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Chapter 4 Santiago Ibarreche © S. Ibarreche 2015 1 © S. Ibarreche 2015 2 © S. Ibarreche 2015 3 Anchored in Basic Economic Theory Structure includes the number of firms in the industry, the homogeneity of its products, and the cost of entry and exit. Conduct examines the strategies that firms in an industry implement. Performance includes two different aspects: the performance of individual firms within the industry and the performance of the industry with regard to the general economy. © S. Ibarreche 2015 4 Perfect Competition Monopolistic Competition Oligopolistic Competition Monopoly © S. Ibarreche 2015 5 Level and strength of competition: Number of competitors of equal size Growth of the sector as compared with general economy Type of product or service Capacity or Storage Costs Changes of Capacity Diversity of Competitors Strategic Stakes © S. Ibarreche 2015 6 Barriers to Entry economies of scale, product differentiation, brand or name identification, switching costs, access to distribution channels, capital requirements, access to latest technologies, access to inputs, government or institutional protection, and experience effect © S. Ibarreche 2015 7 Barrier to Exit: asset specialization, one-time cost of exit, strategic interrelationship, emotional barriers, and government or social restrictions © S. Ibarreche 2015 8 Customers and Suppliers Most common issues are: number of important suppliers or buyers, availability of substitutes, differentiation or switching costs, threat of forward integration or backward integration, industry threat of forward or backward integration, suppliers’ contribution to quality or service of industry products, contribution to quality for the buyer’s products or services, total industry cost contributed by suppliers, buyer’s profitability, and importance of the industry to supplier profits.. © S. Ibarreche 2015 9 Governments: Level of Government control of the industry Possible examples; Expropriations Social Political parties and their electoral agendas Groups of social and minority groups Examples: Ethnic and gender groups Sexual orientation groups Unions: and political groups: Effects of “Right to work” movements Others © S. Ibarreche 2015 10 Main elements of substitutes: Number and Availability of Close Substitutes User’s Switching Costs Substitute’s Producer Profitability and Aggressiveness Substitute Price/Value © S. Ibarreche 2015 11 “Everything is a function of everything else”. Understanding cross effects Looking at the link between competitive, social, and task environments © S. Ibarreche 2015 12 Firm Strategy, Structure and Rivalry Factors Conditions Demand Conditions Related and Supporting Industries © S. Ibarreche 2015 13 Determinants of National Advantage: Factors Conditions Demand Conditions The presence or absence in the industry of supplier industries and related industries that are internationally competitive Firm Strategy, Structure and Rivalry The nature of home demand for the industry’s product or services Related and Supporting Industries The nation’s position in factors of production necessary to compete in a given industry The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry Source: Porter, M. E. “The Competitive Advantage of Nations”, The Free Press 1990 © S. Ibarreche 2015 14