Beruflich Dokumente
Kultur Dokumente
EQUITY
LECTURE 30
THE FIVE COMPETITIVE FORCES THAT SHAPE STRATEGY
Threat of Entry
The entry of new firms puts pressure on existing firms profits.
Barriers to entry are advantages that incumbents have relative to new entrants. They
may arise from:
o
o
o
o
o
o
o
New firms will not be inclined to enter an industry if they expect existing firms to
have a strong, antagonistic reaction to their entry.
INSTRUCTOR SLIDES | The Five Competitive Forces That Shape
Strategy
Threat of Entry
Expected retaliation is likely to be strong if:
o Incumbents have retaliated vigorously to new entrants in the past.
o Incumbents have substantial resources to fight back.
o Incumbents have the ability and willingness to lower prices to retain their
market share.
o Industry growth is slow, new entrants would only be able to gain market share
by taking it away from incumbents.
Power of Suppliers
Powerful suppliers can capture a higher proportion of industry profits by:
o Charging higher prices for raw materials.
o Limiting quality or services.
o Passing on the bulk of costs to industry participants.
The bargaining power of a supplier firm is relatively high if:
o
o
o
o
o
Note:
Analysts should be alert to changes in other industries that can make their products
attractive substitutes. (Ej. Empresa DuPont)
Fleeting Factors
1. Industry Growth Rate
A high growth rate is not always a positive sign for an industry, it can work against
industry participants in the following ways:
Rapid growth can increase the bargaining power of suppliers.
It can make the industry more attractive to potential entrants.
It cannot guarantee profitability if the threat of substitutes is high.
2. Technology and Innovation
Low-tech industries with price insensitive buyers, high switching costs or high
entry barriers may be more profitable than sexy industries.
(buscar en industrias aburridas)
10
Fleeting Factors
3. Government
The impact of government policies on an industry is best evaluated in terms of their
impact on the five competitive forces.
o For example, licensing requirements raise barriers to entry, increasing an
industrys profit potential.
On the other hand, policies in favor of labor unions increase the bargaining power
of suppliers, limiting profitability.
4. Complementary Products and Services
Complements are goods and services that are used together with the industrys
product.
They can raise or lower barriers to entry, can affect the threat of substitutes, and can
also influence the intensity of industry rivalry.
INSTRUCTOR SLIDES | The Five Competitive Forces That Shape
Strategy
11
12
13
14
15
16
Common Pitfalls
While conducting an analysis, avoid the following common mistakes:
Defining the industry too broadly or too narrowly.
Making lists instead of engaging in rigorous analysis.
Paying equal attention to all of the forces rather than digging deeply into the most
important ones.
Confusing effect with cause.
Using static analysis that ignores industry trends.
Confusing cyclical or transient changes with true structural changes.
Using the framework to declare an industry attractive or unattractive rather than
using it to guide strategic choices.
17