1. Entrepreneurship: Successfully Launching New Ventures, 2/e
Bruce R. Barringer
R. Duane Ireland
Chapter 5

2. Case Study www.drz.com.my
‘Awesome’ anti-aging product – ‘The Body Shop’
1) sell serum 2) offer an online/offline business opportunity
Launch in December 2013
Anti-aging industry

3. Case Study Four extremes:
Cheap serum – risk - will not work effectively is high
Luxury serum – too expensive – RM 300 <
Surgery-based
Non-halal products
Middle position – affordable luxury, same level of performance, natural, Halal

4. 1. Industry Types and Opportunities
Emerging Industries
Standard operating procedures have yet to be developed (pioneer)
Opportunity: First-mover advantage E.g. Tutti Frutti

5. Fragmented Industries
A number of companies of approximately equal size (Celcom, Telekom, Maxis, Digi)
Opportunity: Consolidation to synergise Celcom and Telekom.

6. Mature Industries
Experiencing slow or no increase in demand.
Opportunities: Process innovation and after-sale service innovation. E.g. Innovative pricing strategy - Airasia

7. Declining Industries
Experiencing a reduction in demand.
Opportunities: Leadership / niche market / cost reduction strategy.
E.g groceries – Online RM 5

8. Global Industries
Experiencing significant international sales.
Opportunities: Multidomestic (competing for market share on a country-by-country basis and vary their product offerings to meet the local demands) and global strategies.
Tesco, IKEA, Carrefour

9. 2. What is Industry Analysis?
A business research - focuses on potential of an industry
Industry
A group of companies producing a similar product or service

10. Why is Industry Analysis Important?
Once determined - a new venture is feasible – enter into an industry / market - a more in-depth analysis is needed
To learn ins and outs
To reduce unknown unknowns

11. If niche markets identified during feasibility analysis
Helps to determine which point of entry - accessible and the best ones
E.g.
Businessatoz.com? Web-hosting services
drz.com.my?

12. When studying an industry - must answer three questions
Three Key Questions
When studying an industry - must answer three questions
Is it
accessible—
is it a realistic
place for a new
venture?
Question 1
Does it
contain markets
- are ripe
(matured)
for innovation
Or underserved?
Question 2
Are there positions
it can avoid some
negative
attributes of the
Industry?
(e.g. crowded)
Question 3

13. 3. Techniques to Assess Industry Attractiveness
Study Environmental
and Business Trends
Five Competitive
Forces Model

14. a. Studying Industry Trends
Environmental Trends
Not so much because management skills
P E S T E L
Political, Environmental, Social, Technological, Economic, Law
In favor NOT against your product / service

15. Other trends - impact an industry – not environmental trends. E.g.
Business Trends
Other trends - impact an industry – not environmental trends.
E.g.
are profit margins in the industry increasing or falling?
Is innovation accelerating or declining?
Are input costs going up or down?

16. b. Studying Five Competitive Forces
Developed by Professor Porter, Harvard Univ.
A framework for understanding structure of an industry.
Composed of FIVE forces - S, N, R, B-S and B-B
Each - impacts average rate of return - by applying pressure on industry profitability.

17. Well-managed companies –
Position in a way that avoids or diminishes the forces—why? To beat average rate of return.
E.g. Drz diminished impact on profitability –
avoiding head-to-head competition with major players – online purchase, no sales force, easy set up, utilizing ‘distributor’s talent, time and energy

18. Five Competitive Forces – Determine Industry Profitability

19. i. Threat of Substitutes
Price and Propensity
PRICE - willing to pay for a product depends - availability of substitute products.
Halal anti-aging industry - few substitutes - profitable.

20. When close substitutes for a product exist, profitability is suppressed - because consumers will opt out if price gets too high.

21. PROPENSITY for buyers - alternatives.
Also suppress profitability of an industry.
What other companies do?
Companies in the same industry - offer their customers value added services to reduce likelihood - switch to a substitute product – despite relatively expensive price.

22. ii. Threat of New Entrants
If companies in an industry are highly profitable - becomes a magnet to new entrants.
E.g. IT industry in 1990s, Islamic Banking, stem cell
Unless something is done to stop – competition will increase - average industry profitability will decline.

23. Companies in an industry - keep number of new entrants low by erecting barriers to entry.
A barrier to entry - a condition that creates a disincentive for a new company to enter an industry.

24. Traditional Barriers to Entry (G E C C A P)
Government and legal barriers
Economies of scale
Cost advantages independent of size
Capital requirements
Access to distribution channels
Product differentiation

25. Government and legal barrier:
Some industries – require a license by a public authority
e.g Education
Economies of scale:
Occurs when mass-producing a product results in lower average cost
e.g Simplysiti

26. Capital requirements:
Need to invest large amount of money to gain entrance to an industry.
E.g Airasia
Cost advantages independent of size:
Grounded on the company’s history such as cost of land, equipment, building in the past. E.g Jakel

27. Access to distribution channels:
Often hard to crack especially in crowded markets - convenience store market.
E.g Colgate
Product differentiation: companies with strong brands are difficult to break into - without spending heavily on advertising.
E.g Oral-B

28. Nontraditional Barriers to Entry
Difficult for start-ups to execute traditional barriers to entry - expensive - economies of scale because capital is tight.
Start-ups - rely on nontraditional barriers to entry to discourage new entrants.
‘Passion First – IIUM’ 

30. Passion:
If management team / employees - highly motivated
First Mover Advantage:
If start-up pioneers an industry or a new concept - name recognition

31. Internet Domain Name:
“spot-on” - to a specific product or service - give a start-up a meaningful advantage in terms of e-commerce opportunities.
Inventing A New Approach:
If start-up invents a new approach to an industry and executes it in an exemplary fashion

32. Unique Business Model:
Establish a network of relationships – makes business model work.
Management Team:
World-class management team - may give potential rivals a pause before competing.

33. iii. Rivalry Among Existing companies
In most industries - major determinant of industry profitability - level of competition.
Some industries - fiercely competitive to point - prices are pushed below level of costs - industry-wide losses occur.
In other industries, competition is much less intense - price competition is controlled.

34. Factors affecting the intensity
Number and Balance of Competitors:
More competitors - more likely will gain customers by cutting its price.
Occurs more often - all competitors are about the same size - no clear market leader. E.g ???
Degree of Difference Between Products:
Commodity industries - tend to compete on price because little difference between one manufacturer’s products and another. E.g ???

35. Growth Rate of An Industry:
Competition among companies in a slow-growth industry - stronger than among those in fast-growth industries.
Slow-growth industry - must fight for market share - tempt them to lower prices.
E.g ???
Fast-growth industries - enough customers to go around, making price-cutting less likely.

36. Level of Fixed Cost:
Companies – have high fixed costs must sell a higher volume of product to reach break-even point than companies with low fixed costs.
Why? Anxious to fill capacity - this anxiety may lead to price-cutting.

37. iv. Bargaining Power of Suppliers
Can suppress profitability of the industries - by raising prices or reducing quality of the components. E.g. Proton parts
If a supplier:
Reduces quality of components - quality of finished product will suffer - manufacturer will have to lower its price.
Powerful relative to companies / manufacturers

38. Supplier Concentration:
Only a few suppliers - supply a critical product to a large number of buyers - supplier has an advantage.
E.g ???
Switching Cost:
Fixed costs buyers encounter when switching or changing from one supplier to another.
If switching costs are high - a buyer will be less likely to switch suppliers. E.g. ???

39. Attractive of Substitutes:
Supplier power is enhanced - no attractive substitutes for product or services the supplier offers.
E.g. What PC industry can do when Microsoft raise prices - no practical substitutes.
Threat of Forward Integration:
Supplier power is enhanced - a credible possibility – supplier might enter buyer’s industry.
E.g. Microsoft’s power as a supplier – enter PC industry

40. v. Bargaining Power of Buyers
Can suppress the profitability –
by demanding price concessions or increases in quality.
Automobile industry is dominated by a handful of large companies - buy products from thousands of suppliers.
Allows automakers (e.g. Proton, Perodua) to suppress profitability - by demanding price reductions.

41. Buyer Group Concentration:
Only a few large buyers - can pressure the suppliers to lower costs (e.g. Proton, Perodua)
Buyer’s Cost:
The greater the importance of an item - the more sensitive - to the price.
E.g.
If component sold represents 50% of cost - Proton will bargain hard to get the best price.

42. Degree of Standardisation:
Degree to which a supplier’s product differs from its competitors
affects buyer’s bargaining power.
E.g.
Daya Bersih - purchasing a standard product - ‘chemical product’, can play one supplier against another until it gets the best - price and service.

43. Factors affecting the ability of buyers to exert pressure on suppliers
Threat of Backward Integration:
Power of buyers is enhanced - a credible threat - buyer might enter supplier’s industry.
E.g. PC manufacturers can threaten to make their own monitors if price gets too high.

44. 4. Value of Five Forces Model
First Application
Can be used to assess the industry attractiveness by determining the level of threat to its profitability for each force.
Result - if a company filled out the form and several of the threats to industry profitability were high - need to reconsider

45. Determining the Attractiveness of an Industry Using
Five Forces Model

46. Second Application
Can apply to help determine whether it should enter an industry by answering several key questions.
Questions - help to project the potential success of a new venture

47. Pose Questions to Determine the Potential Success

48. 5. Competitor Analysis What?
A detailed analysis of a company’s competition.
Helps understand positions of major competitors + opportunities available.
How? 2 ways – competitive intelligence exercise and competitive analysis grid

49. Identifying Competitors
Types of Competitors New Ventures Face

50. a. Competitive Intelligence
Information gathered by a company to learn about its competitors
Collects competitive intelligence in
a professional and ethical manner.

51. Sources of Competitive Intelligence
Attend conference and trade shows.
Read industry-related books, magazines.
Talk to customers - what motivated them to buy your product as opposed to competitors.
Purchase competitor’s products to understand features, benefits, and shortcomings.
Study competitor’s Web sites.
Study online sites - news and information.

52. b. Completing a Competitive Analysis Grid
Competitive Analysis Grid - a tool for organizing information a company collects about its competitors.
Must first understand - strategies and behaviors of its competitors.
Can help a company:
See how it stacks up against competitors.
Provides ideas for markets to pursue.
Identify its primary sources of competitive advantage.

53. Expresso Fitness

54. Competitive a Analysis Grid for Expresso Fitness

55. Revision