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    The Industrial Environment of Business

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    ibimina
    This document summarizes the key aspects of analyzing a firm's industrial environment using Porter's five forces framework. It describes the five competitive forces - threat of new entrants, intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes. Understanding how these forces impact an industry allows firms to identify threats and opportunities, determine the attractiveness of industries for investment, and make more informed strategic choices. The analysis is an ongoing process that helps firms recognize threats and opportunities and assess likely levels of industry profitability.

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    The Industrial Environment of Business

    Uploaded by

    ibimina
    24 views15 pages
    This document summarizes the key aspects of analyzing a firm's industrial environment using Porter's five forces framework. It describes the five competitive forces - threat of new entrants, intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes. Understanding how these forces impact an industry allows firms to identify threats and opportunities, determine the attractiveness of industries for investment, and make more informed strategic choices. The analysis is an ongoing process that helps firms recognize threats and opportunities and assess likely levels of industry profitability.

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    This document summarizes the key aspects of analyzing a firm's industrial environment using Porter's five forces framework. It describes the five competitive forces - threat of new entrants, intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes. Understanding how these forces impact an industry allows firms to identify threats and opportunities, determine the attractiveness of industries for investment, and make more informed strategic choices. The analysis is an ongoing process that helps firms recognize threats and opportunities and assess likely levels of industry profitability.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    24 views15 pages

    The Industrial Environment of Business

    Uploaded by

    ibimina
    This document summarizes the key aspects of analyzing a firm's industrial environment using Porter's five forces framework. It describes the five competitive forces - threat of new entrants, intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threat of substitutes. Understanding how these forces impact an industry allows firms to identify threats and opportunities, determine the attractiveness of industries for investment, and make more informed strategic choices. The analysis is an ongoing process that helps firms recognize threats and opportunities and assess likely levels of industry profitability.

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    of 15

    The Business Environment

    Lecture 3
    The Industrial Environment of
    Business

    Dr Adrian Monaghan
    Maxwell 307
    [email protected]
    Outline
    The five forces analysis in order to assess the industrial
    environment of a firm to:
    define the attractiveness of industries for investment
    to identify their potential for change
    An understanding of:
    barriers to entering an industry
    the threat of rivalry (competition) in an industry
    the threat of substitutes in an industry
    the threat of suppliers in an industry
    the threat of buyers in an industry
    Analysing the Industrial
    Environment of a Firm
    Why Analyse the Industrial
    Environment?
    It allows firms to:
    discover threats and opportunities
    see if above normal profits are likely in an industry
    better understand the nature of competition in an
    industry
    make more informed strategic choices
    Threat of new entrants
    Fewer new entrants = more profit
    Affected by entry barriers such as
    high costs of equipment and facilities
    lack of distribution facilities
    customers loyal to established brands
    small companies lack economies of scale
    subsidies/regulations favour existing firms
    E.g. Patent-protected drugs, presentation
    software
    Intensity of rivalry amongst
    competitors
    Greater rivalry = lower profit
    Rivalry increases when:
     many firms, but none dominant
     market growing slowly, so firms fight for share

     high fixed costs encourages over-production

     loyalties (family businesses or political support)

    prolong over-capacity
    e.g. airlines, agriculture, Nokia and new mobile
    suppliers?
    Bargaining power of buyers
    (customers)
    Greater power of buyers = less profit to seller
    Power of buyer increases if:
     Buyer takes high % of supplier’s sales
     Many alternative products or suppliers

     Product a high % of buyers costs, creating

    incentive to seek alternatives


     Cost of switching to other suppliers is low

    E.g. online products, major supermarkets like


    Wal-Mart, Tesco
    Bargaining power of suppliers
    High power of supplier = less profit to buyer
    Power of supplier is high if:
     Buyer takes small % of sales
     Few alternative products or suppliers

    (distinctive product keeps buyers loyal)


     Product a low % of buyer’s costs, little incentive

    to seek alternatives
     Cost of switching suppliers high

    E.g. luxury brands, business software


    Substitutes
    Easy to substitute = less profit to supplier
    Substitution becomes easier if:
    Buyers willing to change habits
    Technological developments enable new products
    and services
    Transport costs falling
    New suppliers entering a market
    E.g. online media, new materials
    Managing the five forces
    Subjective interpretation as well as objective
    realities
    Forces contradict/balance each other
    Managers can consciously try to shape them as
    part of their strategy
    Competitive forces affected by those in the
    general environment
    Summary
    Analysing the industrial environment of a
    firm:

    is an ongoing process


    helps firms recognize threats and opportunities
    provides assessment of likely levels of industry profitability
    (normal, above, below)

    On the MSc, we will consider how firms can neutralise


    threats in their immediate environment…
    http://www.cnbc.com/id/15840232?video=1409843923&play=1

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