Lecture 6

Industry structure;
5 forces model and
Stakeholders analysis
 Table of content

I. Industry structure
II. Porter’s 5 forces
III. Stakeholders and stakeholder
analysis
I. Industry structure
 Industrial Classification

1. Primary sector: industries that deal with natural

resources like farming and mining
2. Secondary sector: industries process these natural
resources
3. Tertiary sector: service industries
 Industrial Classification

Secondary
production

Primary Tertiary
production production
 Industrial structure

• The structure of an industry will change over time for

various reasons
• For example
• The development of new inventions (wooden
skyscrapers)
• New pattern of demand mean that some industries will be
declining while others become increasingly important
• Change in society: a movement of immigration,
technology, life style etc. …
 Nominal GDP sector composition (2015)

World Economy US Economy by sector

3.28% 0.98%
20.07%

27.38%

63.90%

75.98%

Agriculture Industrial Service Agriculture Industrial Service

Vietnam’s GDP by Industrial structure
 The life cycle model

• The life cycle model can be

applied equally to a market, an
industry or even an industrial
sector
• where the position in its life
cycle will have implications for
industrial structure, market
structure
 Implications of the different stages of
the life cycle
Statge Development Growth Maturity Decline
Market growth Low Very rapid Slowing or Constnat Negative

Degree of Increasing as market High market Declining 

Low
competition expand stablising monopoly/oligopoly
Promotion, Maintaining, or
Market research,
Marketing activities increasing market increasing, Depends on strategy
promotion
share differentiation
High due to new
R&D expenditure products and Mainly on process Fairly low Depends on strategy
process
Costs High Slow rate of increase Cost cutting Depends on strategy

High competition 
Profits Low or zero Growing fairly rapidly Failing
lower profit margin
II. 5 forces model
 Types of Environment
Macro
environment

<TITLE>
Economic (PESTLE) Non-economic

Internal
environment
The company
External
environment

Customers Micro environment

Competitors (Competitive environment) Public
Suppliers
Marketing
intermediaries
12
MICRO ENVIRONMENT

COMPETITIVE ENVIRONMENT
 Porter’s five-forces model

• Porter’s model says that the structure of an industry and

the ability of firms in that industry to act strategically
depend upon the relative strengths of five forces
1. Potential competition (aka. Threat of new entrants)
2. Current competition (aka. Industry rivalry)
3. Threat of substitute products
4. The power of suppliers
5. The power of buyers
 Potential competition

• Barriers to entry are any barriers which prevent or inhibit

the entry of firms into the industry.
• Barriers to exit are those prevent exit from an industry,
mostly it relates to the cost of leaving the industry.
• Some industries are “natural monopolies” in that the
production process is such that competition would be
wasteful
• Examples of barriers to entry/exit are: Economies of
scale, legal, advertising, financial, technical etc. …
 Current competition

• Current competition will affect firm’s strategy

• For example:
• Oligopoly  differentiation strategy
• Perfect competition  cost leadership strategy
 Threat of substitute
products
• This threat largely depends upon the nature of the good
being traded in the market and the extent of product
differentiation.
• If one good has no substitute, the producer of that good
will face little competition  more market power
• A lot of attempt at differentiation are designed to reduce
the threat from substitute products
• Example: tap water and Pepsi
 The power of suppliers

• The power of suppliers over the firm is likely to be

extremely important in certain markets, depending upon
the nature of the product being supplied (whether it is
highly specialized or not)
• If firm can produce the components it needs  suppliers’
powers will be greatly reduced
• Switching cost concept: if the cost of switching suppliers
is low  suppliers has weaker power
 The power of Buyers

• Markets will range from those with many buyers (retailing)

through those with small number of buyers (car and parts
manufacturers)
• Market with small number of buyers  buyers have higher
market power
• Powerful buyers can and do exert a great deal of control over
suppliers  source of marketing economies of scale
• Buyer’s power can be enhanced by watchdog agency
• Existing customers is important to the firms (tobacco,
alcohol)
 Class discussion

• Analyzing the smart phone market.

 Barriers to entry/exit
(potential competitors)

MICRO Threat of Industrial

substitute rivalry (Current
ENVIRONMENT YOUR competitors)
PORTER’
: COMPANY’
S5

5 FORCES s FORCES
product
MODEL

Buyer’s power
Supplier’s power
(Customer’s power)
 Example of NIKON

Target Customer: Young, high

salary, more than 30 years old…
 Group work - Discussion

• Apply Porter’s 5 forces analysis for the market for:

• Motorbikes/scooters
• Soft drinks
• Real estate
• Retail/convenient store
• Telecommunication services
• Time: 20 minutes discussion
• Format: PowerPoint presentation
III. Stake holders and
stake holders analysis
 Stakeholders

• Stakeholders are individuals and/or groups who are

affected by or affect the performance of the organisation
in which they have an interest
• All organisations have stakeholders
• Sometimes stakeholders’ interest coincide; sometimes
they will clash
 Stakeholders

By Grochim - Own work, CC BY-SA 3.0,

https://commons.wikimedia.org/w/index.php?curid=5443707
 Stakeholders’ interest

Types of Stakeholders Possible principle interest

Employees Wage levels; working conditions; job security; personal development

Managers Job security; status; personal power; organizational profitability;

growth of the organisation
Shareholders Market value of the investment; dividends; security of investment;
liquidity of investment
Creditors Security of loan; interest on loan; liquidity of investment
Suppliers Security of contract; regular payment; growth of organisation;
market development
Society Safe products; environmental sensitivity; equal opportunities; avoidance
of discrimination
 Stakeholder mapping

• It is important to identify stakeholder’s power and

attention in order to understand priorities.
• Power is the ability of individuals or groups to persuade,
induce or coerce others into following certain courses of
action
• Stakeholders vary in the attention they pay to the
organisation and particular issues within it. Even powerful
stakeholders may not attend closely to everything.
 Stakeholder mapping

Sources of power
Within Organisations For external Stakeholders
● Hierarchy (formal power), e.g. autocratic ● Control of strategic resources, e.g. materials,
decision-making labor,
● Influence (informal power), e.g. charismatic money
leadership ● Involvement in strategy implementation, e.g.
● Control of strategic resources, e.g. strategic distribution
products outlets, agents
● Possession of knowledge and skills, e.g. ● Possession of knowledge or skills, e.g.
computer subcontractors, partners
specialists ● Through internal links, e.g. informal influence
● Control of the human environment, e.g.
negotiating skills
● Involvement in strategy implementation, e.g.
by exercising discretion
 Stakeholder mapping

Indicators of Power
Within Organizations For External stakeholders
● Status ● Status
● Claim on resources ● Resource dependence
● Representation ● Negotiating arrangements
● Symbols ● Symbols
 Stakeholder mapping

Level of attention
Low High

Discussion: Apply
B stakeholder
A
Keep
Minimal effort
informed mapping to FPT
Power
Greenwich
C
D
Keep
Key Players
Satisfied
High
 Corporate social
responsibility
• Corporate social responsibility means that a
corporation should be held accountable for any of its
actions that affect people, their communities and their
environment.
• A balance between corporate benefits and cost of
achieving the benefits
• Here is one example: How eco-tourism help save the
ocean
 Corporate social
responsibility
• CSR concern: business culture at present still largely driven
by short term profit and ignore the long term consequences
• Environment is one of the biggest concern
• Bad practice of CSR in Vietnam:
– 2016 Vietnam marine life disaster
– Sand Mafia
– Selling low quality gasoline
– The excessive use of pesticide in Son La
– Unethical practice in food processing
 Corporate social
responsibility
• There are a couple ways to encourage environmental concern within
business
• Government intervention: laws, tax break, public investment, etc.
…
• Market mechanisms: customers and suppliers are becoming more
aware of their responsibilities to the environment  EU created
“eco-label”
• External pressure: pressure from external groups such as
Greenpeace
• Self regulation: adopting self regulate will diminish the chance of
being regulated by the governments; also, this brings good public
relation opportunity
 Benefits of CSR

• Efficiency of factor inputs: firms use materials and

energy more efficiently
• Improved market image: better presenting firms in the
public view due to recent movement of environmental
consciousness
• Providing new market niches: new demand for “green”
products and creation of new industries and markets
• Proactive legislative compliance
 Discussion

• Find examples of company with good corporate social

responsibilities and present them to your class mate
• Time: 20 minutes
• Format: PowerPoint presentation
THE END