Module 2: Asynchronous Learning

1. Discuss the primary technique used to analyze competition in an industry

environment: the Five Forces model
These are the Five Competitive Forces within the industry environment in order
to identify the opportunities and threats by Michael E. Porter:
1. The risk of entry by Potential competitors
 The risk of entry by potential competitors is a function of the height of
the barriers to entry, that is, factors that make it costly for companies to
enter an industry. The greater the costs potential competitors must
bear to enter an industry, the greater the barriers to entry, and the
weaker this competitive force. High entry barriers may keep potential
competitors out of an industry even when industry profits are high.
Important barriers to entry include economies of scale, brand loyalty,
absolute cost advantages, customer switching costs, and government
regulation.2 An important strategy is building barriers to entry (in the
case of incumbent firms) or finding ways to circumvent those barriers
(in the case of new entrants).
 The threat of new entrants into an industry can force current players to
keep prices down and spend more to retain customers. Actually, entry
brings new capacity and pressure on prices and cost. The threat of
entry therefore, puts a cap on the profit potential of an industry. This
threat depends on the size of a series of barriers to entry, including
economies of scale, to the cost of building brand awareness, to
accessing distribution channels, to government restrictions.
The threat of entry depends on the capabilities of the likely potential
entrants. If there are well established companies in the industry
operating in other geographic regions, for example, the threat of entry
rises.

2. The intensity of rivalry among established companies within an industry

 Rivalry refers to the competitive struggle between companies within an
industry to gain market share from each other. The competitive
struggle can be fought using price, product design, advertising and
promotional spending, direct-selling efforts, and after-sales service and
support. Intense rivalry implies lower prices or more spending on non-
price-competitive strategies, or both. Because intense rivalry lowers
prices and raises costs, it squeezes profits out of an industry. Thus,
intense rivalry among established companies constitutes a strong
threat to profitability. Alternatively, if rivalry is less intense, companies
may have the opportunity to raise prices or reduce spending on non-
price competitive strategies, leading to a higher level of industry profits.
Four factors have a major impact on the intensity of rivalry among
 established companies within an industry: (1) industry competitive
structure, (2) demand conditions, (3) cost conditions, and (4) the height
of exit barriers in the industry.
 If rivalry is intense, it drives down prices or dissipates profits by raising
the cost of competing. Companies compete away the value they
create. Rivalry tends to be especially fierce if:
a. Competitors are numerous or are roughly equal in size and market
position.
b. Industry growth is slow
c. There are high fixed costs, which create incentives for price cutting.
d. Exit barriers are high
e. Rivals are highly committed to the business.
f. Firms have differing goals, diverse approaches to competing, or lack
familiarity with one another.
3. The bargaining power of buyers
 An industry’s buyers may be the individual customers who consume its
products (end-users) or the companies that distribute an industry’s
products to end-users, such as retailers and wholesalers. The
bargaining power of buyers refers to the ability of buyers to bargain
down prices charged by companies in the industry, or to raise the costs
of companies in the industry by demanding better product quality and
service. By lowering prices and raising costs, powerful buyers can
squeeze profits out of an industry. Powerful buyers, therefore, should
be viewed as a threat. Alternatively, when buyers are in a weak
bargaining position, companies in an industry can raise prices and
perhaps reduce their costs by lowering product quality and service,
thus increasing the level of industry profits. Buyers are most powerful
in the following circumstances:
A. When the buyers have choice of who to buy from. If the industry is
a monopoly, buyers obviously lack choice. If there are two or more
companies in the industry, the buyers clearly have choice.
B. When the buyers purchase in large quantities. In such
circumstances, buyers can use their purchasing power as leverage
to bargain for price reductions.
C. When the supply industry depends upon buyers for a large
percentage of its total orders.
D. When switching costs are low and buyers can pit the supplying
companies against each other to force down prices.
E. When it is economically feasible for buyers to purchase an input
from several companies at once so that buyers can pit one
company in the industry against another.
 F. When buyers can threaten to enter the industry and independently
produce the product, thus supplying their own needs, also a tactic
for forcing down industry prices.
 Powerful customers can use their clout to forces prices down or
demand more service at existing prices, thus capturing more value for
themselves. Buyer power is highest when buyers are relative to the
competitors serving them, products are undifferentiated and represent
a significant cost for the buyer, and there are few switching cost to
shifting business from one competitor to another. They can play rivals
against each other-especially if an industry’s products are
undifferentiated, it’s inexpensive to switch loyalties, and price trumps
quality. There may be multiple buyer segments in a given industry with
different levels of power.
4. the bargaining power of suppliers
 The bargaining power of suppliers refers to the ability of suppliers to
raise input prices, or to raise the costs of the industry in other ways—
for example, by providing poor-quality inputs or poor service. Powerful
suppliers squeeze profits out of an industry by raising the costs of
companies in the industry. Thus, powerful suppliers are a threat.
Conversely, if suppliers are weak, companies in the industry have the
opportunity to force down input prices and demand higher-quality
inputs (such as more productive labor). As with buyers, the ability of
suppliers to make demands on a company depends on their power
relative to that of the company. Suppliers are most powerful in these
situations:
A. The product that suppliers sell has few substitutes and is vital to the
companies in an industry.
B. The profitability of suppliers is not significantly affected by the
purchases of companies in a particular industry, in other words,
when the industry is not an important customer to the suppliers.
C. Companies in an industry would experience significant switching
costs if they moved to the product of a different supplier because a
particular supplier’s products are unique or different. In such cases,
the company depends upon a particular supplier and cannot pit
suppliers against each other to reduce prices.
D. Suppliers can threaten to enter their customers’ industry and use
their inputs to produce products that would compete directly with
those of companies already in the industry.
E. Companies in the industry cannot threaten to enter their suppliers’
industry and make their own inputs as a tactic for lowering the price
of inputs.
 Companies in every industry purchase various inputs from suppliers,
which account differing proportions of cost. Powerful suppliers can use
 their negotiating leverage to charge higher prices or demand more
favorable terms from industry competitors, which lowers industry
profitability. If there are only one or two suppliers of an essential input
product, for example, or if switching suppliers is expensive or time
consuming, a supplier group wields more power.
5. the closeness of substitutes to an industry’s products
 The existence of close substitutes is a strong competitive threat
because this limits the price that companies in one industry can charge
for their product, which also limits industry profitability.
If an industry’s products have few close substitutes (making substitutes
a weak competitive force), then companies in the industry have the
opportunity to raise prices and earn additional profits.
 A substitute is another product or service that meets the same
underlying need that the industry’s product meets in a different way.
Videoconferencing is substitute for travel. Email is a substitute for
express way.
The threat of substitutes is high if it offers an attractive price-
performance trade-off versus the industry’s product, especially if the
buyer’s cost of switching to the substitute is low.

2. Explore the concept of strategic groups and illustrate the implications for industry
analysis
The concept of strategic groups has a number of implications for the identification
of opportunities and threats within an industry. First, because all companies in a
strategic group are pursuing a similar strategy, customers tend to view the
products of such enterprises as direct substitutes for each other. Thus, a
company’s closest competitors are those in its strategic group, not those in other
 strategic groups in the industry. The most immediate threat to a company’s
profitability comes from rivals within its own strategic group.
A second competitive implication is that different strategic groups can have
different relationships to each of the competitive forces; thus, each strategic
group may face a different set of opportunities and threats. Each of the following
can be a relatively strong or weak competitive force depending on the
competitive positioning approach adopted by each strategic group in the industry:
the risk of new entry by potential competitors; the degree of rivalry among
companies within a group; the bargaining power of buyers; the bargaining power
of suppliers; and the competitive force of substitute and complementary products.

3. Discuss how industries evolve over time, with reference to the industry life-cycle
model.
The industry life cycle refers to the evolution of an industry or business
through four stages based on the business characteristics commonly
displayed in each phase. The four phases of an industry life cycle are the
introduction, growth, maturity, and decline stages. Industries are born
when new products are developed, with significant uncertainty regarding
market size, product specifications, and main competitors. Consolidation
and failure whittle down an established industry as it grows, and the
remaining competitors minimize expenses as growth slows and demand
eventually wanes.
Managers have to tailor their strategies to changing industry conditions. They
must also learn to recognize the crucial points in an industry’s development, so
they can forecast when the shakeout stage of an industry might begin, or when
an industry might be moving into decline. This is also true at the level of strategic
groups, for new embryonic groups may emerge because of shifts in customer
needs and tastes, or because some groups may grow rapidly due to changes in
technology, whereas others will decline as their customers defect.

4. Show how trends in the macroenvironment can shape the nature of competition
in an industry.
The macroenvironment affects the intensity of rivalry within an industry. Included
in the macroenvironment are the:
 Macroeconomic forces- it affect the general health and well-being of
a nation or the regional economy of an organization, which in turn
affect companies’ and industries’ ability to earn an adequate rate of
return. The Economic forces relate to factors that affect consumer
purchasing power and spending patterns. For instance, a company
should never start exporting to a country before having examined how
 much people will be able to spend. Important criteria are: GDP, GDP
real growth rate, GNI, Import Duty rate and sales tax/ VAT,
Unemployment, Inflation, Disposable personal income, and Spending
patterns.
 Global Forces- the important points to note are that barriers to
international trade and investment have tumbled, and more and more
countries have enjoyed sustained economic growth. Falling barriers to
international trade and investment have made it easier for foreign
enterprises to enter the domestic markets of many companies (by
lowering barriers to entry), thereby increasing the intensity of
competition and lowering profitability. Because of these changes, many
formerly isolated domestic markets have now become part of a much
larger, more competitive global marketplace, creating both threats and
opportunities for companies.
 Technological Forces- Technological change can make established
products obsolete overnight and simultaneously create a host of new
product possibilities. Thus, technological change is both creative and
destructive—both an opportunity and a threat. The impacts of
technological change can affect the height of barriers to entry and
therefore radically reshape industry structure.
A technological force everybody can think of nowadays is the
development of wireless communication techniques, smartphones,
tablets and so further. This may mean the emerge of opportunities for
a business, but watch out: every new technology replaces an older
one. Thus, marketers must watch the technological environment
closely and adapt in order to keep up. Otherwise, the products will
soon be outdated, and the company will miss new product and market
opportunities.
 Demographic forces-are outcomes of changes in the characteristics
of a population, such as age, gender, ethnic origin, race, sexual
orientation, and social class.
The large and diverse demographics both offer opportunities but also
challenges for businesses. Especially in times of rapid world population
growth, and overall demographic changes, the study of people is
crucial for marketers. The reason is that changing demographics mean
changing markets. Further, changing markets mean a need for
adjusted marketing strategies. Therefore, marketers should keep a
close eye on demographics.
 Social Forces- The basis for these factors is formed by the fact that
people are part of a society and cultural group that shape their beliefs
and values. Many cultural blunders occur due to the failure of
businesses in understanding foreign cultures. For instance, symbols
may carry a negative meaning in another culture. 
  Political and legal force- are outcomes of changes in laws and
regulations, and significantly affect managers and companies. Political
processes shape a society’s laws, which constrain the operations of
organizations and managers and thus create both opportunities and
threats.
These influence and restrict organisations and individuals in a society.
Therefore, marketing decisions are strongly influenced and affected by
developments in the political environment.
Before entering a new market in a foreign country, the company should
know everything about the legal and political environment. How will the
legislation affect the business? What rules does it need to obey? What
laws may limit the company’s ability to be successful? For example,
laws covering issues such as environmental protection, product safety
regulations, competition, pricing etc. might require the firm to adapt
certain aspects and strategies to the new market.
As we have seen, the company is surrounded by a complex environment. The Macro
Environment consists of a large variety of different forces. All of these may shape
opportunities for the company, but could also pose threats. Therefore, it is of critical
importance that marketers understand and have an eye on development in the Macro
Environment, to make their business grow in the long term.

References:
The Five Forces - Institute For Strategy And Competitiveness - Harvard Business School (hbs.edu)

Industry Life Cycle Definition (investopedia.com)

The Macro Environment - Six Forces (DESTEP) (marketing-insider.eu)

What is Macro Environment? 6 Factors of Macro Environment (marketing91.com)

Collaborative Answer:
As we observed, the company is surrounded by a complex environment. The Macro
Environment consists of a large variety of different forces. All of these may shape
opportunities for the company, but could also pose threats. Therefore, it is of critical
importance that managers understand and have an eye on development in the Macro
Environment, to make their business grow in the long term. If I’ll assess our university
based on the macroenvironment forces, there are lots of insufficiency. In terms of
enrollment, it’s still traditional that’s why students have difficulty in registration as well as
the payments because there is no online payment. Facilities and equipments of the
school are old and not updated even the students can’t use it. As a result, the
customers which is the students will not satisfy to the service of the institution, and this
will affect to the decision making of the students to transfer to the other that have
greater service than PSBA. And this will affect to the profitability of the institution, they
cannot give the enough salaries of the employees as well as their benefits especially to
the professors who sacrifice in this school, even though there’s so many opportunities to
them outside of this school but still choose to teach in this institution. Especially they
were paid per unit, so the lesser the students who enroll the lesser the amount of their
salary.