Unit – 2

2019
1. In the light of Porter's Five Forces model, discuss the
following: *2
a) Rivalry among existing players
b) Bargaining power of buyers
c) Potential entry of new competitors
4+4+4=12
Ans: Let's take a look at Porter's Five Forces in more detail.

1. Competitive Rivalry
The first of Porter's Five Forces looks at the number and strength of your
competitors. Consider how many rivals you have, who they are, and how
the quality of their product compares with yours.

In an industry where rivalry is intense, companies attract customers by

cutting prices aggressively and launching high-impact marketing
campaigns. This can make it easy for suppliers and buyers to go elsewhere
if they feel that they're not getting a good deal from you.

On the other hand, where competitive rivalry is minimal, and no one else is
doing what you do, then you'll likely have tremendous competitor power, as
well as healthy profits.
Example
If you were setting up a haulage business, you'd likely be entering a
crowded market. You'd have to consider many potential rivals, how much
they charged, and whether they were able to discount deeply. You'd also
need to think about their resources: you might be setting up to compete
with international logistics companies, as well as local competitors

Remember that at this point the analysis should focus on your potential
rivals. Only start thinking about your own offer when you've got your data
together on the competition.

Note that Michael Porter developed his Four Corners Model  all about

competitor behaviour.

2. Supplier Power
Suppliers  gain power if they can increase their prices easily, or reduce the
quality of their product. If your suppliers are the only ones who can supply a
particular service, then they have considerable supplier power. Even if you
can switch suppliers, you need to consider how expensive it would be to do
so.
The more suppliers you have to choose from, the easier it will be to switch
to a cheaper alternative. But if there are fewer suppliers, and you rely
heavily on them, the stronger their position – and their ability to charge you
more. This can impact your profitability, for example, if you're forced into
expensive contracts.

Example
Let's say your business idea was to manufacture electronic devices. You'd
have to assess your supply options for a range of specialist components. If
one supplier dominated the components market, then they could raise their
prices without worrying about their own competitors. This might affect the
viability of your product.

3. Buyer Power
If the number of buyers is low compared to the number of suppliers in an
industry, then they have what's known as "buyer power." This means they
may find it easy to switch to new, cheaper competitors, which can
ultimately drive down prices.

Think about how many buyers you have (that is, people who buy products
or services from you). Consider the size of their orders, and how much it
would cost them to switch to a rival.

When you deal with only a few savvy customers, they have more power.
But if you have many customers and little competition, buyer power
decreases.
Example
Buyer power is a significant factor in food retail. Think of large
supermarkets that operate in a crowded, highly competitive market. This
market has changed dramatically with the arrival of cheap, no-frills food
discounters. Shoppers have strong buyer power here. That's why
supermarkets have coupon schemes, loyalty cards, and aggressive
discounting – to capture the largest share of buyers.

These organizations in turn have strong buyer power with their own
suppliers, using their influence to drive down the cost of food at the
manufacturing level.

4. Threat of Substitution
This refers to the likelihood of your customers finding a different way of
doing what you do. It could be cheaper, or better, or both. The threat of
substitution rises when customers find it easy to switch to another product,
or when a new and desirable product enters the market unexpectedly.

Example
If your organization makes medical instruments, you may find your position
being threatened by the rise of 3D printing. This enables instruments to be
made from a wide range of materials, sometimes at a fraction of the cost of
traditional methods. If a competitor gets it right, it can weaken your position
and threaten your profitability.

5. Threat of New Entrants

Your position can be affected by potential rivals' ability to enter your
market. If it takes little money and effort to enter your market and compete
effectively, or if you have little protection for your key technologies, then
rivals can quickly enter your market and weaken your position.

However, if you have strong and durable barriers to entry, then you can
preserve a favourable position and take fair advantage of it. These barriers
can include complex distribution networks, high starting capital costs, and
difficulties in finding suppliers who are not already committed to
competitors.

Existing large organizations may be able to use economies of scale to drive

their costs down, and maintain competitive advantage over newcomers.

If it costs customers too much to switch between one supplier and another,
this can also be a significant barrier to entry. So can extensive government
regulation of an industry.

Example
Even industries that seem to be well protected against new entry can prove
to be vulnerable. For many years, high-volume air travel was in the hands
of a relatively small number of established airlines. The barriers to entry
were formidable. Start-up costs were high, routes and take-off slots were
mostly grabbed by the big operators, and the industry was strictly
regulated.

Even so, some small operators did manage to break into the market,
mostly by offering no-frills, low-cost travel to popular destinations, and
taking advantage of reduced regulation. These smaller, more agile
operators now hold strong positions in the industry, particularly in short- to
medium-haul travel.

8. Discuss two important environmental factors and two

factors associated with internal resources and capabilities
that strategists need to consider as part of analysis and
diagnosis of a firm. *2 6+6=12

Ans: Haven’t written

2018
d) Define environmental analysis. *2
Ans: An environmental analysis is a strategic analysis
tool to identify all of the external and internal factors
that can affect a company's performance. The purpose
is to assess the level of risk various environmental
factors poses as well as the business opportunities they
present.

i) State two factors that affect the bargaining power of

buyers in an industry. *2
Ans:
Several factors determine Porter’s Five Forces buyer bargaining
power:
i. If buyers are more concentrated than sellers – if there
are few buyers and many sellers – then buyer power is
high.
 ii. Whereas, if switching costs – the cost of switching from
one seller’s product to another seller’s product – are
low, the bargain power of buyers is high.
iii.  If the customer purchases large volumes of
standardized products from the seller, buyer bargaining
power is high.
iv. If substitute products are available on the market, buyer
power is high.

3. a) Explain the construction details of External Factor

Evaluation Matrix (EFEM). *2 6
Ans:
Internal Factor Evaluation (IFE) Matrix is a strategy tool used to
evaluate firm’s internal environment and to reveal its strengths as well
as weaknesses.[1]

External Factor Evaluation (EFE) Matrix is a strategy tool used to

examine company’s external environment and to identify the available
opportunities and threats.
How to Prepare External Factor Evaluation Matrix
(EFE Matrix)
The process of development of the External factor Evaluation Matrix is completed in
the five steps which are as follows.

1. Listing of Key External Factors (10-20):

All those factors which can affect the External Factor Evaluation matrix are listed in
this step. Two points should be kept in mind while listing these key external factors
which are the treats & opportunities.

2. Assigning of Weight to Each Factors (0 to 1.0):

In the second step of preparation of the External Factor Evaluation matrix, all the
identified factors are arranged on the basis of their weightage which is according to
their importance intensity. This weightage should be represented in percentage
term. But the main point of consideration in this step is that all the sum of all the
factors must be equal to one.

3. Assigning of 1-4 rating to each factor:

Each factor in this step should be assigned some rating which ranges from 1 to 4.
These ratings are based on the responses of the organization to the factors under
consideration.

4. Multiplication of Weight of Each Factor by its

Rating:
In this step, the weight assigned to each factor is multiplied to its rating assigned to
it. This generates a weighted score.

5. Summing up of the Weighted Score of Each Factor:

In the last step of the External Factor Evaluation matrix, the weighted score of each
factor is summed up in order to ascertain the total weighted score for the entire
organization. The organization that has the highest possible score is 4.0 & the lowest
possible score is 1.0 while the average possible score is 2.5.

2017
4."Porter's five forces analysis is a framework for industry
analysis." In the light of this statement, answer the following
questions:
a) Discuss the meaning of industry analysis. *2/3
 b) In the context of threat of entry, state the common entry
barriers that might deter potential entrants from
entering in an industry. *2
c) State the important factors that influence the intensity
of rivalry among existing players. *2
4+4+4=12
Ans:
(a) Industry analysis refers to the analysis of the industry’s
environment that guides the industry to grow and survive in
a competitive environment and gain a competitive edge in
the industry as it predicts the future and changes in the
market and analyses the threats and opportunities in the
way ahead and making decisions and planning accordingly.

Industry Analysis Methods

 SWOT analysis
 Broad Factors Analysis (PEST analysis)
 Competitive Forces Model (Porter's Five Forces)

(b) Barriers for new entrants

i. Access to suppliers and distribution channels:
New entrants may struggle to find access to
suppliers and distribution channels since many
already provide service to existing companies.
ii. Brand loyalty: If an industry consists of companies
with high levels of brand loyalty, it can be
challenging to enter the competition.
iii. Capital requirement: Certain industries have high
capital costs, making entry limited to those who
have the necessary resources.
iv. Cost advantages: Companies that currently exist
in the industry can sell their products or services
at a price lower than new entrants.
v. Government regulations: Government and
regulatory requirements may limit how a
 company can conduct business and require
permits or licenses for entry into the industry.
vi. Retaliation: Existing companies in the industry
sometimes resist and deter new entrants from
entering their competition.

(c) If any of the following occurs, then intensity of rivalry

is high.

i. Competitors are numerous

When companies are relatively balanced in strength, they
are more likely to engage in competitive battles and attack
and retaliate as they strive for market leadership.
ii. Industry growth is slow
In a slow growth market, companies can only grow by
capturing market share from each other, which leads to
increased competition.
iii. Fixed costs are high
High fixed costs create pressure for all companies to fill
capacity, thus leading to price cutting when there is excess
capacity. High storage costs push companies to decrease
prices to ensure sales.
iv. Competitors have equal size
v. Products are undifferentiated
When products are perceived as commodities, choice is
often determined by price and service, which then leads to
increased competition in price and service.
vi. Brand loyalty is insignificant
vii. Switching costs for Consumer are low
There are industries and fields in which switching from
one product or company to another takes very little time
or money. In these industries, competitive rivalry is often
high because consumers have little reason to remain loyal
to one company over another.
viii. Competitors have equal market share
ix. Competitors are strategically diverse
x. There is excess production capacity
xi. Exit barriers are high
Economic, strategic and emotional factors can prevent
companies from leaving the industry, even when they are
earning low or negative returns on investments
2016
(d) State any two factors that enhance the bargaining power
of buyers in an industry. *2
Ans: Written above
(e) What do you mean by environmental analysis and
diagnosis? *2
Ans: Written Below
(o) State two advantages of environmental analysis. *2
Ans: Elements of SWOT analysis.

3. (a) Explain the construction details of External Factor

Evaluation Matrix or Environmental Threat Opportunity
Profile. *2
Ans: Written Above

2014
(d) What do you mean by environmental analysis and
diagnosis? *2
Ans: An environmental analysis is a strategic analysis tool to
identify all of the external and internal factors that can affect a
company's performance. The purpose is to assess the level of
risk various environmental factors pose as well as the business
opportunities they present.
An Environmental Diagnosis consists in a systematic
identification of all environmental factors related with the
activities of a given organization. The main goal is to verify the
environmental performance of the organization.

(k) State any two forces that affect competition in an industry.

*2
Ans: Written above (Porter’s Five Forces Model)

3. (a) Briefly describe the steps involved in the construction of

an External Factor Evaluation (EFA) Matrix or an
Environmental Threat and Opportunity Profile (ETOP). *2
Ans: Written above