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MGW3122: Business Strategies in International Markets

Week 4: External Analysis – Innovation and Competitive Landscape

Re-cap from Week 1 – Strategic Context

External environment (home)

External environment (host)
International
market
opportunities

Location
bound
resources

Firm specific
resources

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Re-cap from Week 1 - Two sets of forces

Global force

Local force

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External Analysis: Opportunities and Threats

Opportunities Threats
Conditions in the Conditions in the
environment that a environment that endanger
company can take the integrity and
advantage of to become profitability of the
more profitable company’s business

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External Analysis: Opportunities and Threats

Globally Country by country

(International) (National)
Global forces; Detailed and microscopic
Industry; look at a potential or
Totality of countries current host country
around the globe

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Industry Analysis:

 Analyzing the dynamics of the industry in which an organization

competes to help identify
 Industry analysis begins by focusing on the overall industry –
before considering market segment or sector-level issues
 Defining an Industry

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Industry Analysis:

 Defining an Industry
 Industry
• A group of companies offering products or services that are close substitutes for
each other and that satisfy the same basic customer needs
• Industry boundaries may change as customer needs evolve and technology
changes
 Sector
• A group of closely related industries
 Market Segments
 Distinct groups of customers within an industry
 Can be differentiated from each other with distinct attributes and specific demands

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Industry Analysis: Porter’s Five Forces Model

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Source: http://braindancingsmorgasbord.blogspot.com/2009/10/splash-map-on-five-competitive-forces.html
Industry Analysis: Porter’s Five Forces Model

How the Five Forces Shape Competition within an Industry

 The stronger that each of these five forces is, the more limited is the ability of
established companies to raise prices and earn greater profits within their
industry.
 A weak competitive force
– may be viewed as an opportunity
– as it allows company to earn greater profits
 A strong competitive force
– may be viewed as a threat
– as it depresses industry profits
 Strength of forces may change as industry conditions change

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Industry Analysis: Porter’s Five Forces Model

How the Five Forces Shape Competition within an Industry

 Through its choice of strategies, a company may alter the strength of one
or more of the five forces to its advantage

  


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Industry Analysis: Porter’s Five Forces Model

 Risk of Entry by Potential Competitors

 Potential Competitors are companies that are not currently competing in an industry but have the
capability to do so if they choose. Barriers to new entrants include:
1. Economies of Scale – as firms expand output unit costs fall via:
 Cost reductions – through mass production
 Discounts on bulk purchases – of raw material and standard parts
 Cost advantages – of spreading fixed and marketing costs over large volume
2. Brand Loyalty
 Achieved by creating well-established customer preferences
 Difficult for new entrants to take market share from established brands
3. Absolute Cost Advantages – relative to new entrants
 Accumulated experience – in production and key business processes
 Control of particular inputs required for production
 Lower financial risks – access to cheaper funds
4. Customer Switching Costs for Buyers – where significant
5. Government Regulation
 May be a barrier to enter certain industries
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Industry Analysis: Porter’s Five Forces Model

 Rivalry Among Established Companies

 Competitive Rivalry refers to the competitive struggle between companies in the same industry to
gain market share from each other. Intensity of rivalry is a function of:
1. Industry Competitive Structure
 Number and size distribution of companies
 Consolidated versus fragmented industries
2. Demand Conditions
 Growing demand – tends to moderate competition and reduce rivalry
 Declining demand – encourages rivalry for market share and revenue
3. Cost Conditions
 High fixed costs – profitability leveraged by sales volume
 Slow demand and growth – can result in intense rivalry and lower profits
4. Height of Exit Barriers – prevents companies from leaving industry VS.
 Write-off of investment in assets
 Economic dependence on industry
 Maintain assets - to participate
effectively in an industry
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Industry Analysis: Porter’s Five Forces Model

 Bargaining Power of Buyers

 Industry Buyers may be the consumers or end-users who ultimately use the product or
intermediaries that distribute or retail the products. These buyers are most powerful when:
1. Buyers are dominant
 Buyers are large and few in number.
 The industry supplying the product is composed of many small companies.
2. Buyers purchase in large quantities
 Buyers have purchasing power as leverage for price reductions.
3. The industry is dependent on the buyers
 Buyers purchase a large percentage of a company’s total orders.
4. Switching costs for buyers are low
 Buyers can play off the supplying companies against each other.
5. Buyers can purchase from several supplying companies at once
6. Buyers can threaten to enter the industry themselves
 Buyers produce themselves and supply their own product.
 Buyers can use threat of entry as a tactic to drive prices down.

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Industry Analysis: Porter’s Five Forces Model

 Bargaining Power of Suppliers

 Suppliers are organizations that provide inputs such as material and labor into the industry. These
suppliers are most powerful when:
1. The product supplied is vital to the industry and has few substitutes
2. The industry is not an important customer to suppliers
 Suppliers are not significantly affected by the industry.
3. Switching costs for companies in the industry are significant
 Companies in the industry cannot play suppliers against each other.
4. Suppliers can threaten to enter their customers’ industry
 Suppliers can use their inputs to produce and compete with companies
already in the industry.
VS.
5. Companies in the industry cannot threaten to enter suppliers’ industry

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Industry Analysis: Porter’s Five Forces Model

 Substitute Products
 Substitute Products are the products from different businesses or industries that can satisfy similar
customer needs.
1. The existence of close substitutes is a strong competitive threat.
 Substitutes limit the price that companies can charge for their product.

2. Substitutes are a weak competitive force if an industry’s products have few close substitutes.
 Other things being equal, companies in the industry have the opportunity to raise prices and earn additional
profits.

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Industry Analysis: Porter’s Five Forces Model

 Sixth Force: Complementors

 “…sell products that add value to the products.. In an industry… when use together….”

1. Substitutes/complements influence demand

2. Important in demand & profitability in many hi-tech industries

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Industry Analysis: Framework for Country market & industry opportunities
Does a presence in this country
MARKET
increase competitiveness?
 How important is the
demand in this country?
RESOURCES • Growth?
• Is the country • Size
• Customer’s quality?
COMPETITION
a critical source of:
• Intensity of rivalry
• Skilled personnel • Entry barriers
• Raw materials? • Bargaining power of
• Components? suppliers and customers
• Labor COUNTRY MARKET and
•Technological
innovation?
INDUSTRY OPPORTUNITIES  Is the business
• Learning • Profitable short term ?
 Quality of infrastructure • Profitable long term ?
and supporting services
 Location INCENTIVES
• Taxes
• Subsidies
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• Infrastructures
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Lasserre, 2007
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• Government contracts SCHOOL
Industry Analysis: Porter’s Country Diamond

Context for • Sophisticated and

demanding customers
firm strategy • Customers needs that
and rivalry anticipate those elsewhere
• Unusual demand in
specialized segments that
can be served globally
• A local context that
encourages appropriate
forms of investments and
Factors sustained upgrading Demand
(input) • Vigorous competition
conditions
conditions

• Factors inputs quality and cost:

- Natural resources
- Human resources
- capital
- Physical infrastructure Related and
- Administrative infrastructure
- Information infrastructure
supporting • A critical mass of
capable local suppliers
industries MONASH
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- Scientific and technological • Presence of clusters
infrastructure BUSINESS
Lasserre, 2007 SCHOOL
The Role of the International and National Macroenvironment

Changes in the forces in the macro-environment can directly impact:

 The Five Forces
 Relative Strengths
 Industry Attractiveness

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Institutional factor – ease of doing business

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Cost of infrastructure

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Locations compete!

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In Conclusion: Location choice

‘Excellence is never an accident. It is always the result of high intention,

sincere effort, and intelligent execution. It represents the wise choice of
many alternatives – choice, not chance, determines your destiny’
– Aristotle

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Readings:

 Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard
Business Review, 86(1), 78-93.

 Lépy, Élise, Heikkinen, H. I., Karjalainen, T. P., Tervo-Kankare, K., Kauppila, P.,
Suopajärvi, T., Ponnikas, J., Siikamäki, P., & Rautio, A. (2014). Multidisciplinary and
Participatory Approach for Assessing Local Vulnerability of Tourism Industry to Climate
Change. Scandinavian Journal of Hospitality and Tourism: Nordic Perspectives on
Tourism and Climate Change Issues, 14(1), 41–59.
https://doi.org/10.1080/15022250.2014.886373

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 MONASH
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Thank you