IndustrySectorLectureEightDrItaO’DonovanDrItaO'DonovanBeechgroveAssociates1IndustrySectorDrItaO'Donova1IndustryAnalysisDrItaO'DonovanBeechgroveAssociates2ThenaturalEnvironmentThDemographicStructureSocialStructureTheNaturalEnvironmentDemographicStructureSocialStructureTheNational/InternationaleconomyTechnologyGovernmentandpoliticsTheIndustryEnvironmentSuppliersCompetitorsCustomersIndustryAnalysisDrItaO'Dono2ThespectrumofindustryStructuresPerfectCompetitionOligopolyDuopolyMonopolyDrItaO'DonovanBeechgroveAssociates3ConcentrationManyFirmsAfewFirmsTwoFirmsOnefirmEntryandExitBarriersNoBarriersSignificantBarriersHighBarriersProductDifferentiationHomogeneousProduct(commodity)PotentialforProductDifferentiationInformationAvailabilityNoimpedimentstoinformationflowImperfectavailabilityofInformationThespectrumofindustryStruc3ThefiveforcesofindustrycompetitivenessDrItaO'DonovanBeechgroveAssociates4SUPPLIERSINDUSTRYCOMPETITORSRivalryamongexistingfirmsPOTENTIALENTRANTSSUBSTITUTESBUYERSThreatofnewEntrantsThreatofnewsubstitutesBargainingpowerofbuyersBargainingpowerofsuppliersThefiveforcesofindustryco4TheStructuraldeterminantsoftheFiveForcesDrItaO'DonovanBeechgroveAssociates5SUPPLIERPOWERFactorsdeterminingpowerofsuppliersrelativetoproducers;sameasthosedeterminingpowerofproducersrelativetobuyers-seeBuyerPowerBoxINDUSTRYRIVALRYConcentrationDiversityofcompetitorsProductdifferentiationExcesscapacityandexitbarriersCostconditionsTHREATOFSUBSTITUTESBuyerpropensitytosubstituteRelativepricesandperformanceofsubstitutesTHREATOFENTRYCapitalRequirementsEconomiesofscaleAbsolutecostadvantageProductdifferentiationAccesstodistributionchannelsGovernmentandlegalbarriersRetaliationbyestablishedproducersBUYERPOWERPriceSensitivityBargainingPowerCostofproductrelativetototalcostSizeandconcentrationofbuyersrelativetoproducersProductdifferentiation,competitionbetweenBuyersswitchingcosts;BuyersInformationBuyersBuyersabilitytobackwardintegrateTheStructuraldeterminantsof5SomekeyapproachesTherearetwokeyperspectivesinthedebateaboutinfluenceintheindustrialsectorThosewhobelievethattheindustryshapesthefirmAndThosewhobelievethatthefirmcanshapetheindustry.EssentiallythisisanenvironmentalquestionHowmalleableistheindustrialenvironment?SomekeyapproachesTherearet6SomeKeyApproachesandQuestionsAnotherwayoflookingatthisistosaydoesafirmcomplywithexistingrulesorchoosetoinfluenceandcreatenewconditions?Wecantakeanevolutionaryperspectiveandsaythatindividualfirmscannotshapetheindustrytheyinhabit.TheyadapttosurviveSurvivalofthefittestDarwin’stheoryDrItaO'DonovanBeechgroveAssociates7SomeKeyApproachesandQuesti7SomekeyapproachesandQuestionsTheIndustrycreationperspectivesaysthattheenvironmentcanbemanipulated.Rulescanbealteredmoreflexibilitythanseemsapparent,Pressurecanbeappliedbythosewhoknowhow.Advocatesofthecreationperspectivedonotdenyevolutionexistsinindustry,buttheysaythatisbecausefirmsdidnotchallengeandinnovativeenough.DrItaO'DonovanBeechgroveAssociates8SomekeyapproachesandQuesti8TwoPerspectivesIndustryEvolutionIndustry

creationEmphasisonComplianceoverchoiceChoiceovercomplianceIndustryChangesUncontrollableevolutionaryprocessesControllablecreationprocessesChangeDynamicsEnvironmentselectsfitfirmsFirmscreatefittingenvironmentFirmsuccessduetoFitnesstoindustrydemandsManipulationofindustrydemandsIndustrymalleabilityLow,slowHigh,fastNormativeapplicationPlaybytherules(adapt)Changetherules(innovate)FirmprofitabilityIndustry-dependentFirm-dependentPointofviewDeterministicVoluntaristicDrItaO'DonovanBeechgroveAssociates9TwoPerspectivesIndustryEvolu9TwoImportantconceptsIndustryRules:thesearethedemandsdictatedtotheorganisationbytheindustrycontext,thatlimitthescopeofeconomicallyrationalbehaviour.Industryrecipes:isacognitivemapthatpeoplehaveaboutthestructureanddemandsoftheindustry.DrItaO'DonovanBeechgroveAssociates10TwoImportantconceptsIndustry10ProductLifeCycle:strategy,competitionandperformanceIntroductionGrowthMaturityDeclineBuyersandBuyerbehaviourHighIncomepurchaser;Buyerinertia,BuyermustbeconvincedtotryproductWideningbuyergroup.ConsumerwillacceptunevenqualityMassmarket,Saturation,Repeatbuying,ChoosingamongbrandsistheruleCustomersaresophisticatedBuyersoftheproductProductsandproductchangePoorquality,productdevelopmentanddesignarekey,differentdesignvariations,frequentchangesProductshavetechnicalandperformancedifferentiation.Reliabilitykeyforcomplexproducts.CompetitiveimprovementsSuperiorquality,lessproductdifferentiation,lessrapidchanges.StandardisationTrade-insbecomesignificant.Littleproductdifferentiation.Productqualitybecomesvariable.MarketingVeryhighmarketingcostsCostsarehighforsalesCreamingpricestrategyStillhighadvertisingcostsbutlowercostsonsales.Advertisinganddistributionkeyfornontechnicalproducts.MarketsegmentationExtendlifecycle.BroadenlineServiceanddealsmoreprevalent.PackagingimportantLowadvert/salesandothermarketingManufacturingandDistributionOvercapacity,short-productionruns.HighskilledlabourcontentHighproductioncostsUndercapacity,shifttowardsmassproduction,Scramblefordistribution,MasschannelsSomeovercapacity,Increaseinthestabilityofmanufacturingprocess.Lowerlabourskills.Longproductionrunswithknowntechniques.DistributionisstreamlinedandeffectiveMasschannels.MassproductionSubstantialovercapacitySpecialitychannelsDrItaO'DonovanBeechgroveAssociates11ProductLifeCycle:strategy,11ProductLifeCycle:strategy,competitionandperformanceContinued.IntroductionGrowthMaturityDeclineRandDChangingProductiontechniquesForeignTradeSomeExportsSignificantexports,FewImportsFallingexports,significantimportsNoexports,significantimportsOverallStrategyBestperiodtoincreasemkt.share.RandD,engineeringarekeyfunctionsPracticaltochangepriceorqualityimage.MarketingthekeyfunctionBadtimetoincreasemarketshare,particularlyiflow–sharecompany.Havingcompetitivecostsbecomeskey.Badtimetochangepriceimageorqualityimage.MarketingiskeyCompetitionFewcompaniesEntry.Manycompetitors.LotsofmergersandcasualtiesPricecompetition,ShakeoutIncreaseinprivatebrandsExits,fewercompetitorsRiskHighRiskRiskscanbetakenbecausegrowthcoversthemupCyclicalitysetsinMarginsandProfitsHighpricesandmarginsLowprofitsPriceelasticitytoindividualsellernotasgreatasinmaturityHighprofits,highestprofits,fairlyhighprices.Lowerpricesthanintroductoryphase.Recessionresistant.GoodacquisitionclimateFallingprices,lowerprofitsandmargins.Lowerdealermargins.Increasedstabilityofmarketsharesandpricestructure.Pooracquisitionclimate-toughtosellcompanies.Lowpricesandmargins.FallingpricesPricesmightriseinlatedeclineDrItaO'DonovanBeechgroveAssociates12ProductLifeCycle:strategy,12ThinkofIndustryintermsofwholesystemAnindustryisaninterrelatedwhole.Changeinonepartwillhaveaneffectonthewholesystem.Forexampleonefirmintroducesanewproductthathasaknockoneffectontheindustry.Considerationneedstobegiventothefollowingfactorswhenthinkingaboutindustrydevelopment:IndustryConsolidationHighmobility/increasesconsolidationRelationshipbetweenIndustryConcentrationandMobilityBarriersLoworfallingmobility/noconcentrationDrItaO'DonovanBeechgroveAssociates13ThinkofIndustryintermsof13ThinkofIndustryintermsofwholesystemcont.ExitBarriersandConsolidationExitbarriersareaninhibitortoconsolidationLongRunprofitpotentialandfuturestructurePhasesoccurinrelationtoprofitmargins,transitionsoccurduringlevelingoutofgrowth.Rivalrymeansweakerfirmsmayexit.ChangesinIndustryBoundariesStructuralchangesinindustrysuchasinnovations,suppliersmightbecomecompetitorsforexample(forwardintegration)FirmsandtheirinfluenceonIndustryStructureWhenfirmsunderstandtheirenvironmentreallywelltheycan