CHAPTER - 1CHAPTER - 1 ANALYSIS – STRUCTURE ANALYSIS – STRUCTUREOF A COMPETITIVEOF A COMPETITIVEINDUSTRY INDUSTRY
COURSE – STRATEGIC MANAGEMENT 1
INTRODUCTIONINTRODUCTION
•Formulation of competitive strategy is relating acompany to its environment i.e. the industry in which itcompetes.•Industry structure has strong influence on determiningthe competitive rules and strategies for a firm.•Differing ability of the firms to deal with the externalforces gives them the competitive edge.•The state of competition in an industry depend on fivebasic competitive forces as given by Michael Porter.•Determining the ultimate profit potential of the industryi.e. the long run return on invested capital.
STRUCTURAL DETERMINANTSSTRUCTURAL DETERMINANTS
•Industry – Group of firms producing products that areclose substitutes for each other.•Competition continually works to drive down the rate of return of invested capital.•Free Market Return – Yield on long-term governmentsecurities adjusted upward by the risk of capital loss.•Investors will not tolerate returns below this rate as thereare alternative available.•Higher return stimulates inflow of capital by new entry or additional investment by competitors.•Strength of competitive forces determine this degree of inflow of investment driving the return to free marketlevel
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Structure of a Competitive Industry
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