1. Industry Structure, Competitive Forces, and Strategic Groups
Be sure to see experienced and newer versions of the Instructor’s Manual at 
Chapter 3
External Analysis:
Industry Structure, Competitive Forces, and Strategic Groups

2. Exhibit 3.1 The Firm Embedded in Its External Environment
Instructors:
Some thoughts on relevant end of chapter discussion questions,
Why is it important for an organization to study and understand its external environment? It is important because it can affect the industry and firm’s performance. The PESTEL framework, for instance, is helpful because it acts as a guide, allowing managers to mitigate threats and leverage opportunities accordingly.

3. Political/Legal Factors
Political environment
Processes/actions of government that can influence the decisions and behavior of firms
Legal environment
Laws, mandates, regulations, and court decisions – all of which can have a direct bearing on a firm’s profit potential
Instructors:
Relative to the chapter opener on Tesla the text notes the benefits of the U.S. government offering $7,500 in federal tax credits to consumers purchasing a new all electric vehicle. Some states also have such incentives. Other countries including China and several in the EU also offer such incentives.

4. Economic Factors
Economy-wide phenomena, consisting of the following five macroeconomic factors affecting firm strategy:
Growth rates
Interest rates
Levels of employment
Price stability (inflation and deflation)
Currency exchange rates
Instructors:
Many students will see these as major considerations for firms. The text provides several short examples for highlighting each of these factors in case the students are unsure of the meaning of these important concepts.
Some of the other PESTEL forces may need additional classroom discussion to help students see their relevance to business organizations.

5. How the Eurozone Crisis Is Hurting Companies
Strategy Highlight 3.1
How the Eurozone Crisis Is Hurting Companies
The EU (European Union) began its formation in the early 1950s.
Today – The euro is the common currency used by 17 of the 27 EU member states.
2009 – Several European countries took on too much debt and were unable to repay their credit obligations.
Strict austerity programs were enacted.
Banks tightened credit hampering firms worldwide.
Instructors:
This highlight illustrates how changes in political and economic factors create threats for multiple industries.
From the IM:
Which European industries might be hurt more than others by the Eurozone crisis? If your course is a capstone, this is a good discussion topic to
integrate what the students learned in economics with strategic management theory. The Strategy Highlight identifies two issues that can be used to
theme the discussion, 1) the inability to devalue currency and 2) the tightening of credit.
The currency issue will have a strong negative effect on industries dependent on exports. Long years of tight credit and slow wage growth has severely damaged the auto industry in Europe. The strong power of labor unions and governments have combined to create very high exit barriers, leading to overcapacity as well as depressed sales.
For an additional example, see “Europe’s Car Makers Spin Their Wheels” Wall Street Journal 10/01/13
AACSB 2013 Standard 9 Economic, political, regulatory, legal, technological, and social contexts of organizations in a global society

6. Tesla Motors and the U.S. Automotive Industry
ChapterCase 3
Courtesy of Tesla Motors
Tesla Motors and the U.S. Automotive Industry
With high entry barriers, the BIG THREE – GM, Ford, and Chrysler – dominated the U.S. car market until the 1980s.
There have been no new recent entrants due to the HIGH industry entry barriers.
Tesla Motors’ Model S received outstanding market reception, and was awarded the 2013 MotorTrend Car of the Year.
Instructors:
Of note in this chaptercase is how Tesla uses innovation ( in all electric cars) to circumvent traditional barriers to entry in the automotive market.
In recent years Tesla has been viewed as highly successful in its new entry position with stock prices above $200 in early Also there are interesting discussions of potential partnerships and perhaps a restructuring of the supplier power in electric cars with a recent announcement of Tesla’s intent to build a very large factory to make it’s own batteries (which is one of the most expensive and troublesome components in the electric vehicle).
Tesla Plans $5 Billion Battery Factory By MIKE RAMSEY  Feb. 26, 2014
?mg=reno64-wsj

7. Sociocultural Factors
Capture cultures, norms, and values for society; are dynamic and differ across groups.
Implications for firm strategy must be considered.
Demographic trends
Capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
Instructors:
There is an end of chapter small group exercise related to this topic that you may find helpful. The following are some thoughts on this exercise from the IM.
End of Chapter Small Group Exercise 1 (page 91)
This exercise facilitates a discussion that pushes beyond analysis to include the formulation and implementation stages of the strategic management framework. Instead of accumulating an array of data from a PESTEL analysis as a list of macroenvironment factors that impact the industry environment, this exercise allows you to focus on one PESTEL factor, sociocultural for the packaged food industry to develop one threat, “societal concern for healthy eating, particularly for children, is reducing product demand”. Then you move to the next step to discuss what a particular firm (Kraft) in that industry should do in defend itself against that industry threat, in other words, you formulate a strategy.

8. Technological Factors
Capture the application of knowledge to create new processes and products.
Innovations in process technology
Lean manufacturing, Six Sigma quality, and biotechnology.
Nanotechnology revolution
(Initial stages) Major upheaval for several industries – medical devices to new-age materials for earthquake-resistant buildings.
Instructors:
Relative to the chapter opener on Tesla the text notes the tremendous advances in new products such as the Tesla Roadster and Model S. The text also provides an example of rapid industry changes in the mobile smartphone industry.
You may want to note with the students that Chapter 7 addresses the effect of technological factors in greater detail.

9. Ecological Factors
Broad environmental issues, e.g., the natural environment, global warming, and sustainable economic growth
Business and natural worlds are interdependent and inextricably linked.
Managing these relationships in a sustainable manner directly influences the continued existence of human societies and the organizations we create.
Instructors:
Relative to the chapter opener on Tesla the text notes Tesla Motors is addressing environmental concerns regarding the carbon emissions of gasoline-powered cars by building zero-emission battery-powered vehicles. However still needing to be addressed- How to generate the necessary power to sustainably charge the cars as many areas use carbon generating power plants such as coal to create electricity for consumers and businesses.

10. Exhibit 3.2 Porter’s Five Forces Model

11. FIVE FORCES MODEL – MICHAEL PORTER
A framework for identifying the five forces that determine industry profit potential and help shape firm competitive strategy
This model intersects:
Theory: industrial organization economics with
Practice: hundreds of case studies
Managers can predict industry profit potential and position their firms for sustainable competitive advantage.
Instructors:
The five forces model is one of the most widely used tools in strategy. It is worth spending some time on it.
Michael Porter wrote his original work on the subject over 30 years ago. However, he updated this work in 2008 and you may want to
review his article in HBR for more details on the model. (Porter, M. E. (2008), “The five competitive forces that shape strategy.”)
Here is a link to a 13 minute video of Dr. Porter discussing this updated HBR article. He uses the context of the airline industry (Strategy Highlight 3.2) and the soft drink industry to make his major points.

12. 3.2 Industry Structure and Firm Strategy: The Five Forces Model
A group of (incumbent) firms that face the same set of suppliers and buyers
Industry Analysis
Identifies the industry's profit potential
Derive implications for a firm’s strategic position within an industry
Strategic Position
A firm’s ability to create value (V) for customers while containing costs (C)
Competitive Advantage = a large value gap (V - C)
Instructors:
The digital companion to this book McGraw-Hill Connect has an interactive video case exercise on this section of the textbook. It builds student confidence on the Five Forces model as applied to the need for clean drinking water. (LO 3-2).
As suggested exercise from the IM may be useful here for classroom engagement:
One way to assess critical reasoning skills is to assign students a five forces model of an industry, then ask students to explicitly assess each of the driving forces listed in Exhibit 3.4. For one force that has some drivers that are strong and some that are weak, ask students to justify how they weighed those competing factors to reach a conclusion.

13. INDUSTRY FORCES IMPACT FIRM PROFITABILITY
ATTRACTIVE INDUSTRY
Sustainable Competitive Advantage Easier
High profit potential
The weaker the five forces
UNATTRACTIVE INDUSTRY
Sustainable Competitive Advantage Harder
Low profit potential
The stronger the five forces
Instructors:
End of Chapter Discussion Question 2 covers this point.
How do the five competitive forces in Porter’s five forces model affect the profitability of the industry?
For example, in what way might strong forces increase industry profits, and in what way do strong forces reduce industry profits?
Identify an industry in which many of the competitors seem to be having financial performance problems. Which of the five forces seem to be strongest?
Weaker five forces equal greater industry profit potential, emphasizing attractiveness. However, the greater the five forces are, the lesser the industry profit potential, reducing the
attractiveness to competitors.

15. Chapter Outline
3.1 The PESTEL Framework 3.2 Industry Structure and Firm Strategy: The Five Forces Model 3.3 Changes over Time: Industry Dynamics 3.4 Explaining Performance Differences within the Same Industry: Strategic Groups 3.5 Implications for the Strategist

16.  
EXTERNAL ANALYSIS
PESTEL Framework
INDUSTRY ANALYSIS
Five Forces Model
COMPETITOR ANALYSIS
Strategic Group Mapping
MACRO
MICRO

17.  
EXTERNAL ANALYSIS
PESTEL Framework
INDUSTRY ANALYSIS
Five Forces Model
COMPETITOR ANALYSIS
Strategic Group Mapping
MACRO
MICRO

18. The Five Forces in the Airline Industry
Strategy Highlight 3.2
The Five Forces in the Airline Industry
Low Entry Barriers
Powerful Suppliers
Powerful Buyers
Strong Substitute Threat
Intense Rivalry
RESULTS – Low overall industry profit potential, thus an “unattractive” industry for investment.
Instructors:
A suggested exercise from the IM is to use the soft drink industry as another example of these concepts. (We have found this works particularly well if you have assigned the Porter video as homework before class).
A quick small group activity can be used to assess the students’ familiarity with the concepts here.
Each team of students could be assigned a force for one of the two industries. Ask them to assess the strength of the force, the theoretical drivers that cause that effect, and how industry profitability will be affected (sales prices, sales volume, COGS, etc.). The primary purpose of this discussion is to identify for you which aspects of the model that students find most difficult to understand. A secondary purpose is to bring students as close as possible to a common basis at the beginning of class through peer-to-peer coaching.
Soft drinks have been one of the most profitable industries for decades, with an average ROIC of 37.6 percent between 1992 and Michael Porter calls soft drinks a “five star” industry; by that, he means that each of the five forces is weak, leading to superior industry performance. The nature of competition between Pepsi and Coke is benign for the most part, focusing on non-price factors such as lifestyle advertising and product innovation rather than on price. The barriers to entry are high, because of the strong brand equity enjoyed by Coke and Pepsi, which has been built up over many decades. In addition, bottling is a capital-intensive activity. Consumers tend to be loyal to “their” cola, identifying themselves as Coke or Pepsi drinkers. The power of suppliers is quite limited: Arguably the most valuable input (e.g., Coke’s secret formula) is provided by the soft drink companies, while the other inputs are commodities (e.g., water, aluminum cans, plastic bottles, and others). Likewise, the power of buyers is weak, because intermediate customers like bottling franchises and distributors are locked into long-term exclusive contracts with the soft drink companies, and the final end consumer market is extremely fragmented. Not even Walmart is able to force significant price discounts from Coca-Cola or Pepsi, focusing instead on offering its private label cola Sam’s Choice. Favorable competitive forces indicate a significant profit potential in the soft drink industry that the dominant players Coke and Pepsi are well positioned to capture.
It should become apparent if you were going to invest some money buying stock in a firm over the long term that a strong firm in the soft drink industry is likely to win out over such a firm in the airline industry.

19. Exhibit 3.3 Industry Competitive Structures along the Continuum from Fragmented to Consolidated
Instructors:
Examples from the text are below.
● Perfect Competition- PetSmart and PetCo put online pet supply retailers out of business
● Monopolistic Competition- Computer hardware industry- many firms, even the largest of them (like Acer, Apple, Dell, HP, or Lenovo) have less than 20% market share. Products may be similar, but not identical.
● Oligopoly- express-delivery industry- FedEx and UPS, soft drink industry (Coca-Cola vs. Pepsi), airframe manufacturing business (Boeing vs. Airbus), home-improvement retailing (The Home Depot vs. Lowe’s), toys and games (Hasbro vs. Mattel), and detergents (P&G vs. Unilever).
● Monopoly- Government utilities such as Philadelphia Gas Works or Georgia Power
From the IM :
An example of a U.S oligopoly might be the accounting firm industry.
In contrast, the U.S. personal injury attorney industry is much more fragmented and rivalry is more intense.

20. Adding a Sixth Force: The Strategic Role of Complements
A product, service, or competency that adds value when used in tandem with the original product offering
Complementor – A firm that provides a good/service that leads customers to value your firm’s offering more when the two are combined
Co-opetition – Cooperation by competitors to achieve a strategic objective
Instructors:
The IM has a good insight here on what a Complement is NOT. See below.
A good example of what a complement is would be the Halo game franchise and the effect it has had on driving increased
sales in the video game console industry, in this case helping Microsoft Xbox at the expense of its rivals, but still increasing
the total industry sales.
You also need an example of what complements are NOT. Students often think that if products “go together” then they must be complements ... not so. Gasoline is not a complement to the car industry. When you purchase a gallon of gasoline it does not make you want to go out an buy an extra car to go with it.

21. 3.3 Changes over Time: Industry Dynamics
The static five forces model cannot determine the speed of change for an industry.
As consolidated industries tend to be more profitable than fragmented ones, firms tend to change their industry structures toward being more consolidated through (horizontal) mergers and acquisitions.
Industry Profitability Consolidation
Instructors:
Small group exercise #2 (page 91-92) can be used to discuss the topic of industry changes over time.
The following are some points about this exercise from the IM.
How should the managers of a textbook publishing company respond to such changes?
Smart business leaders in the textbook industry will not ignore this technological threat to their business. The user interface experience of Kindle and iPad is far superior to that of prior notebooks and netbooks. This key complement seems likely to rapidly increase electronic adoption rates by students. The managers should consider ways of weakening the five forces to achieve a greater industry profit potential with added attractiveness. It is important that managers position their company in a way through partnerships or other means to prepare for direct electronic connections with students.
Will the shifts in technology be likely to raise or lower the textbook industry-level profits? Please explain.
The shifts in technology will be likely to raise textbook industry-level profits if new technology is readily implemented into the current mix. The textbook industry is currently struggling due to rivalry amongst existing competitors. A focus to create tailored products to customers’ needs should be initiated to be able to increase industry profitability as producers are able to raise prices and revenues. One key point we like to bring out in discussions is who is the buyer of a textbook? The students painfully know they pay the cost of the books but have no choice in the selection of the book. The force of the buyer is really with the instructor. But who is the supplier to the textbook industry? Well, once we get past the paper and binding
supplies, which are commodities… the supplier is the “content provider.”

22. Driver: Technological advances
INDUSTRY CONVERGENCE
A process whereby formerly unrelated industries begin to satisfy the same customer need
Driver: Technological advances
Example: Convergence of media industries due to technological progress in IT, telecommunications, and digital media
Instructors:
The IM has a link to a humorous video from the ONION (a satirical publication) about newspapers that could be used to discuss how rapid evolution in one industry can create change in other industries:
w#t=22.
Ask students to identify some serious industries that will be affected either positively or negatively by the decline of the print newspaper industry.

23.  
EXTERNAL ANALYSIS
PESTEL Framework
INDUSTRY ANALYSIS
Five Forces Model
COMPETITOR ANALYSIS
Strategic Group Mapping
MACRO
MICRO

24. Set of firms pursuing a similar strategy within a specific industry
FIRM PERFORMANCE
Determined not only by the industry to which the firm belongs, but also by its strategic group membership
STRATEGIC GROUP
Set of firms pursuing a similar strategy within a specific industry
STRATEGIC GROUP MODEL 
Framework that explains performance differences within the same industry by clustering different firms into groups based on key strategic dimensions

25. 3.4 Explaining Performance Differences Within the Same Industry: Strategic Groups
Firms in the same strategic group follow a similar strategy.
Strategic group differences identify business-level strategies.
Direct competitors – same strategic group firms
Intra-group rivalry exceeds inter-group rivalry:
Rivalry among firms within a strategic group is more intense than the rivalry between strategic groups.
Instructors:
The digital companion to this book McGraw-Hill Connect has an interactive case exercise about the Pharmaceutical industry on this section of the textbook. It builds student confidence on Strategic Groups (LO 3-6).

26. MAPPING STRATEGIC GROUPS
Identify important strategic dimensions.
For the horizontal and vertical axes – select two key dimensions which expose pivotal differences among the competitors.
These dimensions should not be highly correlated.
Graph the firms in their strategic groups, indicating each firm’s market share by the size of the bubble with which it is represented.
Instructors:
From the IM
We have found that the mapping of strategic groups is useful in helping students understand the competitive dynamics within industries.
This can also be used as a small group activity in the classroom. Display the airline example provided and ask each group of students to select a different industry and plot out some of the firms they may know in that industry (retailing of various types, restaurants, and consumer brands are often selected by our students).
If time is more limited, you might choose the industry for them and then hold a large group discussion on the appropriate dimensions for mapping the industry. Then assign small groups to map the industry on the board or flip charts using specific dimensions you select. Invite them to share their maps. Then hold a discussion about how the dimensions you choose might affect management cognition of competitive threats.

27. The Threat of Entry Entry barriers
The risk that potential competitors will enter an industry
With new entrants, profit potential is depressed for incumbent firms:
Lower prices
Spend more to satisfy existing customers
Instructors:
Suggestion from the IM for another exercise…. This one is fun and filling :
You can illustrate the impacts of new entrants, substitutes, and complements with a pizza example. Form four groups of students: new entrants, substitutes, complements, and focal industry rivals.
Bring three pizzas (one smaller than the other two and one of the larger ones a different type than the other) to class. Caution students not to eat pizza until teaching is done! Hand the smaller pizza to the industry rivals. Explain the drivers of rivalry intensity and what consequences that has for how evenly and civilly the pie is shared among all of the hungry incumbents. Hand one of the larger pizzas to the complements industry; explain how as the complements industry grows the size of pie available to the focal industry rivals
grows. Ask someone in the complements industry to swap out the focal industry’s small pie for the bigger one.
Hand one pizza to the substitutes industry and explain how they are a separate industry that has its own profits, but in this case they are close substitutes for the focal industry. The substitute industry begins to take customers/profit from the focal industry.
Ask someone from the substitutes industry to take a piece of pizza from the focal industry. Explain that new entrants are firms who are not in the focal industry, but decide to enter it. Send a students from the new entrants team over to the focal industry team and tell them to take a piece of pizza. Discuss the impact of the lost pieces of the focal industry pie on the original incumbents.
Then let the students eat your teaching materials!

28. The Threat of Entry
Incumbent firms can benefit from several important sources of entry barriers:
Economies of scale
Network effects
Customer switching costs
Capital requirements
Advantages independent of size
Government policy
Credible threat of retaliation
Instructors:
Relative to the chapter opener on Tesla the text notes that despite almost insurmountable entry barriers, Tesla Motors has joined the automotive fray (thus far successfully).
From the Text:
How can Tesla sidestep such insurmountable entry barriers? The answer: technology. Rather than attempting to compete head on in internal combustion engines, Tesla Motors is entering the all-electric car segment, a much less crowded niche in the overall car industry. Expanding its product lineup beyond the Roadster (over $100K sticker price) by offering a seven-seat family sedan (Model S, roughly $50K) with a much broader customer appeal, Tesla is hoping to benefit from economies of scale in this market niche.

29. The Power of Suppliers Can demand higher prices for their inputs.
POWERFUL SUPPLIERS
Can demand higher prices for their inputs.
Capture part (sometimes a large part) of the economic value created.
Signs of Strong Suppliers
Suppliers industry is concentrated.
They don’t depend heavily on the incumbent’s industry.
Incumbent firms face high switching costs.
Suppliers’ products are differentiated.
Limited substitutes.
Suppliers have credible forward integration threats.
Instructors:
A physically engaging exercise suggestion from the IM:
To illustrate the supplier and buyer impacts on industry attractiveness you can use a tug of war exercise.
One rope connects the suppliers to the industry rivals. Another rope connects the buyers to the industry rivals. A knot in the center of the buyer rope illustrates the industry sales price and a knot is the supplier rope illustrates the industry COGS paid to suppliers. The supplier rope will be manned by supplier sales reps on one side and industry rival purchasing agents on the other. Similarly, the buyer rope will be manned by the buyer purchasing agents and the industry sales reps. Have the industry sales reps and purchasing agents stand on opposite sides of the room and the suppliers and buyers in the center. Draw a line with masking tape in the center to represent a zero margin for the industry. Draw a line on the industry purchasing agent side to represent the suppliers COGS (zero margin for suppliers) and a line on the sales rep side to represent the buyers value for the product (zero benefit for the buyers).
Start with the knots centered between their respective lines. The closer the two knots get to the center the smaller the industry margin becomes. Choose the stronger students to represent supplier, buyer, and industry power associated and switch the power to show the difference between soft drinks and airlines.

30. The bargaining power of buyers impacts industry profit potential.
The Power of Buyers
The bargaining power of buyers impacts industry profit potential.
POWERFUL BUYERS
Can demand a lower price or higher product quality
Reduce industry profit potential:
Through price discounts (limited revenue)
Through increased quality / better service (higher costs)
As they capture part of the economic value created

31. THE POWER OF BUYERS EXAMPLES
Google
Faces strong buyer power from Samsung who has 40% of Android-operated smartphones
Walmart
As the world’s largest retailer, it leverages huge buyer power from its suppliers.
CEMEX
Strong buyer power in the U.S. leaves it very small profits
Weaker buyer power in Mexico yields much higher profits.

32. The Threat of Substitutes
This threat derives from products/services fulfilling the needs of current customers from outside the industry.
POWERFUL SUBSTITUTES: THE POWER OF SUBSTITUTES is HIGH when:
Price-performance: Has an attractive trade-off.
The buyer’s switching cost is low.
Substitutes limit the price that industry competitors can charge for their products/services.
Instructors:
Some examples of substitutes-
video conferencing vs. business travel;
vs. express mail;
plastic vs. aluminum containers;
gasoline vs. biofuel;
landline telephone services vs. Voice over Internet Protocol (VoIP, offered by Skype or Vonage); and
milk vs. soft drinks, beer, and wine.

33. Rivalry among Existing Competitors
The intensity of rivalry among existing competitors is determined largely by the following factors:
COMPETITIVE INDUSTRY STRUCTURE
INDUSTRY GROWTH
STRATEGIC COMMITMENTS
EXIT BARRIERS
Instructors:
From the IM
While the primary purpose of the five forces model is to assess the profitability of an industry, you will find that many students are confused into thinking that its purpose is to determine whether or not to enter an industry.
As a result of this misconception, they can get a bit tangled between the overall assessment of identify how profitable it would be for a new firm to enter an industry and the barriers to new entry. The soft drink industry offers a good example to clear up this misunderstanding. The industry is quite attractive, however the barriers to entry in the soft drink industry are such that it would be quite difficult to compete with Coca-Cola and Pepsi on a national or even regional level. Newer firms are tending to enter in niche spaces such as the super-caffeinated energy drinks to avoid direct competition with a powerhouse like Pepsi. This discussion also lays the groundwork for corporate strategy by identifying that in industries with high barriers to entry acquisition or alliances (covered in Chapter 8 and 9) can be preferred entry modes over greenfield investment.

34. COMPETITIVE INDUSTRY STRUCTURE
The structure of an industry is captured by:
Number and size of industry competitors
Pricing power possessed by firms
Products/services offered by firms
(Commodity vs. differentiated product)
Height of entry barriers
Instructors:
The structure-conduct-performance model has the benefit of simplicity compared with the five forces model, BUT is also a
bit harder for students to grasp as it is a continuum and may not always yield “black & white” answers.
One such example:
Although undifferentiated agricultural products are commodities leading to a perfect competitive market structure, farmers
have noted the demographic trend toward organic food. The demand for organic milk far outstrips supply, and allows dairy
companies to command a 50–100 percent price premium over non-organic milk. The dairy producers now enjoy some
pricing power as a result of their differentiated product.
(as noted in the IM).

35. Mobility Barriers Mobility barriers
Restricts movement between groups; industry-specific factors that separate one strategic group from another
Exhibit 3.5 – Airline industry strategic groups:
Hub-and-spoke group with international routes
Point-to-point airline groups do not
Instructors:
From the end of chapter discussion questions.
How do mobility barriers affect the structure of an industry? How do they help us explain firm differences in
performance?
Mobility barriers affect the structure of an industry because they separate one strategic group from another on the basis of industry-specific factors. They help us explain firm differences in performance between groups of firms in the same industry.

36. Exhibit 3. 5 Strategic Groups and the Mobility Barrier in the U. S
Exhibit 3.5 Strategic Groups and the Mobility Barrier in the U.S. Domestic Airline Industry

37. ChapterCase 3 Consider This…
Courtesy of Tesla Motors
Consider This…
Recent dynamics in the automotive industry have lowered the profit potential, reducing its attractiveness.
Tesla Motors has demonstrated how new technology can be used to circumvent entry barriers.
However, incumbent firms are also introducing hybrid or all-electric cars, further increasing rivalry in the industry.