Chapter 4 Santiago Ibarreche © S. Ibarreche

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 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

 Perfect Competition  Monopolistic Competition  Oligopolistic Competition  Monopoly © S. Ibarreche

 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

 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

 Barrier to Exit:  asset specialization,  one-time cost of exit,  strategic interrelationship,  emotional barriers, and  government or social restrictions © S. Ibarreche

 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

 Governments:  Level of Government control of the industry  Possible examples; Expropriations  Social and political groups:  Political parties and their electoral agendas  Groups of social and minority groups  Examples: Ethnic and gender groups Sexual orientation groups  Unions: Effects of “Right to work” movements  Others © S. Ibarreche

 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

 “Everything is a function of everything else”.  Understanding cross effects  Looking at the link between competitive, social, and task environments © S. Ibarreche

© S. Ibarreche Firm Strategy, Structure and Rivalry Factors Conditions Demand Conditions Related and Supporting Industries

 Determinants of National Advantage:  Factors Conditions The nation’s position in factors of production necessary to compete in a given industry  Demand Conditions The nature of home demand for the industry’s product or services  Related and Supporting Industries The presence or absence in the industry of supplier industries and related industries that are internationally competitive  Firm Strategy, Structure and Rivalry 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