Strategic Management

05
Modul ke:

Fakultas External Analysis: Industry Structure,

Ekonomi dan
Competitive Forces & Strategic Group
Bisnis
Program Studi
Manajemen
Dr. Adi Nurmahdi MBA
Pembuka Daftar Pustaka Akhiri Presentasi
External Environmental Analysis

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 Lecture Topics
• Purpose of External Environmental Analysis
• Gathering Information for External Environmental
Analysis
• General Environment
• Competitive Environment
• Key Success Factors
• Competitive Changes During Industry Evolution
• Strategic Groups
• National Competitive Advantage

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 Purpose of External
Environmental Analysis
• Organizations are affected by conditions in the
environment
• Managers need to be aware of these
conditions in order to
– Take advantage of opportunities that can lead to
higher profits
– Reduce the impact of threats that can harm the
organization’s future

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 Gathering Information for External
Environmental Analysis
• Managers need information in order to know and
develop an understanding about what is
happening in the external environment
• Three approaches to information gathering:
– Scanning: general surveillance of environmental
changes; looking for early signals of changes
– Monitoring: close attention to specific developments
that could affect the organization
– Competitive Intelligence: following actions of
competitors

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 Two Areas for Analysis

• General Environment
• Competitive Environment

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The General and Competitive Environment
General Environment
Demographics

Competitive
Global Environment Political/Legal

Threat on new entrants

Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products
Sociocultural Competitive rivalry
Technological

Macoreconomic
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 General Environment
Demographics
• Characteristics of a country’s population
– Size of population and growth rate
– Age distribution of population
– Education levels
– Income distribution
– Ethnic diversity
– Geographic distribution

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 General Environment
Political/Legal
• Political and legal conditions affecting
business
– Government policies toward business
– Investment incentives
– Business regulation: labor, environment
– Education priorities
– Budget conditions and plans

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 General Environment
Technological
• Technological developments relevant to a
business
– Telecommunications
– Internet
– On-line training
– Product and process innovations

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 General Environment
Macroeconomic
• Impact of the economy on business
– Size and change in gross domestic product
– Per capita income levels
– Inflation rate
– Interest rates
– Foreign trade deficit or surplus
– Unemployment
– Rates of saving and investment

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 General Environment
Sociocultural
• Influence of values, beliefs, and lifestyles of a
country on business
– Family relationships
– Attitudes about work
– Living arrangements
– Styles of entertainment
– Attitudes toward health

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 General Environment
Global
• International developments that can impact a
business
– Rise of China as economic power
– Rising global trade and WTO
– Intellectual property protection
– Important political events: Iraq war
– Search for low cost suppliers

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 Competitive Environment
• The essence of strategy formulation is coping with
competition.
• The corporate strategists’ goal is to find a position
in the industry where his or her company can best
defend itself against these forces or can influence
them in its favor.
• Managers must understand the conditions of
competition within their industry
– Porter Five-Forces Model of Competition (determining
the attractiveness of an industry)
– Key Success Factors
– Competitive Changes During industry Evolution
– Strategic Groups
– National Competitive Advantage
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 Defining an Industry

• Industry
– A group of companies offering products or
services that are close substitutes for each
other
• Competitors
– Rival companies that serve the same basic
customer needs

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 Defining an Industry (cont’d)

• Sector
– A group of closely related industries
• Market segments
– Distinct groups of customers within a market
that can be differentiated from each other
based on their distinct attributes and demands
• Changing industry boundaries

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The Computer Sector: Industries
and Segments

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Five Forces Driving Industry Competition

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 Threat of New Entrants
• Fundamental question: how easy is it for another
company to enter the industry?
• Factors making easy entry to industry
– Low economies of scale
– Low product differentiation
– Low capital requirements
– No switching costs for buyer
– Easy access to distribution channels
– Little government regulation

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 Supplier Power
• Fundamental question: how badly does a
supplier need your business?
• Factors giving power to supplier:
– Supplier industry dominated by few firms
– Buyer is not important to customer
– Supplier’s product is important input to buyer’s
product
– Supplier’s products have high switching costs
– Supplier can “integrate forward” and become
competitor of buyer

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 Threat of Substitutes
• Fundamental question: what other products or
services could perform the same function as your
products or services?
• Factors indicating high threat of substitutes:
– Few switching costs for buyer
– Price of substitute lower or quality higher than for your
products
– Firms offering substitutes have high profitability

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 Buyer Power
• Fundamental questions: How badly does a buyer
need your products or services?
• Factors contributing to high buyer power:
– Few buyers compared to the number of sellers
– Buyers purchases high relative to seller’s sales
– Products are undifferentiated
– Buyer has low switching costs
– Buyer has low profits
– Buyer can “integrate backward” and supply the
product to itself

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 Competitive Rivalry
• Fundamental question: how intense is
competition in the industry?
• Factors leading to high competitive rivalry:
– Numerous or equally balanced competitors
– High fixed costs
– Slow industry growth
– Lack of differentiation or switching costs
– High strategic stakes
– High exit barriers

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 A Sixth Force: Complementors

• Not a supplier
• Offers service or product that affects industry’s
performance
• When complementors are important and their
number is increasing
– Demand and profits in the industry are boosted
• When complementors are weak
– Industry growth can slow and profits can be limited
• Example: Internet Service Providers
“complementors” to eBusiness firms

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 Strategic Implications of the
Five Competitive Forces
• Competitive environment is unattractive
from the standpoint of earning good
profits when:
– Rivalry is strong
– Entry barriers are low and entry is likely
– Competition from substitutes is strong
– Suppliers and customers have considerable
bargaining power

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Strategic Implications of the
Five Competitive Forces
• Competitive environment is ideal
from a profit-making standpoint when:
– Rivalry is moderate
– Entry barriers are high and no firm is
likely to enter
– Good substitutes do not exist
– Suppliers and customers are in a weak
bargaining position

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 Key Success Factors
• In many industries, there are certain actions or
practices that a business must follow in order to
compete in the industry.
• May need effort to distinguish company from
competitors
• AN INDIVIDUAL COMPANY DOES NOT HAVE KEY
SUCCESS FACTORS!!!!
• KEY SUCCESS FACTORS ARE NOT THE SOURCE OF
A COMPANY’S COMPETITIVE ADVANTAGE – THEY
ARE REQUIREMENTS FOR COMPETING IN AN
INDUSTRY AND DO NOT GIVE ANY FIRM A
COMPETITIVE ADVANTAGE
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Examples of Key Success Factors in
Selected Industries
• Pharmaceuticals: research and personal
selling
• Beer: advertising and distribution
• Restaurant: quality food, service, location,
notoriety
• Retailer: location and priced-for-quality

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Changes in Competition During
Industry’s Evolution
• Over time as an industry evolves, the nature and
basis of competition changes
• Managers must anticipate how the forces will
change as the industry evolves and formulate
appropriate strategies
• Five Stages ( similar to product-life cycle)
– Embryonic—introduction of product
– Growth
– Shakeout
– Mature
– Declining
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Stages in the Industry Life Cycle

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Shakeout: Growth in Demand
and Capacity

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 Requirements in Each Stage of
Industry’s Evolution
• Embryonic: Know-how, educating customers,
opening distribution channels
• Growth: Know-how for continued innovation,
financing, build demand
• Shakeout: Dominant market position, low cost
producer, high capacity
• Maturity: low cost production, brand loyalty
• Declining: lowest cost production, reduce
capacity

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 Limitations of Models for Industry
Analysis
• Life cycle issues
– The embryonic stage can sometimes be skipped
– Industry growth can be revitalized
– The time span of the stages can vary
• Innovation and change
– Innovation can unfreeze and reshape industry structure
– An industry may be hypercompetitive, with permanent
and ongoing change

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Limitations of Models for Industry
Analysis (cont’d)
• Company differences
– The importance of company differences within an
industry or strategic group can be
underemphasized
– The individual resources and capabilities of a
company may be more important in determining
profitability than the industry or strategic group

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 Strategic Groups
• Companies do not compete against all companies
in an industry
• Companies compete against several other
companies that follow similar strategies
• A strategic group consists of those rivals with
similar competitive approaches in an industry
• Examples ways of competing:
– Price -- Range of products
– Innovation -- Customers served
– Research
– Quality

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 Procedure for Constructing a
Strategic Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an industry from one
another
STEP 2: Plot firms on a two-variable map using pairs of
these differentiating characteristics
STEP 3: Assign firms that fall in about the same strategy
space to same strategic group
STEP 4: Draw circles around each group, making circles
proportional to size of group’s respective share
of total industry sales
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 Example: Strategic Group Map of
the Video Game Industry
Arcades
Suppliers/Distribution Channels

Arcade
operators
Types of Video Game

Publishers
Home PCs of games on
CD-ROMs
Sony, Sega,
Nintendo, several
Video game others
consoles

MSN Gaming Zone,

Online/Internet Pogo.com,
America Online,
HEAT, Engage,
Oceanline, TEN

Low Medium High

(Coin-operated (Console players cost (Use PC)
equipment) $100-$300)
Overall Cost to Players of Video
37 Games
 Nation-State and Competitive
Advantage
• A country may provide a competitive advantage for a
company
• Need to identify national factors in order to
determine
– Where most significant competitors will come from
– Where to locate production activities
• Porter’s Diamond of Determinants of National
Competitive Advantage

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 The Global and National
Environments
• Globalization of production and markets
– Lower barriers to cross-border trade and investment
– National differences in the cost and quality of factors of
production
– “Home” and “foreign” markets and competitors are
blurring
– Intensified rivalry
– Intensified rate of innovation
– Many new markets are open

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Determinants of National Competitive Advantage

Strategy,
Structure,
Rivalry

Factor National Demand

Competitive
Endowments Conditions
Advantage

Related and
Supporting
Industries 40
 Factor Endowments
• Availability of traditional factors of production—
land, labor, capital, entrepreneurship—provide
cost advantages to companies located in
countries possessing those factors
• More significant, countries and their companies
can create new factors such as a knowledgeable
workforce and infrastructure that is rare and
difficult to imitate
• Factor endowments less important than the
speed and efficiency of deploying those
resources.

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 Demand Conditions
• Large growing markets provide foundation
for global competition
• More significant, sophisticated and
demanding consumers force companies to
innovate and improve their products
• Advances in products, services, and
standards improve companies’ knowledge
and capabilities for selling in other world
markets

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 Related and Supporting
Industries
• Provide inputs and capabilities that help a
company to improve its own products and
capabilities
• Helps reduce manufacturing costs through
cost-effective, timely methods
• Ongoing exchange of knowledge through
research and development and joint
projects improves both suppliers and
companies
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 Strategy, Structures, and Rivalry

• Different management ideologies lead to different

emphases within a company
• Japan and Germany both have engineers in top
management and those country’s companies
concentrate on process and product improvement
• Intense domestic rivalry leads to product
improvements and cost reduction in order to
compete for domestic customers

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Conclusions About Determinants
of National Competitive
Advantage
• Firms succeeding in global markets first
succeeded in intense competition in home
countries
• Competitive advantage for global firms
comes from continuous improvement,
innovation, and change.

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 Daftar Pustaka
Fred R David, Strategic Management, 15 Editio, 2017
Mudrajad Kuncoro, Strategi Bagaimana Meraih Keunggulan
Kompetitif, Jakarta: Erlangga, 2006
Michael A. Hitt, R.Duane Ireland, Robert E. Hoskisson, Strategic
Management, 11 Edition, 2012

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Terima Kasih
Dr. Adi Nurmahdi, MBA