. Hangouts as a substitute for travel. This problem is particularly acute if the substitutes are free or nearly free. For example, if the price of express mail gets too high, people will increasingly attach documents to e-mail messages rather than sending them via UPS. The extent to which substitutes suppress the profitability of an industry depends on the propensity of buyers to substitute alternatives. This is why the firms in an industry often offer their customers amenities to reduce the likelihood they'll switch to a substitute product, even in light of a price increase.

What are the major determinants of profitability in most industries?

In most industries, the major determinant of industry profitability is the level of competition among the firms already competing in the industry. Some industries are fiercely competitive to the point where prices are pushed below the level of costs. When this happens, industry-wide losses occur. In other industries, competition is much less intense and price competition is subdued. There are four primary factors that determine the nature and intensity of the rivalry among existing firm inn an industry: Number and balance of competitors; Degree of difference between products; Growth rate of an industry; and Level of fixed costs.

Barrier to entry

Is a condition that creates a disincentive for a new firm to enter an industry. There are six major sources of barriers to entry: Economies of scale; Product differentiation; Capital requirements; Cost advantages independent of size; Access to distribution channels; Government and legal barriers.

Competitive analysis grid

Is a tool for organizing the information a firm collects about its competitors. It can help a firm see how it stacks up against its competitors, provide ideas for markets to pursue, and perhaps most importantly, identify its primary sources of competitive advantage. To be a viable company, a new venture must have at least one clear competitive advantage over its major competitors.

What are the three different strategies that may be adopted by a firm in a declining industry

Leadership strategy, niche strategy or cost reductions strategy.

What are the differences among direct competitors, indirect competitors, and future competitors?

The first step in a competitive analysis is to determine who the competition is. This is more difficult than one might think. Some firms sell products or services that straddle more than one industry. For example, a company that makes computer software for dentists' offices operates in both the computer software industry and the health-care industry. Again, this type of company has more potential competitors but also more opportunities to consider. The different types of competitors a business will face are shown in Figure 4.3 p. 205. The challenges associated with each of these groups of competitors are described here: Direct competitors: These are businesses that offer products or services that are identical or highly similar to those of the firm completing the analysis. These competitors are the most important because they are going after the same customers as the new firm. A new firm faces winning over the loyal followers of its major competitors, which is difficult to do, even when the new firm has a better product. Indirect competitors: These competitors offer close substitutes to the product the firm completing the analysis sells. These firms' products are also important in that they target the same basic need that is being met by the new firm's product. Future competitors: These are companies that are not yet direct or indirect competitors but could move into one of those roles at any times. Firms are always concerned about strong competitors moving into their markets. It is impossible for a firm to identify all its direct and indirect competitors, let alone its future competitors. However, identifying its top 5 to 10 direct competitors and its top 5 to 10 indirect and future competitors makes it easier for the firm to complete its competitive analysis grid. If a firm does not have a direct competitors, it shouldn't forget that the status quo can be the toughest competitor of all. In general, people are resistant to change and can always keep their money rather than spend it. A product or service's utility must rise above its cost, not only in monetary terms but also in terms of the hassles associated with switching to or leaning something new, to motivate someone to buy a new product or service. Creating meaningful value and sharp differentiation from competitors are actions small firms in crowded industries can take to remain competitive and gain market share.

How can startups stay on top of environmental and business trends in their industries?

The first technique an entrepreneur has available to discern the attractiveness of an industry is to study industry trends. environmental and business trends are the two most important trends for entrepreneurs to evaluate. Environmental trends: environmental forces or trends are very important. The strength of an industry often surges, or wanes not so must because of the management skills of those leading firms in a particular industry, but because environmental trends shift in favor or against the products or services sold by firms in the industry. Economic trends, social trends, technological advances, and political and regulatory change are the most important environmental trends for entrepreneurs to study. Sometimes there are multiple environmental changes at work that set the stage for an industry's future. Business trends: Other trends affect industries that aren't environmental trends per se but are important to mention. For example, the firms in some industries benefit from an increasing ability to outsource manufacturing or service functions to lower-cost foreign labor markets, while firms in other industries don't share this advantage. In a similar fashion, the firms in some industries are able to move customer procurement and service functions online, at considerable cost savings, while the firms in other industries aren't able to capture this advantage. Trends such as these favor some industries over others. It's important that start-ups stay on top of both environmental and business trends in their industries. One way to do this is via participation in industry trade associations, trade shows, and trade journals.

What are the five forces that determine an industry's profitability? P. 192 and p. 198

The five forces model is a framework entrepreneurs use to understand an industry's structure. The five forces model is a framework entrepreneurs use to understand an industry's structure. FIGURE 5.1 FORCES THAT DETERMINE INDSUTRY PROFITABILITY As shown in figure 5.1, the framwork is comprised of the forces that determine industry profitability. These forces - the threat of substitues, the threat of new entrants (that is, new competitors), rivalry among existing firms, the bargaining power of return for the firms competing in a particular industry (e.g. the restaurant industry) or a particular segment of an industry (e.g. the fast-casual segment of the restaurant industry). Each of Porter's five forces affects the average rate of return for the firms in an industry by applying pressure on industry profitability. Well-managed companies try to position their firms in a way that avoids or diminishes these forces - in attempt to beat the average rate of return for the industry. Porter points out that industry profitability is not a function of only a product's features. Porter's essential points still offer important insights for entrepreneurs, such as the insight suggested by the following quote: 'Industry profitability is not a function of what the product looks like or whether it embodies high or low technology but of industry structure. Some very mundane industries such as postage meters and grain trading are extremely profitable, while some more glamorous, high-technology industries such as personal computers and cable television are not profitable for many participants. In summary, the five competitive forces help the founder or founders of a new venture understand the structure of the industry they are about to enter. There are additional benefits of the five forces model. When a firm doesn't understand the structure and dynamics of the industry it is about to enter, its task is twice as hard. In fact, it might even lead to failure.

What is the meaning of the term competitive intelligence?

To compete a meaningful competitive analysis grid, a firm must first understand its competitors' strategies and behaviors. The information that is gathered by a firm to learn about its competitors is called competitive intelligence. Obtaining sound competitive intelligence is not always a simple task. If a competitor is a publicly traded firm, a description of the firm's business and its financial information is available through annual reports filed with the SEC. If one or more of the competitors is a private company, the task is more difficult, given that private companies are not required to divulge information to public. There are a number of ways that a firm can ethically obtain information about its competitors. A sample of the most common techniques is shown in table 5.4 .

Explain the purpose of an industry analysis

To compete successfully, a firm needs to understand the industry in which it intends to compete. Industry analysis is a business research framework or tool that focuses on an industry's potential. The knowledge gleaned from this analysis helps a firm decide whether to enter an industry and if it can carve out a position in that industry that will provide it a competitive advantage. Environmental trends and business trends are two main components of "industry trends" that firms should study. Environmental trends include economic trends, social trends, technological advances, and political and regulatory changes. Business trends include other business-related trend that aren't environmental trends but are important to recognize and understand.

Competitive intelligence

To complete a meaningful competitive analysis grid, a firm must first understand its competitors' strategies and behaviors. The information that is gathered by a firm to learn about tis competitors is called competitive intelligence.

Explain the value that entrepreneurial firms create by successfully using the five forces model

What entrepreneurs should understand is that each individual force has the potential to affect the ability of any firm to earn profits while competing in the industry or a segment of an industry. The challenge is to find a position within an industry or a segment of an industry in which the profitability of the firm being negatively affected by one or more of the five forces is reduced. Additionally, successfully examining an industry yields valuable information to those starting a business. Armed with the information it has collected, firms are prepared to consider four industry-related questions that should be examined before deciding to enter an industry. These questions are: Is the industry a realistic place for a new venture? If we do enter the industry, can our firm do a better job than the industry as a whole in avoiding or diminishing the threats that suppress industry profitability? Is there a unique position in the industry that avoids or diminishes the forces that suppress industry profitability? Is there a superior business model that can be put in place that would be hard for industry incumbents to duplicate?