Competitive Advantage: Understanding Industry Analysis and Strategies, Slides of Economics

Download Competitive Advantage: Understanding Industry Analysis and Strategies and more Slides Economics in PDF only on Docsity! Chapter 15 Strategic Elements of Competitive Advantage docsity.com Introduction This chapter looks at Industry analysis Competitor analysis Competitive advantage at the industry and national levels docsity.com Threat of New Entrants: Barriers to Entry Economies of scale Refers to the decline in per-unit product costs as the absolute volume of production per period increases Product differentiation The extent of a product’s perceived uniqueness Capital requirements Required investment for manufacturing, R&D, advertising, field sales and service, and so on Switching costs Costs related to changing suppliers or products docsity.com Threat of New Entrants: Barriers to Entry Distribution channels Are there current distribution channels available with capacity? Government policy Are there regulations in place that restrict competitive entry? Cost advantages independent of scale economies Is there access to raw materials, large pool of low-cost labor, favorable locations, and government subsidies? Competitor response How will the market react in anticipation of increased competition within a given market? docsity.com Porter’s Force 2: Threat of Substitute Products Availability of substitute products places limits on the prices market leaders can charge High prices induce buyers to switch to the substitute docsity.com Porter’s Force 4: Bargaining Power of Suppliers When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers Leverage accrues when Suppliers are large and few in number Supplier’s products are critical inputs, are highly differentiated, or carry switching costs Few substitutes exist Suppliers are willing and able to sell product themselves docsity.com Porter’s Force 5: Rivalry Among Competitors Refers to all actions taken by firms in the industry to improve their positions and gain advantage over one another Price competition Advertising battles Product positioning Differentiation docsity.com Competitive Advantage Achieved when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry Two ways to achieve competitive advantage Low-cost strategy Product differentiation docsity.com Cost Leadership Based on a firm’s position as the industry’s low-cost producer Must construct the most efficient facilities Must obtain the largest market share so that its per unit cost is the lowest in the industry Works only if barriers exist that prevent competitors from achieving the same low costs docsity.com Product Differentiation Product that has an actual or perceived uniqueness in a broad market has a differentiation advantage Extremely effective for defending market position Extremely effective for obtaining above- average financial returns; unique products command a premium price docsity.com Cost Focus Firm’s lower cost position enables it to offer a narrow target market and lower prices than the competition Sustainability is the central issue for this strategy Works if competitors define their target market more broadly Works if competitors cannot define the segment even more narrowly docsity.com Creating Competitive Advantage via Strategic Intent Few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today. An organization’s capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all. —Gary Hamel and C. K. Prahalad docsity.com Creating Competitive Advantage via Strategic Intent Building layers of advantage Searching for loose bricks Changing the rules of engagement Collaborating docsity.com Building Layers of Advantage A company faces less risk if it has a wide portfolio of advantages Successful companies build portfolios by establishing layers of advantage on top of one another Illustrates how a company can move along the value chain to strengthen competitive advantage docsity.com Collaborating Use the know-how developed by other companies Licensing agreements, joint ventures, or partnerships docsity.com Global Competition and National Competitive Advantage Global competition occurs when a firm takes a global view of competition and sets about maximizing profits worldwide The effect is beneficial to consumers because prices generally fall as a result of global competition While creating value for consumers, it can destroy the potential for jobs and profits docsity.com Global Competition and National Competitive Advantage The national diamond in Figure 15.2 shapes the environment in which firms compete Activity in any one of the four points of the diamond impacts all the others and vice versa docsity.com Demand Conditions Composition of home demand— determines how firms perceive, interpret, and respond to buyer needs Size and pattern of growth of home demand—large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets docsity.com Demand Conditions Rapid home market growth—another incentive to invest in and adopt new technologies faster and to build large, efficient facilities Products being pushed or pulled—do a nation’s people and businesses go abroad and then demand the nation’s products and services in those second countries? docsity.com Related and Supporting Industries The advantage that a nation gains by being home to internationally competitive industries in fields that are related to, or in direct support of, other industries docsity.com Current Issues in Competitive Advantage In today’s business environment, market stability is undermined by Short product life cycles Short product design cycles New technologies Globalization Result is an escalation and acceleration of competitive forces docsity.com Current Issues in Competitive Advantage Hypercompetition is a term used to describe a dynamic competitive world in which no action or advantage can be sustained for long Competition unfolds in a series of dynamic strategic interactions in four areas: cost quality, timing and know- how, entry barriers, and deep pockets docsity.com Current Issues in Competitive Advantage In today’s world, in order to achieve a sustainable advantage, companies must seek a series of unsustainable advantages The role of marketing is innovation and the creation of new markets Innovation begins with abandonment of the old and obsolete docsity.com