0Summary of Chapter

10. An industry can be defined as a group of companies offering products or services that are close substitutes for each other. Close substitutes are products or services that satisfy the same basic customer needs. 20. The main technique used to analyze competition in the industry environment is the five forces model. The five forces are (1 the ris! of ne" entry by potential competitors# (2 the e$tent of rivalry among established firms# (% the bargaining po"er of buyers# (& the bargaining po"er of suppliers# and (' the threat of substitute products. The stronger each force is# the more competitive the industry and the lo"er the rate of return that can be earned. %0. The ris! of entry by potential competitors is a function of the height of barriers to entry. The higher the barriers to entry are# the lo"er is the ris! of entry and the greater are the profits that can be earned in the industry. &0. The e$tent of rivalry among established companies is a function of an industry(s competitive structure# demand conditions# cost conditions# and barriers to e$it. )trong demand conditions moderate the competition among established companies and create opportunities for e$pansion. *hen demand is "ea!# intensive competition can develop# particularly in consolidated industries "ith high e$it barriers. '0. +uyers are most po"erful "hen a company depends on them for business but they themselves are not dependent on the company. ,n such circumstances# buyers are a threat. -0. )uppliers are most po"erful "hen a company depends on them for business but they themselves are not dependent on the company. ,n such circumstances# suppliers are a threat.

.0. )ubstitute products are the products of companies serving customer needs similar to the needs served by the industry being analyzed. The more similar the substitute products are to each other# the lo"er is the price that companies can charge "ithout losing customers to the substitutes. /0. )ome argue for a si$th competitive force of some significance0 the po"er# vigor# and competence of complementors. 1o"erful and vigorous complementors may have a strong positive impact on demand in an industry. 20. 3ost industries are composed of strategic groups0 groups of companies pursuing the same or a similar strategy. Companies in different strategic groups pursue different strategies. 100. The members of a company(s strategic group constitute its immediate competitors. +ecause different strategic groups are characterized by different opportunities and threats# it may pay a company to s"itch strategic groups. The feasibility of doing so is a function of the height of mobility barriers. 110. ,ndustries go through a "ell4defined life cycle0 from an embryonic stage# through gro"th# sha!eout# and maturity# and eventually decline. 5ach stage has different implications for the competitive structure of the industry# and each gives rise to its o"n set of opportunities and threats. 120. The five forces# strategic group# and industry life cycles models all have limitations. The five forces and strategic group models present a static picture of competition that deemphasizes the role of innovation. 6et innovation can revolutionize industry structure and completely change the strength of different competitive forces. The five forces and strategic group models have been criticized for deemphasizing the importance of individual company differences. A company "ill not be profitable 7ust because it is based in an attractive industry or strategic group8 much more is required. The industry life cycle model

is a generalization that is not al"ays follo"ed# particularly "hen innovations revolutionize an industry. 1%0. The macroenvironment affects the intensity of rivalry "ithin an industry. ,ncluded in the macroenvironment are the macroeconomic environment# the global environment# the technological environment# the demographic and social environment# and the political and legal environment.0