This chapter focus onunderstanding how the competitive structure og an industry determines its profitability. * Business strategy – concerned with establishing competitive advantage. Identify general sources of competitive advantage: Key success factors. From environmental analysis to industry analysis * Business environment consists of al external influences that affect its decisions and performance. * Prerequiite for effective environmental analysis is to distinguish the vital from the merely important.
The core of the firms business environsment is formed by the relationships with: customers, suppliers and competitors – this is the industry environment. * Macro-level factors still importat – the key issue is how these more general environmental factors affect the firms industry environment. Fig 3. 1 The determinants of Industry Profit: Demand and competition * Starting point is simple: What determines the level of profit in an industry. * The prerequisite for profit is the creation of value for customers. Surplus distributed depending on the forces of competition. * Firms profit determined by 3 factors. * The value of the product to customers * The intensity of competition
The Essay on Normal Profit Firms Run Price
The market system determines what, how and for whom goods and services are produced. The consumer determines what to produce. An increase in consumer demand will lead to a rise in price and producers will respond to higher price by raising production- to make more profits. Competition between producers determines how to produce- if they do not want to produce as cheaply as possible they will go ...
The bargaining power of producers relative to their suppliers and buyers * The joys of niche markets * Perfect competition / monopoly / barriers -> table 3. 2 * Porters Five Forces Figure 3. 2 p. 69 + 3. 3 s. 70 * Suppliers * Same as in buyers box * Substitutes * Buyer propensity to subtitutes * Relative pries and performance of substitutes * Buyers * Price sensititity Cost of product relative to total cost * Product differentiation * Competition between buyers * Bargaining power * Size and concentration of buyers relative to producers *
Buyers switching costs * Buyers information * Buers ability to backward integrate * Potential entrants * Capital requirements * Economic of scale * Absolute cost advantages * Product differentiation * Acces to distribution channels * Gorvernment and legal barriers * Retaliation by established producers Analyzing industry attractiveness Applying Industry Analysis
