IndustrySectorLectureEightDrItaO’DonovanDrItaO'DonovanBeechgroveAssociates1IndustryAnalysisDrItaO'DonovanBeechgroveAssociates2ThenaturalEnvironmentThDemographicStructureSocialStructureTheNaturalEnvironmentDemographicStructureSocialStructureTheNational/InternationaleconomyTechnologyGovernmentandpoliticsTheIndustryEnvironmentSuppliersCompetitorsCustomersThespectrumofindustryStructuresPerfectCompetitionOligopolyDuopolyMonopolyDrItaO'DonovanBeechgroveAssociates3ConcentrationManyFirmsAfewFirmsTwoFirmsOnefirmEntryandExitBarriersNoBarriersSignificantBarriersHighBarriersProductDifferentiationHomogeneousProduct(commodity)PotentialforProductDifferentiationInformationAvailabilityNoimpedimentstoinformationflowImperfectavailabilityofInformationTheStructuraldeterminantsoftheFiveForcesDrItaO'DonovanBeechgroveAssociates5SUPPLIERPOWERFactorsdeterminingpowerofsuppliersrelativetoproducers;sameasthosedeterminingpowerofproducersrelativetobuyers-seeBuyerPowerBoxINDUSTRYRIVALRYConcentrationDiversityofcompetitorsProductdifferentiationExcesscapacityandexitbarriersCostconditionsTHREATOFSUBSTITUTESBuyerpropensitytosubstituteRelativepricesandperformanceofsubstitutesTHREATOFENTRYCapitalRequirementsEconomiesofscaleAbsolutecostadvantageProductdifferentiationAccesstodistributionchannelsGovernmentandlegalbarriersRetaliationbyestablishedproducersBUYERPOWERPriceSensitivityBargainingPowerCostofproductrelativetototalcostSizeandconcentrationofbuyersrelativetoproducersProductdifferentiation,competitionbetweenBuyersswitchingcosts;BuyersInformationBuyersBuyersabilitytobackwardintegrateSomekeyapproachesTherearetwokeyperspectivesinthedebateaboutinfluenceintheindustrialsectorThosewhobelievethattheindustryshapesthefirmAndThosewhobelievethatthefirmcanshapetheindustry.EssentiallythisisanenvironmentalquestionHowmalleableistheindustrialenvironment?SomeKeyApproachesandQuestionsAnotherwayoflookingatthisistosaydoesafirmcomplywithexistingrulesorchoosetoinfluenceandcreatenewconditions?Wecantakeanevolutionaryperspectiveandsaythatindividualfirmscannotshapetheindustrytheyinhabit.TheyadapttosurviveSurvivalofthefittestDarwin’stheoryDrItaO'DonovanBeechgroveAssociates7TwoPerspectivesIndustryEvolutionIndustry

creationEmphasisonComplianceoverchoiceChoiceovercomplianceIndustryChangesUncontrollableevolutionaryprocessesControllablecreationprocessesChangeDynamicsEnvironmentselectsfitfirmsFirmscreatefittingenvironmentFirmsuccessduetoFitnesstoindustrydemandsManipulationofindustrydemandsIndustrymalleabilityLow,slowHigh,fastNormativeapplicationPlaybytherules(adapt)Changetherules(innovate)FirmprofitabilityIndustry-dependentFirm-dependentPointofviewDeterministicVoluntaristicDrItaO'DonovanBeechgroveAssociates9TwoImportantconceptsIndustryRules:thesearethedemandsdictatedtotheorganisationbytheindustrycontext,thatlimitthescopeofeconomicallyrationalbehaviour.Industryrecipes:isacognitivemapthatpeoplehaveaboutthestructureanddemandsoftheindustry.DrItaO'DonovanBeechgroveAssociates10ProductLifeCycle: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'DonovanBeechgroveAssociates11ThinkofIndustryintermsofwholesystemAnindustryisaninterrelatedwhole.Changeinonepartwillhaveaneffectonthewholesystem.Forexampleonefirmintroducesanewproductthathasaknockoneffectontheindustry.Considerationneedstobegiventothefollowingfactorswhenthinkingaboutindustrydevelopment:IndustryConsolidationHighmobility/increasesconsolidationRelationshipbetweenIndustryConcentrationandMobilityBarriersLoworfallingmobility/noconcentrationDrItaO'DonovanBeechgroveAssociates13ThinkofIndustryintermsofwholesystemcont.ExitBarriersandConsolidationExitbarriersareaninhibitortoconsolidationLongRunprofitpotentialandfuturestructurePhasesoccurinrelationtoprofitmargins,transitionsoccurduringlevelingoutofgrowth.Rivalrymea