TheExternalEnvironment: Opportunities,Threats,Industry Competition,andCompetitorAnalysis

TheI/OModelofAboveAverageReturns
Explains the external environments dominant influence on a firms strategic actions. The model specifies that the industry in which a company chooses to compete has a stronger influence on performance than do the choices managers make inside their organizations. The firms performance is believed to be determined primarily by a range of industry properties, including economies of scale, barriers to market entry, diversification, product differentiation, and the degree of concentration of firms in the industry.

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TheGeneral,Industry,andCompetitorEnvironments
Generalenvironment
Composedofdimensionsinthebroadersociety

thatinfluenceanindustryandthefirmswithinit
Industryenvironment

Setoffactorsthatdirectlyinfluencesafirm anditscompetitiveactionsandcompetitive responses:thethreatofnewentrants, thepowerofsuppliers,thepowerofbuyers,the threatofproductsubstitutes,andtheintensityof rivalryamongcompetitors Howcompaniesgatherandinterpretinformation abouttheircompetitors

Competitoranalysis

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Figure3.1TheExternalEnvironment

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Table3.1TheGeneralEnvironment: SegmentsandElements

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IndustryEnvironmentAnalysis

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IndustryEnvironmentAnalysis: ThreatofNewEntrants
EconomiesofScale
BarrierstoEntry ProductDifferentiation AccesstoDistributionChannels GovernmentPolicy CapitalRequirements SwitchingCosts CostDisadvantagesIndependentofScale ExpectedRetaliation

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BargainingPowerofSuppliers
Itisdominatedbyafewlargecompaniesandismore concentratedthantheindustrytowhichitsells. Satisfactorysubstituteproductsarenotavailableto industryfirms. Industryfirmsarenotasignificantcustomerforthe suppliergroup. Suppliersgoodsarecriticaltobuyersmarketplacesuccess. Theeffectivenessofsuppliersproductshascreatedhigh switchingcostsforindustryfirms. Itposesacrediblethreattointegrateforwardintothe buyersindustry.Credibilityisenhancedwhensuppliers havesubstantialresourcesandprovideahighly differentiatedproduct.
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BargainingPowerofBuyers
Theypurchasealargeportionofanindustrystotal output. Thesalesofthepurchasedproductaccountfora significantportionofthesellersannualrevenues. Theycouldswitchtoanotherproductatlittle,ifany, cost. Theindustrysproductsareundifferentiatedor standardized. Thebuyersposeacrediblethreatiftheywereto integratebackwardintothesellersindustry.
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ThreatofSubstituteProducts
productsubstitutespresentastrongthreattoafirm whencustomersfacefewifany,switchingcosts whenthesubstituteproductspriceislowerorits qualityandperformanceareequaltoorgreaterthan thoseofthecompetingproduct.

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IntensityofRivalryamongCompetitors
NumerousorEquallyBalancedCompetitors SlowIndustryGrowth HighFixedCostsorHighStorageCosts LackofDifferentiationorLowSwitchingCosts HighStrategicStakes HighExitBarriers

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InterpretingIndustryAnalyses
StrategicGroup Asetoffirmsemphasizingsimilarstrategicdimensionsto useasimilarstrategy. Thecompetitiverivalryamongthemcanbeintense. Themoreintensetherivalry,thegreaterthethreattoeach firmsprofitability. thestrengthsofthefiveindustryforces(thethreatsposed bynewentrants,thepowerofsuppliers,thepowerof buyers,productsubstitutes,andtheintensityofrivalry amongcompetitors)differacrossstrategicgroups. Thecloserthestrategicgroupsareintermsoftheir strategies,thegreateristhelikelihoodofrivalrybetween thegroups.
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Figure3.4 CompetitorAnalysisComponents

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CompetitorAnalysis
Competitorintelligence Setofdataandinformationthefirm gatherstobetterunderstandand betteranticipatecompetitors objectives,strategies, assumptions,andcapabilities. networkofcompaniesthatsell complementarygoodsorservicesorare compatiblewiththefocalfirmsown productorservice.

Complementors

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