part i: foundations of global strategy - utccgs.utcc.ac.th/mk/000 566-58/c02/2-c penggs2e ch...
TRANSCRIPT
Global StrategyMike W. Peng
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22Industry
CompetitionIndustry
Competition
Part I: Foundations of Global Strategy
Global Strategic ManagementMike W. Peng
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2–2
Outline
• Defining industry competition• The five forces framework• Three generic strategies• Debates and extensions• The savvy strategist
2–3
Defining Industry Competition
• Industry: A group of firms producing products (goods and/or services)
that are similar to each other
• Theories of industry competition Perfect competition (rarely observed) Industrial organization (IO) economics model
Industry structure determines strategy and firm performance (SCP model)
Original goal-help regulators minimize firm’s excess profits Strategists use the IO model to try to earn excess profits
2–4
Five Forces Framework
• The Five Forces Framework “Translated” and extended from the SCP model in
1980 by Michael PorterA key proposition: The focal firm’s performance critically depends on
the degree of competitiveness of the five forces within an industry
The stronger and more competitive these forces are, the less likely the focal firm is able to earn above-average return, and vice versa
2–6
Threats of the Five Forces
Table 2.1
Threats indicative of strong competitive forces that canFive forces depress industry profitability
Rivalry among A large number of competing firmscompetitors Rivals are similar in size, influence, and product offerings
High-price, low-frequency purchases Capacity is added in large increments Industry slow growth or decline High exit costs
Threat of Little scale-based low-cost advantagespotential entry (economies of scale)
Little non-scale-based low-cost advantages Insufficient product differentiation Little fear of retaliation No government policy banning or discouraging entry
2–7
Threats of the Five Forces (cont’d)
Threats indicative of strong competitive forces that canFive forces depress industry profitability
Bargaining power • A small number of suppliersof suppliers • Suppliers provide unique, differentiated products
• Focal firm is not an important customer of suppliers• Suppliers are willing and able to vertically integrate forward
Bargaining power • A small number of buyersof buyers • Products provide little cost savings or quality of life
enhancement• Buyers purchase standard, undifferentiated products
from focal firm• Buyers are having economic difficulties• Buyers are willing and able to vertically integrate backward
Table 2.1 cont’d
2–8
Threats of the Five Forces (cont’d)
Threats indicative of strong competitive forces that canFive forces depress industry profitability
Threat of • Substitutes superior to existing products in quality and of substitutes quality and function
• Switching costs to use substitutes are low
Table 2.1 cont’d
2–9
Five Forces Framework: Lessons from the Five Forces Framework
• Not all industries are equal in terms of their potential profitability
• The task for strategists is to assess the opportunities (O) and threats (T) underlying each competitive force affecting an industry, and then estimate the likely profit potential of the industry
• Use the five forces model as an industry positioning tool• Core features of the five forces model remain remarkably
insightful when analyzing new phenomena, such as e-commerce
2–10Table 2.4
Three Generic Competitive Strategies
PRODUCT DIFFERENTIATION MARKET SEGMENTATION KEY FUNCTIONAL AREAS
Cost Leadership Low (mainly by price) Low (mass market) Manufacturing andmaterials management
Differentiation High (mainly by uniqueness) High (many market segments) Research and development,marketing and sales
Focus Low (mainly by price) or high(mainly by uniqueness)
Low (one of a few segments) Any kind of functionalarea
2–11
Three Generic Strategies:Cost Leadership
• Cost leadership Firm‘s theory about how to compete successfully centers on low
costs and low prices Offer better value to customers Target average customers for mass market - little differentiation Key functional areas are manufacturing and materials
management High volume, low margin approach Defense against five forces Relentless drive to cut costs might compromise value that
customers desire
2–12
Three Generic Strategies:Differentiation
• Differentiation: Deliver products that customers perceive to be valuable and
different Target customers in smaller, well-defined segments who are
willing to pay premium prices Low volume, high margin approach Must have unique attributes (actual or perceived) - quality,
sophistication, prestige, or luxury Challenge - identify attributes that are valued by customers in
each market segment Key functional areas are research and development (source of
innovation), marketing/sales, and after-sale services
2–13
Three Generic Strategies:Differentiation (cont’d)
Defense against five forcesDrawbacksDifficult to sustain differentiation in the long runRelentless efforts of competitors to duplicate
differentiation
2–14
Three Generic Strategies:Focus Strategy (cont’d)
• Focus Strategy:Serving the needs of a particular segment or niche of
an industry such as a geographical market, type of customer, or product line A specialized differentiator has a smaller, narrower,
and sharper focus than a large differentiator– A specialized cost leader deals with a narrower segment
compared with the traditional cost leader
Focusing may be successful when a firm possesses intimate knowledge about a particular segment
2–15
Three Generic Strategies:Lessons from the Three Generic Strategies
• The essence of the three strategic choices: Whether to perform activities differently or to perform different
activities relative to competitors
• There are two fundamental strategic dimensions: costand differentiation The key is to choose one dimension and execute on it
consistently
According to Porter, firms that are “stuck in the middle” either have no strategy or are drifting strategically
However, this point is debatable
2–16
Debates and Extensions
1. Clear versus blurred boundaries of industry2. Threats versus opportunities 3. Five forces versus a sixth force (complementors)4. Stuck in the middle versus all rounder5. Industry rivalry versus strategic groups 6. Integrating versus outsourcing 7. Industry- versus firm- and institution-specific
determinants of firm performance
2–17
Three Strategic Groups in the Global Automobile IndustryThis can be used to illustrate Opening Case
Figure 2.2
2–18
Strategic Groups and Ownership Types in the Chinese Electronics Industry
Table 2.5
STRATEGIC GROUP DEFENDER ANALYZER REACTOR
Ownership type State ownership Foreign ownership Private ownership
Customer base Stable Mixed Unstable
Product mix Stable Mixed Changing
Growth strategy Cautious Mixed Aggressive
Managers Older, more conservative Mixed Younger, more aggressive
2–19
The Savvy Strategist
• For strategic practice, the industry-based view provides:A systematic foundation for industry analysis and
competitor analysis, to which a more detailed examination, introduced in later chapters, can be added
A set of answers to the four fundamental questions in strategy discussed in Chapter 1
Evidence that industry-specific conditions play an important role in determining firm performance