SMDM Chapter 2 Review

Divided into 3 major areas (environments):
1) General
2) Industry
3) Competitor

Composed of dimensions in the broader society that influence an industry and the firms within it.
6 SEGMENTS:
1) Demographic, 2) Economic, 3) Political/Legal, 4) Sociocultural, 5) Technological, 6) Global

The continuous process includes four activities:
1) scanning- identifying early signals of potential change or detecting changes that are already underway
2) monitoring- Observing environmental changes to see if an important trend is emerging
3) forecasting- developing feasible projections of what might happen and how quickly
4) assessing- determining the timing and significance of the effects of environmental changes and trends on strategy

A) is a group of firms producing products that are close substitutes

B) Has a more direct effect on the firm's strategic competitiveness and AAR. The intensity of industry competition and an industry's profit potential are functions of the 5 Forces of Competition

1. Threat of new entrants
2. Bargaining Power of Suppliers
3. Bargaining Power of Buyes
4. Threat of Substitute Products
5. Rivalry Among Competing Firms

-New entrants can threaten market share of existing competitors
-They bring additional production capacity
-Likelihood that firms will enter an industry is a function of 2 factors: Barriers to Entry and Retaliation

1. Economies of Scale- incremental efficiency improvements thru experience as a firm grows larger
2. Product Differentiation- Uniqueness of product develops over time
3. Capital Requirements- competing in a new industry requires a firm to have resources to invest. Capital to invest may not be available to pursue the market opportunity even when a new industry is attractive
4. Switching Costs- the one-time costs customers incur when they buy from a different supplier.
5. Access to Distribution Channels- New entrants have to persuade distributors to carry their products, either in addition to or in place of those currently distributed
6. Cost Disadvantages Independent of Scale- Established competitors have cost advantages that new entrants cannot duplicate
7. Government Policy- can control entry into an industry thru licensing and permit requirements

Competitive rivalry intensifies when a firm is challenged by a competitor's actions or when a company recognizes an opportunity to improve its market position.
Most prominent factors:
-Numerous or Equally balanced competitors
-Slow Industry Growth
-High fixed costs or storage costs
-Lack of differentiation or low switching costs
-High strategic stakes
-High exit barriers

Is a set of firms emphasizing similar strategic dimensions to use a similar strategy
Implications:
-Firms within a group offer very similar products and provide intense competitive rivalry
-The closer the strategic groups, the greater the likelihood of rivalry. The greater the rivalry the greater the threats

-About a firm's direct and indirect competitors
-Gives details about the competitive dynamics expected to impact on a firm's efforts to generate performance