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AGEC 440 FINAL EXAM ACTUAL SOLUTION!!
What are Porter's 5 Forces? - Answers - Threat of Entry
- Threat of Rivalry
- Threat of Substitutes
- Threat of Suppliers
- Threat of Buyers What are the parts of the remote environment? - Answers - sociocultural trends
- technological trends
- government/regulatory trends
- economic trends What is the task environment? - Answers industry analysis based on industrial organization economics (structure-conduct-performance)
What is the Threat of Entry? - Answers New entrants are motivated to enter and compete due to above-normal economic returns. More entrants increase competition. More competition lowers performance. What are barriers to entry? - Answers cost of entry by new firms relative to the incumbent What are some examples of entry barriers? - Answers Economies of scale Capital requirements Access to distribution Product differentiation/brand identity Natural cost advantages Learning curve Access to necessary inputs Government policy How is economies of scale a barrier to entry? - Answers - High cost of fixed investment
- Fixed demand and high market share of incumbents forces entrance at sub-optimal scale. Higher cost to new entrant.
- The "biggest fish in the pond" can stay that way by intimidating new entrants
When there are Low entry barriers and Low exit barriers, what is the effect on profits? - Answers low, stable profits What is the Threat of Rivalry? - Answers - Rivalry is the intensity of competition among a firm's direct competitors
- Rivalry threatens firms by reducing economic profits What are some of the factors affecting rivalry? - Answers - Large numbers of competing firms
- Slow industry growth
- Lack of product differentiation
- Productive capacity is in large increments What is the Threat of Substitutes? - Answers - Substitutes are the same category but different
- ex. chicken & pork
- Substitutes places ceiling on prices in an industry
- Reduces profit potential for an industry What are the factors affecting the threat of substitutes? - Answers - Relative price of substitutes
- ex.consumers switch to cheaper product
- Switching costs
- ex. using a new OS
- Buyer propensity to substitute
- ex. brand loyalty What is the Threat of Supplier? - Answers - Input supplier can charge above normal economic prices to industry
- Reduces industry performance What are some of the factors affection threat of supplier? - Answers
- Supplier concentration is high
- ex. market power
- Threat of vertical integration
- Suppliers product is important to quality
- ex. price discrimination
- Suppliers product is differentiated
- ex. lack of consumer choice
- Industry is not a major customer for suppliers
- ex. not sensitive to price increases What is the Threat of Buyer? - Answers - Reduces industry revenue vie reduced prices
- ex. Monopsonist charge below-normal economic prices What are some of the factors affecting threat of buyer? - Answers - Buyer concentration is high
What is "exploitation"? - Answers A search for local or proximal solutions that focus on short-term returns
- Marginal improvements that build or leverage the organization's competitive advantages
- Risk-averse: avoid uncertain and risky product/ service solutions What is "exploration"? - Answers A search for non-local or distant solutions that focus on longer-term returns
- Radical changes that "destroy" an organization's competitive advantages
- ex. innovating new products/services that render old obsolete
- Risk-taking: seek uncertain and risky product/service solutions What are the motivations for the resources based view? - Answers Food retail and manufacturing industries are competitive and low margin industries
- yet, Nestle, Walmart, Albertsons perform better than the industry average Airline industry is highly competitive with total losses of $10 billion in 1990's
- southwest airlines profits continued to grow What is firm performance influenced by? - Answers Industry: 5 Forces, SCP Strategic Group: Mobility barriers Firm level factors
What is the purpose of the RBV? - Answers Analyze's firm strengths and weaknesses
- more sophisticated version of SWOT Firm performance directly related to the underlying characteristics of its resources What are the assumptions of RBV? - Answers - every firm has a different set of assets
- assumes resources are immobile: resources are costly to replicate by other firms What are the four types of resources? - Answers Financial, Physical, Human, and Organizational Capital What is financial capital? - Answers capital from entrepreneur's, equity holders, banks, retained earnings What is physical capital? - Answers meat slaughtering plant, farm land, equipment, geographical location, access to raw materials What is human capital? - Answers management and employee knowledge, training, experiences, etc. What is organizational capital? - Answers culture, reputation
What is the question of imitability? - Answers Do firms without a resource face a cost disadvantage in obtaining it compared to firms that already possess it? How do firms attain sustained competitive advantage? - Answers Valuable and rare resources can be a source of sustained competitive advantage so long as the resource is not imitable at a low cost What is strategic imitation? - Answers The ability for competing firms to imitate impact the sustainability of performance What are the two forms of strategic imitation? - Answers Direct duplication Substitution What is direct duplication? - Answers If the cost of duplicating resources is < the cost of resources held by a competitive advantage firm, then duplicate it What is substitution? - Answers Firms may substitute other resources for a cost to imitate resources held by a firm with a competitive advantage What is strategic imitations impact on sustainable performance? - Answers With rare and valuable resources, if resources are costly to imitate and substitutes are unavailable, sustained above-normal economic performance can be achieved
Why is imitation costly? - Answers Unique historical conditions Causal ambiguity Social complexity Why do unique historical conditions affect the cost of imitation? - Answers Development of resources depends on time
- firm historical experiences that cannot be imitated at a low cost What is causal ambiguity? - Answers Imitating firms may not understand the relationship between the firm's resources and capabilities and it's competitive advantage What are some examples of how social complexity increases the cost of imitation? - Answers ex. food value chains: interpersonal relationships such as trust among managers, employees, suppliers and buyers ex. organizational culture, firm reputation What is the question of organization? - Answers Is a firm organized to exploit the full competitive potential of its resources? What are the dimensions of firm organization? - Answers Formal reporting structure Information systems
- product differentiation: product features
- cooperation: strategic alliances, collusion
- diversification: increasing the mix of the business How does a firm neutralize the threat of substitutes? - Answers Improve product attractiveness compered to substitute
- cost leadership
- product differentiation
- cooperation
- diversification How does a firm neutralize the threat of suppliers? - Answers Reduce supplier uniqueness
- backward vertical integration: become your own supplier
- development of secondary sources: reduces opportunistic behavior such as market power
- strategic alliances: joint equity creates incentives to cooperate and reduce opportunistic behavior
- role of trust: Ag. value chain How does a firm neutralize the threat of buyers? - Answers Reduce buyer uniqueness
- forward vertical integration
- product differentiation: renders consumer's with less choice
- seek additional customers: reduces concentration of buyer and possible market power What is a fragmented industry? - Answers Industry with large distribution of small and medium sized firms What are possible reasons for a fragmented industry? - Answers lack of economies of scale reduced barriers to entry What opportunity lies within a fragmented industry? - Answers Consolidation What is a emerging industry? - Answers Newly created industry What opportunity lies within a emerging industry? - Answers First mover advantage What are some issues with first mover advantage? - Answers patent protection is limited second movers can imitate products without violation at 65% of first mover costs What is a mature industry? - Answers Slow growth in demand, experienced repeat customers, reduced product introductions, increased competition and reduced profit
