Unformatted Attachment Preview
The use of copyrighted materials in all formats, including the creation, online delivery, and use
of digital copies of copyrighted materials, must be in compliance with U.S. Copyright Law
(http://www.copyright.gov/title17/). Materials may not be reproduced in any form without
permission from the publisher, except as permitted under U.S. copyright law. Copyrighted
works are provided under Fair Use Guidelines only to serve personal study, scholarship,
research, or teaching needs.
CONCEPTS
Strategic
Management
COMPETITIVENESS & GLOBALIZATION
Michael A. Hitt
Texas A&M University
R. Duane Ireland
Texas A&M University
Robert E. Hoskisson
Rice University
CENGAGE
Learning*
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
2
The External Environment:
Opportunities, Threats,
Industry Competition, and
Competitor Analysis
Studying this chapter should provide you with the strategic
management knowledge needed to:
1 Explain the importance of analyzing and understanding the firm's external
environment.
2 Define and describe the general environment and the industry environment.
3 Discuss the four parts of the external environmental analysis process.
4 Name and describe the general environment's seven segments.
5 Identify the five competitive forces and explain how they determine an
industry's profitability potential.
6 Define strategic groups and describe their influence on firms.
7 Describe what firms need to know about their competitors and different
methods (including ethical standards) used to collect intelligence about them.
THE COCA-COLA CO. AND PEPSICO: RIVALS COMPETING
IN A CHALLENGING ENVIRONMENT
Recognized
throughout
the
revenue but 35 percent of its operat
to the production of 5 million orange
ing profits. In contrast, Coca-Cola is the
trees for a period of 20 years. PepsiCo's
Co are both successful com
world's largest producer of soft drink
recent competitive actions include
panies. At least historically,
concentrates and syrups and is also the
paying $4.2 billion for Russian yogurt
these firms are best known
world's largest producer of juice and
giant Wimm-Bill-Dann Foods. This is
world, Coca-Cola and Pepsi
for their soft drinks or sodas.
Interestingly, some believe that
the United States "has been defined by
juice-related products; however, it does
PepsiCo's largest-ever foreign acquisi
not have a snack business unit.
tion and is seen as a path to reach
Changing conditions in the external
consumers in neighboring countries
soda in the same way France defined
environment are affecting these firms'
its empire on wine, Germany on beer,
competitive choices. Overall declining
Kyrgyzstan for the purpose of success
and Britain on tea."
sales in the soda category in the United
fully distributing its Frito-Lay products.
Even though they differ in the total
States in particular but in other parts
such as Ukraine, Turkmenistan, and
In addition, these firms continue
set of products they offer, the rivalry
of the world as well are one reason for
competing aggressively against each
between these companies remains
this. Soda sales appear to be declin
other in sodas. Each firm has devel
intense, particularly in terms of both
ing partly as a result of changes in
oped fountain machines that allow
carbonated and noncarbonated bever
societies' attitudes toward the "value"
customers to create a variety of flavor
ages. These competitions play out in
associated with consuming soda prod
combinations, such as strawberry
many nations and regions of the world.
ucts, particularly full-calorie versions of
Mountain Dew (a Pepsi-Cola product).
them. In response, Coca-Cola is finding
To better attract younger consumers,
Of the two companies, PepsiCo is
more diversified in that, through its
ways to generate more returns through
PepsiCo completed an endorsement
Frito-Lay business unit, it is a leader in
its juice products. To ensure access
deal with pop star Beyoncé. And both
the global snack industry. The impor
to the supply of oranges it needs, the
firms are competing against each other
tance of this unit to PepsiCo is shown
firm recently established long-term
to gain market share in noncarbonated
by the fact that it recently accounted
leases with two large Florida grow
beverage products such as waters,
for 21 percent of the firm's sales
ers. This deal gives Coca-Cola access
juices, and sports drinks.
37
Part 1: Strategic Management Inputs
38
Suggested links between obesity and some of these firms' products is another condition in
the external environment that is affecting these firms, causing them to compete against each
other to find ways to most effectively respond to this threat. Coca-Cola has announced that it is
committed to contributing to individuals' health on a global basis. Supporting physical activities
programs in every country where the firm competes is one action it is taking to demonstrate
this commitment. In addition to committing to sell healthier products through its Quaker Oats,
Gatorade, and Tropicana divisions, PepsiCo has established the "Global Nutrition Group" for the
purpose of developing breakthrough products that will satisfy customers' needs for enjoyable
but healthy products.
Sources: 2013, Coca-Cola Co, Standard & Poor's Stock Report, www.standardandpoors.com. May 17; 2013, PepsiCo Inc.,
Standard & Poor's Stock Report, www.standardandpoors.com. May 17; A. Cardenal, 2013, The battle of the soda giants:
Coke vs. Pepsi, www.beta.fool.com, April 10; C. Passy, 2013, Why soda is the great American beverage, Wall Street Journal,
www.wsj.com, March 12; D. Stanford, 2013, Cola-Cola expands calorie labels and emphasizes no-cals, Bloomberg Business
week, www.businessweek.com, May 9; D. Stanford, 2013, PepsiCo's East European snack attack, Bloomberg Businessweek,
www.businessweek.com, February 28; K. Stock, 2013, Coke's sweet $2 billion orange juice deal, Bloomberg Businessweek,
www.businessweek.com, May 8.
As described in the Opening Case and suggested by research, the external environment (which
includes the industry in which a firm competes as well as those against whom it competes)
affects the competition actions and responses firms take to outperform competitors and earn
above-average returns.1 For example, Coca-Cola and PepsiCo are trying to effectively address
the allegation that some and perhaps many of their products contribute to obesity. The socio
cultural segment of the general environment (discussed in this chapter) is the source of this
allegation and the threat it represents to the two firms. The Opening Case also describes some
of the ways these two firms compete against each other in markets throughout the world.
As noted in Chapter 1, the characteristics of today’s external environment differ from
historical conditions. For example, technological changes and the continuing growth of infor
mation gathering and processing capabilities increase the need for firms to develop effective
competitive actions and responses on a timely basis.2 (We fully discuss competitive actions
and responses in Chapter 5.) Additionally, the rapid sociological changes occurring in many
countries affect labor practices and the nature of products that increasingly diverse consumers
demand. Governmental policies and laws also affect where and how firms choose to compete.3
And, changes to a number of nations’ financial regulatory systems that have been enacted
since 2010 are expected to increase the complexity of organizations’ financial transactions.4
Firms understand the external environment by acquiring information about competi
tors, customers, and other stakeholders to build their own base of knowledge and capa
bilities.5 On the basis of the new information, firms take actions, such as building new
capabilities and core competencies, in hopes of buffering themselves from any negative
environmental effects and to pursue opportunities as the basis for better serving their stake
holders’ needs.6
In summary, a firm’s competitive actions and responses are influenced by the conditions
in the three parts (the general, industry, and competitor) of its external environment (see
Figure 2.1) and its understanding of those conditions. Next, we fully describe each part of
the firm’s external environment.
2-1 The General, Industry, and
Competitor Environments
The
general environment
is composed of dimensions
in the broader society that
influence an industry and
the firms within it.
The general environment is composed of dimensions in the broader society that influence
an industry and the firms within it.7 We group these dimensions into seven environmental
segments: demographic, economic, political/legal, sociocultural, technological, global, and
physical. Examples of elements analyzed in each of these segments are shown in Fable 2.1.
39
Economic
Demographic
Physical
Industry
Environment
Threat of New Entrants
Power of Suppliers
Power of Buyers
Product Substitutes
Intensity of Rivalry
Sociocultural
Competitor
Environment
Political/Legal
Global
Technological
Firms cannot directly control the general environment’s segments. Accordingly, what a
company seeks to do is recognize trends in each segment of the general environment and
then predict each trend’s effect on it. For example, some believe that over the next 10 to
20 years, millions of people living in emerging market countries will join the middle class.
01 course no firm, including large multinationals, is able to control where growth in poten
tial customers may take place in the next decade or two. Nonetheless, firms must study this
anticipated trend as a foundation for predicting its effects on their ability to identify strate
gies to use that will allow them to remain successful as market conditions change.*
The industry environment is the set of factors that directly influences a firm and its
competitive actions and responses:9 the threat of new entrants, the power of suppliers, the
power of buyers, the threat of product substitutes, and the intensity of rivalry among com
peting firms. In total, the interactions among these five factors determine an industry’s
profitability potential; in turn, the industry’s profitability potential influences the choices
each firm makes about its competitive actions and responses. The challenge for a firm is
to locate a position within an industry where it can favorably influence the five factors or
where it can successfully defend itself against their influence. The greater a firm’s capacity to
favorably influence its industry environment, the greater the likelihood it will earn aboveaverage returns.
How companies gather and interpret information about their competitors is called
competitor analysis. Understanding the firm’s competitor environment complements the
insights provided by studying the general and industry environments.10 This means, for
example, that Coca-Cola and PepsiCo want to learn as much about each other as they
can while each company simultaneously seeks to understand its general and industry
environments.
industry
environment is the set
The
of factors that directly
influences a firm and its
competitive actions and
responses: the threat of
new entrants, the power
of suppliers, the power
of buyers, the threat of
product substitutes, and the
intensity of rivalry among
competing firms.
How companies gather and
interpret information about
their competitors is called
competitor analysis
Part 1: Strategic Management Inputs
40
Table 2.1 The General Environment: Segments and Elements
i
|
Demographic segment
• Population size
• Age structure
• Geographic distribution
• Ethnic mix
• Income distribution
Economic segment
•
•
•
•
• Personal savings rate
• Business savings rates
• Gross domestic product
Political/Legal segment
• Antitrust laws
• Taxation laws
• Deregulation philosophies
• Labor training laws
• Educational philosophies and policies
Sociocultural segment
• Women in the workforce
• Workforce diversity
• Attitudes about the quality of work life
• Shifts in work and career preferences
• Shifts in preferences regarding product and
service characteristics
Technological segment
• Product innovations
• Applications of knowledge
• Focus of private and governmentsupported R&D expenditures
• New communication technologies
Global segment
• Important political events
• Critical global markets
• Newly industrialized countries
• Different cultural and institutional
attributes
Physical environment
segment
•
•
•
•
• Availability of water as a resource
• Producing environmentally friendly
products
• Reacting to natural or man-made disasters
1
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Energy consumption
Practices used to develop energy sources
Renewable energy efforts
Minimizing a firm's environmental footprint
£■ Cengage Learning
An analysis of the general environment focuses on environmental trends and their
implications, an analysis of the industry environment focuses on the factors and conditions
influencing an industry’s profitability potential, and an analysis of competitors is focused
on predicting competitors’ actions, responses, and intentions. In combination, the results
of these three analyses influence the firm’s vision, mission, its choice of strategies, and the
competitive actions and responses it will take to implement those strategies. Although we
discuss each analysis separately, performance improves when the firm effectively integrates
the insights provided by analyses of the general environment, the industry environment,
and the competitor environment.
2-2 External Environmental Analysis
Most firms face external environments that are turbulent, complex, and global—conditions
that make interpreting those environments difficult." To cope with often ambiguous and
An opportunity is a
condition in the general
environment that, if
exploited effectively, helps
a company reach strategic
competitiveness.
incomplete environmental data and to increase understanding of the general environment,
firms complete an external environmental analysis. This analysis has four parts: scanning,
monitoring, forecasting, and assessing (see Table 2.2).
Identifying opportunities and threats is an important objective of studying the general
environment. An opportunity is a condition in the general environment that, if exploited
effectively, helps a company reach strategic competitiveness. Most companies—and cer
tainly large ones—continuously encounter multiple opportunities as well as threats.
Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
41
Table 2.2 Parts of the External Environment Analysis
Scanning
• Identifying early signals of environmental changes and trends
Monitoring
• Detecting meaning through ongoing observations of environmental changes and trends
Forecasting
• Developing projections of anticipated outcomes based on monitored changes and trends
Assessing
• Determining the timing and importance of environmental changes and trends for firms' strategies
and their management
©Cengage Learning
In terms of possible opportunities, we can note that a combination of cultural, political,
and economic factors is resulting in rapid retail growth in Africa and the Middle Hast as well
as in Latin America. Accordingly Walmart, the worlds largest retailer, and the next three larg
est global giants (France’s Carrefour, U.K.-based Tesco, and Germany’s Metro) are planning to
expand in these regions. “Walmart is expanding its horizon to Chile, India and South Africa;
Carrefour will open stores in Bulgaria, India and Iran. Tesco is also opening stores in India,
and Metro will open in Egypt and Kazakhstan.”12 Similarly, Google intends to partner with
local telecommunications Firms and equipment providers to help build and operate wireless
networks in emerging markets such as sub-Saharan Africa and Southeast Asia. Pursuing these
opportunities is part of Google’s goal of connecting a billion or more new users to the Internet.13
A threat is a condition in the general environment that may hinder a company’s efforts
to achieve strategic competitiveness.14 Finnish-based Nokia Corp. is dealing with threats
including one regarding its intellectual property rights. In roughly mid-2013, the company
filed two additional complaints against competitor HTC Corp. alleging that the Taiwanese
smartphone manufacturer had infringed on nine of Nokia’s patents.15 This threat obviously
deals with the political/legal segment. From the technological segment, Nokia is facing a
potential threat from a new device called Jolla. Created by former Nokia executives and
developers who founded their own firm in Helsinki in 2011, its manufacturer believes that
the Jolla operating system is “a truly independent and open alternative in mobile.”16 While
its competitive success is yet to be determined, this product does appear to represent a tech
nological threat tor Nokia and others smartphone manufacturers as well.
Firms use multiple sources to analyze the general environment through scanning, moni
toring, forecasting, and assessing. Examples of these sources include a wide variety of printed
materials (such as trade publications, newspapers, business publications, and the results of
academic research and public polls), trade shows and suppliers, customers, and employees
of public-sector organizations. Of course, the information available from Internet sources is
of increasing importance to a firm’s efforts to study the general environment.
2-2a Scanning
Scanning entails the study of all segments in the general environment. Although challeng
ing, scanning is critically important to firms’ efforts to understand trends in the general
environment and predict their implications. This is particularly the case for companies
competing in highly volatile environments.17
Through scanning, firms identify early signals of potential changes in the general
environment and detect changes that are already under way.1” Scanning activities must be
aligned with the organizational context; a scanning system designed for a volatile environ
ment is inappropriate for a firm in a stable environment.19 Scanning often reveals ambigu
ous, incomplete, or unconnected data and information that require careful analysis.
Many firms use special software to help them identify events that are taking place in the
environment and that are announced in public sources. For example, news event detection
A threat is a condition in
the general environment
that may hinder a
company's efforts
to achieve strategic
competitiveness.
Part 1: Strategic Management Inputs
42
uses information-based systems to categorize text and reduce the trade-off between an
important missed event and false alarm rates. Increasingly, these systems are used to study
social media outlets as sources of information.20
Broadly speaking, the Internet provides a wealth of opportunities for scanning. Amazon,
com, for example, records information about individuals visiting its Web site, particularly
if a purchase is made. Amazon then welcomes these customers by name when they visit
the Web site again. The firm sends messages to customers about specials and new products
similar to those they purchased in previous visits. A number of other companies, such as
Netflix, also collect demographic data about their customers in an attempt to identify their
unique preferences (demographics is one of the segments in the general environment).
2-2b Monitoring
When monitoring, analysts observe environmental changes to see if an important trend is
emerging from among those spotted through scanning.21 Critical to successful monitoring is
the firms ability to detect meaning in environmental events and trends. For example, those
monitoring retirement trends in the United States learned in 2013 that 57 percent of U.S.
workers surveyed reported that excluding the value of their home, they have only $25,000
or less in savings and investments set aside for their retirement. This particular survey also
discovered “that 28% of Americans have no confidence they will have enough money to
retire comfortably—the highest level in the (surveys) 23-year history.”22 Historically, U.S.
workers saved larger percentages of their earned income as a foundation for retirement.
Firms seeking to serve retirees’ financial needs will continue monitoring this change in
workers’ savings and investment patterns to see if a trend is developing. Once convinced that
saving less for retirement is indeed a trend, these firms will seek to understand its competi
tive implications.
Effective monitoring requires the firm to identify important stakeholders and under
stand its reputation among these stakeholders as the foundation for serving their unique
needs.23 (Stakeholders’ unique needs are described in Chapter 1.) Scanning and monitoring
are particularly important when a firm competes in an industry with high technologi
cal uncertainty.24 Scanning and monitoring can provide the firm with information; these
activities also serve as a means of importing
knowledge about markets and about how to suc
cessfully commercialize the new technologies the
firm has developed.25
A variety of microprocessors are displayed at the Mobile World
Congress in Barcelona, Spain. The global showcase for the mobile
technology industry draws 1,500 exhibitors to discuss the future of
wireless communication.
2-2c Forecasting
Scanning and monitoring are concerned with
events and trends in the general environment at a
point in time. When forecasting, analysts develop
feasible projections of what might happen, and
how quickly, as a result of the events and trends
detected through scanning and monitoring.26 For
example, analysts might forecast the time that
will be required for a new technology to reach
the marketplace, the length of time before differjs ent corporate training procedures are required to
Í
f
deal with anticipated changes in the composition
of the workforce, or how much time will elapse
f
before changes in governmental taxation policies
s
affect consumers’ purchasing patterns.
Chapter 2: The External Environment: Opportunities. Threats, Industry Competition, and Competitor Analysis
43
Forecasting events and outcomes accurately is challenging. Forecasting demand for new
technological products is difficult because technology trends are continually driving product
life cycles shorter. This is particularly difficult for a firm such as Intel, whose products go into
many customers’ technological products, which are consistently updated. Increasing the dif
ficulty, each new wafer fabrication or silicon chip technology production plant in which Intel
invests becomes significantly more expensive for each generation of chip products. In this
instance, having access to tools that allow better forecasting of electronic product demand is
of value to Intel as the firm studies conditions in its external environment.27
2-2d Assessing
When assessing, the objective is to determine the timing and significance of the effects of
environmental changes and trends that have been identified.28 Through scanning, moni
toring, and forecasting, analysts are able to understand the general environment. Going a
step further, the intent of assessment is to specify the implications of that understanding.
Without assessment, the firm is left with data that may be interesting but of unknown com
petitive relevance. Even if formal assessment is inadequate, the appropriate interpretation
of that information is important.
Accurately assessing the trends expected to take place in the segments of a firm’s general
environment is important. However, accurately interpreting the meaning of those trends is
even more important. In slightly different words, although gathering and organizing infor
mation is important, appropriately interpreting the intelligence the collected information
provides to determine if an identified trend in the general environment is an opportunity
or threat is critical.29
2-3 Segments of the General
Environment
The general environment is composed of segments that are external to the firm (see Table 2.1).
Although the degree of impact varies, these environmental segments affect all industries
and the firms competing in them. The challenge to each firm is to scan, monitor, forecast,
and assess the elements in each segment to predict their effects on it. Effective scanning,
monitoring, forecasting, and assessing are vital to the firm’s efforts to recognize and evaluate
opportunities and threats.
2-3a The Demographic Segment
The demographic segment is concerned with a population’s size, age structure, geographic
distribution, ethnic mix, and income distribution.30 Demographic segments are commonly
analyzed on a global basis because of their potential effects across countries’ borders and
because many firms compete in global markets.
Population Size
The world’s population doubled (from 3 billion to 6 billion) between 1959 and 1999. Current
projections suggest that population growth will continue in the twenty-first century, but at a
slower pace. The U.S. Census Bureau projects that the world’s population will be 9 billion by
2042 and roughly 9.25 billion by 2050.31 In 2012, China was the world’s largest country by popu
lation with over 1.3 billion people. By 2050, however, India is expected to be the most populous The demographic
nation in the world (approximately 1.69 billion). China (1.3 billion), the United States (439 mil segment is concerned
lion), Indonesia (313 million), and Pakistan (276 million) are expected to be the next four most with a population's size,
age structure, geographic
populous countries in 2050.32 Firms seeking to find growing markets in which to sell their goodsdistribution, ethnic mix, and
and services want to recognize the market potential that may exist for them in these five nations.income distribution.
Part 1 Strategic Management Inputs
While observing the population of nations and regions ofthe world, firms also want to study
changes occurring within different populations to assess their strategic implications. For exam
ple, in 2011, 23 percent of Japans citizens were 65 or older, while the United States and China
will not reach this level until 2036.33 Aging populations are a significant problem for countries
because of the need for workers and the burden of supporting retirement programs. In Japan
and some other countries, employees are urged to work longer to overcome these problems.
Age Structure
The most noteworthy aspect of this element of the demographic segment is that the world’s
population is rapidly aging. For example, predictions are that, “By 2050, over one-fifth of
the U.S. population will be 65 or older up from the current figure (in 2012) of one-seventh.
The number of centenarians worldwide will double by 2023 and double again by 2035.
Projections suggest life expectancy will surpass 100 in some industrialized countries by the
second half of this century—roughly triple the lifespan that prevailed worldwide through
out most of human history.”31 In China, the 65 and over population is expected to reach
roughly 330 million by 2050, which will be close to one-fourth of the nation’s total popula
tion.3" In the 1950s, Japan’s population was one of the youngest in the world. However, 45 is
now the median age in Japan, with the projection that it will be 55 by 2040. With a fertility
rate that is below replacement value, another prediction is that by 2040, there will be almost
as many Japanese people 100 years old or older as there are newborns.36
These predictions lead to different possibilities. In Japan, an expectation that the work
ing age population will shrink from 81 million in 2012 to about 57 million in 2040 seems
to threaten companies’ ability to operate. On the other hand, is there an opportunity for
Japanese firms to find ways to increase the productivity of their workers and/or to establish
additional operations in other nations? From an opportunity perspective, delayed retire
ments of baby boomers (those born between 1947 and 1965) that are expected in the United
States (and perhaps other countries as well) create the possibility of helping companies
“avoid or defer the baby-boomer brain drain that has been looming for so long” In this
sense, “organizations now have a fresh opportunity to address the talent gap created by a
shortage of critical skills in the marketplace as well as the experience gap created by multiple
waves of downsizing over the past decade.”37 Having those delaying their retirement use
their knowledge to help younger employees quickly gain valuable skills is another opportu
nity that the age structure element suggests firms should consider.
Geographic Distribution
How a population is distributed within countries and regions is subject to change over time.
For example, the last few decades have seen the U.S. population shifting from states in the
Northeast and Great Lakes region to states in the west (California), south (Florida), and
southwest (Texas). These changes can be seen as moving from the “Frost Belt” to the “Sun
Belt.” Outcomes from these shifts include the facts that the gross domestic product (GDP)
of California in 2011 was just under $2 trillion, an amount that makes California the ninthlargest economy in the world. In this same year, at a value of $1.3 trillion, Texas’ GDP was
second to that of California.38
Recent shifts show that New Jersey had the highest ratio of people moving out compared
to the number of people moving into the state in 2012. Illinois, New York, Michigan, Maine,
Connecticut, and Wisconsin are additional states for which a large net migration occurred
in 2012. In a shift in the pattern witnessed for the first decade-plus of the twenty-first
century, Washington, D.C., was the most popular destination for relocation in 2012 with
Oregon being the second most popular. Washington, D.C., seemed to be popular because
of its somewhat recession-proof economic opportunities that are generated by a maturing
high-tech sector and federal government jobs. In particular, the city of Portland appears to
Chapter 2: The External Environment; Opportunities, Threats, Industry Competition, and Competitor Analysis
capture the allure of Oregon in terms of its mix of economic growth, cutting edge urban
planning, and scenic landscapes.'9
Firms want to carefully study the patterns of population distributions in countries and
regions to identify opportunities and threats. Thus in the United States, current patterns
suggest the possibility of opportunities in Washington, D.C., as well as in states on the West
Coast including Oregon and those in the South and Southwest. In contrast, firms compet
ing in the Northeast and Great Lakes areas may concentrate on identifying threats to their
ability to operate profitably in those areas.
Of course, geographic distribution patterns differ throughout the world. For example, in
China, the majority of the population still lives in rural areas; however, todays growth patterns
are toward urban communities such as Shanghai and Beijing.40 Shifts that occurred between
2011 and 2012 in Europe show net (but small) population gains for countries such as France,
Germany, and the United Kingdom while Greece experienced a net (again, small) population
decline. Overall, the geographic distribution patterns at least for this year in Europe were quite
stable.41 This tact too has relevance for firms studying this segment of their general environment.
Ethnic Mix
The ethnic mix of countries’ populations continues to change, creating opportunities and
threats for many companies as a result. For example, Hispanics are now the largest ethnic
minority in the United States.4-’ In fact, the U.S. Hispanic market is the third largest “Latin
American” economy behind Brazil and Mexico. Spanish is now the dominant language in parts
of U.S. states such as Texas, California, Florida, and New Mexico. Given these facts, some firms
might want to assess the degree to which their goods or services could be adapted to serve the
unique needs of Hispanic consumers.
Additional evidence is of interest to firms when examining this segment. For example,
African countries are the most ethnically diverse in the world, with Uganda having the highest
ethnic diversity rating with Liberia second. In contrast, Japan and the Koreas are the least diver
sified from the perspective of a mix of ethnicities in their populations. European countries are
ethnically homogeneous while the Americas are often diverse. “From the United States through
Central America down to Brazil, the ‘new world’ countries, maybe in part because of their his
tories of relatively open immigration (and, in some cases, intermingling between natives and
new arrivals) tend to be pretty diverse.”4'
Income Distribution
Understanding how income is distributed
within and across populations informs firms
of different groups’ purchasing power and dis
cretionary income. Of particular interest to
firms are the average incomes of households
and individuals. For instance, the increase in
dual-career couples has had a notable effect
on average incomes. Although real income has
been declining in general in some nations, the
household income of dual-career couples has
increased, especially in the United States. These
figures yield strategically relevant information
for firms. For instance, research indicates that
whether an employee is part of a dual-career
couple can strongly influence the willingness
of the employee to accept an international
assignment. However, because of recent global
Patterns of population distribution present both opportunities and
threats to companies.
45
Part 1: Strategic Management Inputs
46
economic conditions, many companies were still pursuing international assignments but
changing them to avoid some of the additional costs of funding expatriates abroad.4 ’
The growth of the economy in China has draw'n many firms, not only for the low-cost
production, but also because of the large potential demand for products, given its large
population base. However, in recent times, the amount of China’s gross domestic prod
uct that makes up domestic consumption is the lowest of any major economy at less than
one-third. In comparison, India’s domestic consumption of consumer goods accounts for
twro-thirds of its economy, or tw'ice China’s level. As such, many western multinationals are
considering entering India as a consumption market as its middle class grow’S extensively.
Although India as a nation has poor infrastructure, its consumers are in a better position to
spend. Furthermore, the urban-rural income difference has been declining in India more
rapidly than in China. Because of situations such as this, paying attention to the differences
between markets based on income distribution can be very important.4"
2-3b The Economic Segment
The economic environment refers to the nature and direction of the economy in w'hich
a firm competes or may compete.46 In general, firms seek to compete in relatively stable
economies with strong growth potential. Because nations are interconnected as a result of
the global economy, firms must scan, monitor, forecast, and assess the health of their host
nation as well as the health of the economies outside it.
For firms studying the economic environment today for purposes of being able to predict
trends that may occur in this segment of the general environment and their effects on them,
the picture remains unclear and challenging. There are at least two reasons for this. First, the
global recession of 2008 and 2009 created numerous problems for companies throughout the
world, including those of reduced consumer demand, increases in firms’ inventory levels,
development of additional governmental regulations, and a tightening of access to financial
resources. The second reason to consider is that the global recovery from the 2008 and 2009
recession remains persistently slow and relatively weak compared to previous recoveries. Some
argue that enhanced economic uncertainty (which refers to an environment in which relatively
little and perhaps nothing at all is known about the future state of an economy) is a major
cause of the “less-than-robust-recovery” that was experienced at least through mid-2013. Of
likely concern to firms studying the economic segment today is the fact that historically, high
degrees of economic uncertainty coincide with periods of lower growth. And again, according
to some research, “it is clear that (economic) uncertainty has increased in recent times.”47 This
increase suggests the possibility of slower growth in the foreseeable future.
When facing economic uncertainty, firms want to be certain to study the economic
environment in multiple regions and countries throughout the world. Although economic
The economic
environment refers to the
nature and direction of the
economy in which a firm
competes or may compete.
The poiitical/legal
segment is the arena
in which organizations
and interest groups
compete for attention,
resources, and a voice
in overseeing the body
of laws and regulations
guiding interactions among
nations as well as between
firms and various local
governmental agencies.
growth remains relatively weak and economic uncertainty has been strong in Europe and
the United States in recent times, this was not the case in other settings. In 2013, for example,
growth was projected to increase by 8.2 percent in China, by 4 percent in Brazil, and by
3.5 percent in Mexico. From a regional perspective, 2013 projections were for growth of
5.8 percent in Southeast Asia and 5.7 percent in sub-Saharan Africa, estimates that highlight
the anticipation of the continuing development of emerging economies.48 Ideally, firms will
be able to pursue growth opportunities in regions and nations where they exist while avoid
ing the threats of slow growth periods in other settings.
2-3c The Political/Legal Segment
The political/legal segment is the arena in which organizations and interest groups com
pete for attention, resources, and a voice in overseeing the body of laws and regulations
guiding interactions among nations as well as between firms and various local governmen
tal agencies.49 Essentially, this segment is concerned with how organizations try to influence
Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
47
governments and how they try to understand the influences (current and projected) of those
governments on their competitive actions and responses. Commonly, firms develop a politi
cal strategy to specify how they will study the political/legal segment as well as approaches
they might take (such as lobbying efforts) in order to successfully deal with opportunities
and threats that surface within this segment at different points in time.50
Regulations formed in response to new national, regional, state, and/or local laws that
are legislated often influence a firms competitive actions and responses. For example,
the state of Nevada in the United States recently legalized the business of online poker/
gambling. New Jersey and Delaware quickly took the same action. In response to Nevada’s
regulatory change, firms such as MGM Resorts International were trying to decide the
degree to which these decisions represented a viable opportunity. According to a MGM
official, the immediate concern with respect to Nevada is that “the state may be too small to
provide a lucrative online market on a standalone basis.”51
At a regional level, changes in the laws regarding the appropriate regulation of European
banks are still being actively debated.52 For interactive, technology-based firms such as
Facebook, Google, and Amazon, among others, “the effort in Europe to adopt the world’s
strongest data protection law has drawn the attention of dozens of lobbyists from U.S. tech
nology and advertising companies.”53 Highly restrictive laws about consumer privacy could
threaten how these firms conduct business in the European Union. Finally, in a comprehen
sive sense, recent transformations from state-owned to private firms occurring in multiple
nations have substantial implications for the competitive landscapes in a number of coun
tries and across multiple industries.54
2-3d The Sociocultural Segment
The sociocultural segment is concerned with a society’s attitudes and cultural values.
Because attitudes and values form the cornerstone of a society, they often drive demo
graphic, economic, political/legal, and technological conditions and changes.
Individual societies’ attitudes and cultural orientations are anything other than stable,
meaning that firms must carefully scan, monitor, forecast, and assess them to recognize and
study associated opportunities and threats. Another way of thinking about this is to note that
companies do not exist in an isolated state. Because of this, even successful firms must have
an awareness of changes taking place in the societies and their associated cultures in which
they are competing. Indeed, societal and culture changes challenge firms to find ways to
“adapt to stay ahead of their competitors and stay relevant in the minds of their consumers.”55
Attitudes about and approaches to health care are issues being considered in nations and
regions throughout the world. For Europe, the European Commission has developed a health
care strategy for all of Europe that is oriented to preventing diseases while tackling lifestyle
factors influencing health such as nutrition, working conditions, and physical activity. This
Commission argues that promoting attitudes to take care of one’s health is especially impor
tant in the context of an aging Furope as shown by the projection that the proportion of people
over 65 living in Europe will increase from 17 percent in 2010 to almost 30 percent by 2060.56
In the United States, costs remain at the forefront of discussions about health care.
Recent surveys show that consumers are dissatisfied with the cost of health care and do not
understand why these costs continue to increase. Simultaneously though, most patients (as
many as 80 percent of women and 85 percent of men) fail to compare the costs of doctors
and recommended procedures.v At issue for business firms is that attitudes and values
about health care can affect them; accordingly, they must carefully examine trends regard
ing health care in order to anticipate the effects on their operations.
As the U.S. labor force has increased, it has become more diverse, as significantly more
women and minorities from a variety of cultures enter the workplace. In 1993, the total U.S.
workforce was slightly less than 130 million; in 2005, it was slightly greater than 148 million.
It is predicted to grow to more than 192 million by 2050.
The sociocultural
segment is concerned
with a society's attitudes
and cultural values.
Part 1: Strategic Management Inputs
48
However, the rate of growth in the U.S. labor
force has declined over the past two decades
largely as a result of slower growth of the nation’s
population and because of a downward trend in
the labor force participation rate. More specifi
cally, data show that “after nearly five decades of
steady growth, the overall participation rate—
defined as the proportion of the civilian noninstitutional population in the labor force—peaked
at an annual average of 67.1 percent for each year
from 1997 to 2000... By September 2012, the rate
had dropped to 63.6 percent”58 and is expected
to fall to 58.5 percent by 2050. Other changes in
the U.S. labor force between 2010 and 2050 are
Greater workforce diversity has become the norm in many indus
expected. During this time period, the Asian
labor force is projected to more than double in
tries. These changes have forced many companies to challenge the
size while the growth in the white labor force is
notion of traditional organizational roles for men and women.
predicted to be much slower compared to other
racial groups. In contrast, people of Hispanic ori
gin are expected to account for roughly 80 per
cent of the total growth in the labor force. Finally, “it is projected that the higher growth
rate of the female labor force relative to that of men will end by 2020 and the growth rates
for men and women will be similar for the 2020-2050 period.”59
Greater diversity in the workforce creates challenges and opportunities, including com
bining the best of both men’s and women’s traditional leadership styles. Although diversity
in the workforce has the potential to improve performance, research indicates that diversity
initiatives must be successfully managed in order to reap these organizational benefits.
Human resource practitioners are trained to successfully manage diversity issues to enhance
positive outcomes.60 In an overall sense though, learning how to effectively manage a firm’s
workforce is increasingly important in that “many companies recognize today, more than
ever, their people have become their most critical competitive asset.”61
Although the lifestyle and workforce changes referenced previously reflect the atti
tudes and values of the U.S. population, each country is unique with respect to these
sociocultural indicators. National cultural values affect behavior in organizations and
thus also influence organizational outcomes such as differences in CEO compensation.62
Likewise, the national culture influences to a large extent the internationalization strategy
that firms pursue relative to one’s home country.63 Knowledge sharing is important for
dispersing new knowledge in organizations and increasing the speed in implementing
innovations. Personal relationships are especially important in China as guanxi (personal
relationships or good connections) has become a way of doing business within the coun
try and for individuals to advance their careers in what is becoming a more open market
society. Understanding the importance of guanxi is critical for foreign firms doing busi
ness in China.64
2-3e The Technological Segment
technological
segment includes the
The
institutions and activities
involved in creating new
knowledge and translating
that knowledge into
new outputs, products,
processes, and materials.
Pervasive and diversified in scope, technological changes affect many parts of societies. These
effects occur primarily through new products, processes, and materials. The technological
segment includes the institutions and activities involved in creating new knowledge and
translating that knowledge into new outputs, products, processes, and materials.
Given the rapid pace of technological change and risk of disruption, it is vital for firms to
thoroughly study the technological segment.65 The importance of these efforts is suggested
Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
49
by the finding that early adopters of new technology often achieve higher market shares and
earn higher returns. Thus, both large and small firms should continuously scan the general
environment to identify potential substitutes for technologies that are in current use, as well
as to identify newly emerging technologies from which their firm could derive competitive
advantage.66
As a significant technological development, the Internet offers firms a remarkable capa
bility in terms of their efforts to scan, monitor, forecast, and assess conditions in their
general environment. Companies continue to study the Internet’s capabilities to anticipate
how it may allow them to create more value for customers in the future and to anticipate
future trends.
Additionally, the Internet generates a significant number of opportunities and threats
for firms across the world. Predictions about Internet usage in the years to come are one
reason for this. By 2016, the estimate is that there will be 3 billion Internet users glob
ally. This is almost one-half of the world’s population. Moreover, “the Internet economy
will reach $4.2 trillion in the G-20 economies. If it were a national economy, the Internet
economy would rank in the world’s top five, behind only the U.S., China, Japan, and India,
and ahead of Germany.”67 Overall, firms can expect that the future is a time period in which
the Internet “will have more users (especially in developing markets), more mobile users,
more users using various devices throughout the day, and many more people engaged in an
increasingly participatory medium.”68
In spite of the Internet’s far-reaching effects and the opportunities and threats associated
with its potential, wireless communication technology is becoming a significant technologi
cal opportunity for companies to pursue. Handheld devices and other wireless communica
tions equipment are used to access a variety of network-based services. The use of handheld
computers with wireless network connectivity, Web-enabled mobile phone handsets, and
other emerging platforms (e.g., consumer Internet-access devices such as the iPhone, iPad,
and Kindle) has increased substantially and may soon become the dominant form of com
munication and commerce. In fact, with each new version of these products, additional
functionalities and software applications are generating multiple opportunities—and poten
tial threats—for companies of all types.
2-3f The Global Segment
The global segment includes relevant new global markets, existing markets that are chang
ing, important international political events, and critical cultural and institutional charac
teristics of global markets.69 For example, firms competing in the automobile industry must
study the global segment. The fact that consumers in multiple nations are willing to buy cars
and trucks “from whatever area of the world”70 supports this position.
When studying the global segment, firms (including automobile manufacturers) should
recognize that globalization of business markets may create opportunities to enter new
markets as well as threats that new competitors from other economies may also enter their
market. In terms of an opportunity for automobile manufacturers, the possibility for these
firms to sell their products outside of their home market would seem attractive. But what
markets might firms choose to enter? Currently, Brazil, Russia, India, China, and to a lesser
extent Indonesia and Malaysia are nations in which automobile and truck sales are expected
to increase. In contract, sales are expected to decline, at least in the near term, in Europe
and Japan. These expectations suggest the most and least attractive markets for automobile
manufacturers desiring to sell outside their domestic market. At the same time, from the
perspective of a threat, Japan, Germany, Korea, Spain, France, and the United States are
nations in which there appears to be excess production capacity in the automobile manu
facturing industry. In turn, overcapacity signals the possibility that companies based in
markets where this is the case will simultaneously attempt to increase their exports as well
The global segment
includes relevant new
global markets, existing
markets that are changing,
important international
political events, and critical
cultural and institutional
characteristics of global
markets.
Part 1: Strategic Management Inputs
50
as sales in their domestic market.71 Thus, global automobile manufacturers should carefully
examine the global segment in order to precisely identify all opportunities and threats.
In light of threats associated with participating in international markets, some firms choose
to take a more cautious approach to globalization. These firms participate in what some refer
to as globalfocusing. Globalfocusing often is used by firms with moderate levels of international
operations who increase their internationalization by focusing on global niche markets.: This
approach allows firms to build on and use their core competencies while limiting their risks
within the niche market. Another way in which firms limit their risks in international markets
is to focus their operations and sales in one region of the world.3 Success with these efforts
finds a firm building relationships in and knowledge of its markets. As the firm builds these
strengths, rivals find it more difficult to enter its markets and compete successfully.
Firms competing in global markets should recognize each market’s sociocultural and
institutional attributes. For example, Korean ideology emphasizes communitarianism, a
characteristic of many Asian countries. Alternatively, the ideology in China calls for an
emphasis on guanxi—personal connections—while in japan, the focus is on wa, or group
harmony and social cohesion.74 The institutional context of China suggests a major empha
sis on centralized planning by the government. The Chinese government provides incen
tives to firms to develop alliances with foreign firms having sophisticated technology in
hopes of building knowledge and introducing new technologies to the Chinese markets over
time.75 As such, it is important to analyze the strategic intent of foreign firms when pursuing
alliances and joint ventures abroad, especially where the local partners are receiving tech
nology which may in the long run reduce the foreign firms’ advantages.76
Increasingly, the informal economy as it exits throughout the world is another aspect of
the global segment requiring analysis. Growing in size, this economy has implications for
firms’ competitive actions and responses in that increasingly firms competing in the formal
economy (defined in the Strategic Focus) will find that they are competing against informal
economy companies as well. We provide additional insights about the informal economy in
the Strategic Focus.
Learn more about Spain's
Informal Economy.
www.cengagebrain.com
2-3g The Physical Environment Segment
The physical environment segment refers to potential and actual changes in the physical envi
ronment and business practices that are intended to positively respond to and deal with those
changes.77 Concerned with trends oriented to sustaining the world’s physical environment,
firms recognize that ecological, social, and economic systems interactively influence what
happens in this particular segment and that they are part of an interconnected global society.78
Companies across the globe are concerned about the physical environment and many
record the actions they are taking in reports with names such as “Sustainability” and
“Corporate Social Responsibility.” Moreover and in a comprehensive sense, an increasing
number of companies are interested in sustainable development, which is “the development
that meets the needs of the present without compromising the ability of future generations
to meet their own needs.” 4
There are many parts or attributes of the physical environment that firms consider as
The physical
environment segment
refers to potential and
actual changes in the
physical environment and
business practices that
are intended to positively
respond to and deal with
those changes.
they try to identify trends in the physical environment segment.80 For example, McDonald’s
seeks to become a sustainable influence on the global food industry. Receiving certification
from the Marine Stewardship Council (MCS) for its U.S. supply signals that the company is
sourcing fish from “suppliers that follow strict MSC standards for ecosystem impact, man
agement, and health of fish stock.”81 As the world’s largest retailer, Walmart’s environmental
footprint is huge, meaning that trends in the physical environment can significantly affect
this firm and how it chooses to operate. Perhaps in light of trends occurring in the physi
cal environment, Walmart has announced that its goal is to produce zero waste and to use
100 percent renewable energy to power its operations.82
Chapter 2: The External Environment: Opportunities, Threats. Industry Competition, and Competitor Analysis
Strategic Focus
51
GLOBALIZATION
The Informal Economy: What It Is and Why It Is Important
The informal economy refers to commercial activities that occur
in 2009. In terms of the number of people working in an informal
at least partly outside a governing body's observation, taxation,
economy, we can consider the suggestion that "India's informal
and regulation. In slightly different words, sociologists Manuel
economy.. .(includes) hundreds of millions of shopkeepers, farm
Castells and Alejandro Portes suggest that the "informal economy
ers, construction workers, taxi drivers, street vendors, rag pickers,
is characterized by one central feature: it is unregulated by the
tailors, repairmen, middlemen, black marketers and more."
institutions of society in a legal and social environment in which
including an inability of a nation's economic environment to cre
omy are typically thought of as businesses that are unregistered
ate a significant number of jobs relative to available workers. This
but that are producing and selling legal products. In contrast to
has been a particularly acute problem during the recent global
the informal economy, the formal economy is comprised of com
recession. In the words of a person living in Spain: "Without the
mercial activities that a governing body taxes and monitors for
underground (informal) economy, we would be in a situation of
society's benefit and whose outputs are included in a country's
probably violent social unrest." Governments' inability to facilitate
gross domestic product.
growth efforts in their nation's economic environment is another
For some, working in the informal economy is a choice,
issue. In this regard, another Spanish citizen suggests that "What
such as is the case when individuals decide to supplement the
the government should focus on is reforming the formal econ
income they are earning through employment in the formal
omy to make it more efficient and competitive."
economy with a second job in the informal economy. However,
for most people working in the informal economy is a necessity
In a general sense, the informal economy yields threats and
opportunities for formal economy firms. One threat is that infor
rather than a choice—a reality that contributes to the informal
mal businesses may have a cost advantage when competing
economy’s size and significance. Although generalizing about
against formal economy firms in that they do not pay taxes or
the guality of informal employment is difficult, evidence suggests
incur the costs of regulations. But the informal economy surfaces
that it typically means poor employment conditions and greater
opportunities as well. For example, formal economy firms can try
poverty for workers.
to understand the needs of customers that informal economy
Estimates of the informal economy's size across countries
and regions vary. In developing countries, the informal economy
firms are satisfying and then find ways to better meet their needs.
Another valuable opportunity is to attract some
accounts for as much as three-quarters of all nonagricultural
of the informal economy's talented human capital to accept posi
employment, and perhaps as much as 90 percent in some
tions of employment in formal economy firms.
countries in South Asia and sub-Saharan Africa. But the infor
mal economy is also prominent in developed countries such as
© Vividfour / Shutterstock.com
There are various causes of the informal economy's growth,
similar activities are regulated." Firms located in the informal econ
Finland, Germany, and France (where this economy is estimated
to account for 18.3 percent, 16.3 percent, and 15.3 percent,
Sources: A. Picchi, 2013, A shadow economy may be keeping the US afloat,
MSN Money, www.msn.com, May 3; 2013, Meeting on informal economy statistics:
Country experience, international recommendations, and application, United Nations
Economic Commission for Africa, www.uneca.org, April; 2013, About the informal
economy, Women in informal employment: Globalizing and organizing, www.wiego.org,
respectively, of these nations'total economic activity). In the
May; G. Bruton, R. D. Ireland, & D. J. Ketchen, Jr., 2012, Toward a research agenda on the
United States, recent estimates are that the informal economy is
informal economy, Academy of Management Perspectives, 26(3): 1-11; R. D. Ireland, 2012,
2012 program theme: The informal economy, Academy of Management, www.meeting.
aomonline.org, March; R. Minder, 2012, In Spain, jobless find a refuge off the books,
New York Times, www.nytimes.com, May 18.
now generating as much as $2 trillion in economic activity on an
annual basis. This is double the size of the U.S. informal economy
As our discussion of the general environment shows, identifying anticipated changes
and trends among segments and their elements is a key objective of analyzing this envi
ronment. With a focus on the future, the analysis of the general environment allows firms
to identify opportunities and threats. It is necessary to have a top management team with
the experience, knowledge, and sensitivity required to effectively analyze a firm’s general
environment.83 Also critical to a firm’s choices of strategies and their associated competitive
Part 1 Strategic Management Inputs
52
actions and responses is an understanding of its industry environment and its competitors;
next, we discuss the analyses firms complete to gain such an understanding.
2-4 Industry Environment Analysis
An industry is a group of firms producing products that are close substitutes. In the course
of competition, these firms influence one another. Typically, companies use a rich mix of dif
ferent competitive strategies to pursue above-average returns when competing in a particu
lar industry. An industry’s structural characteristics influence a firm’s choice of strategies.*4
Compared with the general environment, the industry environment (measured primar
ily in the form of its characteristics) has a more direct effect on the competitive actions and
responses a firm takes to succeed.85 To study an industry, the firm examines five forces that
affect the ability of all firms to operate profitably within a given industry. Shown in Figure
2.2, the five forces are: the threats posed by new entrants, the power of suppliers, the power
of buyers, product substitutes, and the intensity of rivalry among competitors.
The five forces of competition model depicted in Figure 2.2 expands the scope of a
firm’s competitive analysis. Historically, when studying the competitive environment, firms
concentrated on companies with which they directly competed. However, firms must search
more broadly to recognize current and potential competitors by identifying potential cus
tomers as well as the firms serving them. For example, the communications industry is now
broadly defined as encompassing media companies, telecoms, entertainment companies,
and companies producing devices such as smartphones.86 In such an environment, firms
must study many other industries to identify companies with capabilities (especially technology-based capabilities) that might be the foundation for producing a good or a service
that can compete against what they are producing.
When studying the industry environment, firms must also recognize that suppliers
can become a firm’s competitors (by integrating forward) as can buyers (by integrating
Figure 2.2 The Five Forces of Competition Model
Threat of
new entrants
Rivalry among
competing firms
Threat of
substitute products
An industry is a group of
firms producing products
that are close substitutes.
Bargaining power
of suppliers
Bargaining power
of buyers
Chapter 2: The External Environment Opportunities, Threats, Industry Competition, and Competitor Analysis
backward). For example, several firms have integrated forward in the pharmaceutical indus
try by acquiring distributors or wholesalers. In addition, firms choosing to enter a new
market and those producing products that are adequate substitutes for existing products can
become a company’s competitors.
Next, we examine the five forces the firm analyzes to understand the profitability potential
within an industry (or a segment of an industry) in which it competes or may choose to compete.
2-4a Threat of New Entrants
Identifying new entrants is important because they can threaten the market share of existing
competitors.*7 One reason new entrants pose such a threat is that they bring additional pro
duction capacity. Unless the demand for a good or service is increasing, additional capacity
holds consumers’ costs down, resulting in less revenue and lower returns for competing
firms. Often, new entrants have a keen interest in gaining a large market share. As a result,
new competitors may force existing firms to be more efficient and to learn how to compete
in new dimensions (e.g., using an Internet-based distribution channel).
The likelihood that firms will enter an industry is a function of two factors: barriers
to entry and the retaliation expected from current industry participants. Entry barriers
make it difficult for new firms to enter an industry and often place them at a competitive
disadvantage even when they are able to enter. As such, high entry barriers tend to increase
the returns for existing firms in the industry and may allow some firms to dominate the
industry.88 Thus, firms competing successfully in an industry want to maintain high entry
barriers in order to discourage potential competitors from deciding to enter the industry.
Barriers to Entry
Firms competing in an industry (and especially those earning above-average returns) try
to develop entry barriers to thwart potential competitors. In general, more is known about
entry barriers (with respect to how they are developed as well as paths firms can pursue to
overcome them) in industrialized countries such as those in North America and Western
Europe. In contrast, relatively little is known about barriers to entry in the rapidly emerging
markets such as those in China. However, recent research suggests that Chinese executives
perceive that advertising effects are the most significant of seven barriers to China while
capital requirements are viewed as the least important.89
There are different kinds of barriers to entering a market that firms study when exam
ining an industry environment. Companies competing within a particular industry study
these barriers to determine the degree to which their competitive position reduces the like
lihood of new competitors being able to enter the industry for the purpose of competing
against them. Firms considering entering an industry study entry barriers to determine the
likelihood of being able to identify an attractive competitive position within the industry
being analyzed. Next, we discuss several significant entry barriers that may discourage com
petitors from entering a market and that may facilitate a firm’s ability to remain competitive
in a market in which it currently competes.
Economies of Scale Economics of scale are derived from incremental efficiency
improvements through experience as a firm grows larger. Therefore, the cost of producing
each unit declines as the quantity of a product produced during a given period increases. A
new entrant is unlikely to quickly generate the level of demand for its product that in turn
would allow it to develop economies of scale.
Economies of scale can be developed in most business functions, such as marketing,
manufacturing, research and development, and purchasing.1'" Firms sometimes form stra
tegic alliances or joint ventures to gain scale economies. This is the case for Mitsubishi
Heavy Industries Ltd. and Hitachi Ltd., as these companies “merged their operations for
fossil-fuel-based power systems into a joint venture aimed at gaining scale to compete
against global rivals.”91
Part 1 Strategic Management Inputs
Becoming more flexible in terms of being able to meet shifts in customer demand is
another benefit for an industry incumbent and another possible entry barrier for the firm
thinking of entering an industry. For example, a firm may choose to reduce its price with
the intention of capturing a larger share of the market. Alternatively, it may keep its price
constant to increase profits. In so doing, it likely will increase its free cash flow, which is very
helpful during financially challenging times.
Some competitive conditions reduce the ability of economies of scale to create an entry
barrier. Many companies now customize their products for large numbers of small cus
tomer groups. In these cases, customized products are not manufactured in the volumes
necessary to achieve economies of scale. Customization is made possible by several factors
including flexible manufacturing systems (this point is discussed further in Chapter 4). In
fact, the new manufacturing technology facilitated by advanced information systems has
allowed the development of mass customization in an increasing number ot industries.
Although it is not appropriate for all products and implementing it can be challenging,
mass customization has become increasingly common in manufacturing products.92 Online
ordering has enhanced customers’ ability to buy customized products. Companies manu
facturing customized products learn how to respond quickly to customers’ needs in lieu of
developing scale economies.
Product Differentiation Over time, customers may come to believe that a firm’s prod
uct is unique. This belief can result from the firm’s service to the customer, effective adver
tising campaigns, or being the first to market a good or service. Greater levels of perceived
product uniqueness create customers who consistently purchase a firm’s products. To com
bat the perception of uniqueness, new entrants frequently offer products at lower prices.
This decision, however, may result in lower profits or even losses.
As noted in the Opening Case, Coca-Cola Company and PepsiCo have established
strong brands in the markets in which they compete, and these companies compete
against each other in countries throughout the world. Because each of these competitors
has allocated a significant amount of resources over many decades to build its brands, cus
tomer loyalty is strong for each firm. When considering entry into the soft drink market,
a potential entrant would be well advised to pause to determine actions it would take for
the purpose of trying to overcome the brand image and consumer loyalty each of these
giants possess.
Capital Requirements Competing in a new industry requires a firm to have resources
to invest. In addition to physical facilities, capital is needed for inventories, marketing activi
ties, and other critical business functions. Even when a new industry is attractive, the capital
required for successful market entry may not be available to pursue the market opportunity.9’
For example, defense industries are difficult to enter because of the substantial resource
investments required to be competitive. In addition, because of the high knowledge require
ments of the defense industry, a firm might acquire an existing company as a means of enter
ing this industry, but it must have access to the capital necessary to do this.
Switching Costs Switching costs are the one-time costs customers incur when they buy
from a different supplier. The costs of buying new ancillary equipment and of retraining
employees, and even the psychic costs of ending a relationship, may be incurred in switch
ing to a new supplier. In some cases, switching costs are low, such as when the consumer
switches to a different brand of soft drink. Switching costs can vary as a function of time
as shown by the fact that in terms of credit hours toward graduation, the cost to a student
to transfer from one university to another as a freshman is much lower than it is when the
student is entering the senior year.
Occasionally, a decision made by manufacturers to produce a new, innovative product
creates high switching costs for customers. Customer loyalty programs, such as airlines’ fre
quent flyer miles, are intended to increase the customer’s switching costs. If switching costs
Chapter 2: The External Environment Opportunities, Threats, Industry Competition, and Competitor Analysis
are high, a new entrant must offer either a sub
stantially lower price or a much better product
to attract buyers. Usually, the more established
the relationships between parties, the greater the
switching costs.
Access to Distribution Channels Over time,
industry participants commonly learn how to
effectively distribute their products. Once a
relationship with its distributors has been built
a firm will nurture it, thus creating switching
costs for the distributors. Access to distribution
channels can be a strong entry barrier for new
entrants, particularly in consumer nondurable
goods industries (e.g., in grocery stores where
shelf space is limited) and in international mar
kets. New entrants have to persuade distributors
to carry their products, either in addition to or in
place of those currently distributed. Price breaks
and cooperative advertising allowances may be
used for this purpose; however, those practices
reduce the new entrant’s profit potential. Interestingly, access to distribution is less of a bar
rier for products that can be sold on the Internet.
Cost Disadvantages Independent of Scale Sometimes, established competitors have
cost advantages that new entrants cannot duplicate. Proprietary product technology, favor
able access to raw materials, desirable locations, and government subsidies are examples.
Successful competition requires new entrants to reduce the strategic relevance of these fac
tors. For example, delivering purchases directly to the buyer can counter the advantage of
a desirable location; new food establishments in an undesirable location often follow this
practice. Zara is owned by Inditex, the largest fashion clothing retailer in the world.9,1 From
the time of its launching, Spanish clothing company Zara relied on classy, well-tailored, and
relatively inexpensive items that were produced and sold by adhering to ethical practices to
successfully enter the highly competitive global clothing market and overcome that market’s
entry barriers.9"
Government Policy Through their decisions about issues such as the granting of
licenses and permits, governments can also control entry into an industry. Liquor retail
ing, radio and TV broadcasting, banking, and trucking are examples of industries in which
government decisions and actions affect entry possibilities. Also, governments often restrict
entry into some industries because of the need to provide quality service or the desire to
protect jobs. Alternatively, deregulating industries such as the airline and utilities industries
in the United States, generally results in additional firms choosing to enter and compete
within an industry.96 Governmental decisions and policies regarding antitrust issues also
affect entry barriers. For example, in the United States, the Antitrust Division of the Justice
Department or the Federal Trade Commission will sometimes disallow a proposed merger
because officials conclude that approving it would create a firm that is too dominant in an
industry and would thus create unfair competition.97 Such a negative ruling would obviously
be an entry barrier for an acquiring firm.
Expected Retaliation
Companies seeking to enter an industry also anticipate the reactions of firms in the indus
try. An expectation of swift and vigorous competitive responses reduces the likelihood of
entry. Vigorous retaliation can be expected when the existing firm has a major stake in the
55
Part 1: Strategic Management Inputs
56
industry (e.g., it has fixed assets with few, if any, alternative uses), when it has substantial
resources, and when industry growth is slow or constrained. For example, any firm attempt
ing to enter the airline industry can expect significant retaliation troin existing competitors
due to overcapacity.
Locating market niches not being served by incumbents allows the new entrant to avoid
entry barriers. Small entrepreneurial firms are generally best suited tor identifying and serv
ing neglected market segments. When Honda first entered the U.S. motorcycle market, it
concentrated on small-engine motorcycles, a market that firms such as Harley-Davidson
ignored. By targeting this neglected niche, Honda initially avoided a significant amount ot
head-to-head competition with well-established competitors. After consolidating its posi
tion, Honda used its strength to attack rivals by introducing larger motorcycles and compet
ing in the broader market.
2-4b Bargaining Power of Suppliers
Increasing prices and reducing the quality of their products are potential means suppliers
use to exert power over firms competing within an industry. If a firm is unable to recover
cost increases by its suppliers through its own pricing structure, its profitability is reduced
by its suppliers’ actions. A supplier group is powerful when
It is dominated by a few large companies and is more concentrated than the industry
to which it sells.
Satisfactory substitute products are not available to industry firms.
Industry firms are not a significant customer for the supplier group.
Suppliers’ goods are critical to buyers’ marketplace success.
The effectiveness of suppliers’ products has created high switching costs for industry
firms.
It poses a credible threat to integrate forward into the buyers’ industry. Credibility is
enhanced when suppliers have substantial resources and provide a highly differentiated
product.
The airline industry is one in which suppliers’ bargaining power is changing. Though
the number of suppliers is low, the demand for major aircraft is also relatively low. Boeing
and Airbus aggressively compete for orders of major aircraft, creating more power for buy
ers in the process. When a large airline signals that it might place a “significant” order for
wide-body airliners that either Airbus or Boeing might produce, both companies are likely
to battle for the business and include a financing arrangement, highlighting the buyer’s
power in the potential transaction.
2-4c Bargaining Power of Buyers
Firms seek to maximize the return on their invested capital. Alternatively, buyers (custom
ers of an industry or a firm) want to buy products at the lowest possible price—the point
at which the industry earns the lowest acceptable rate of return on its invested capital. To
reduce their costs, buyers bargain for higher quality, greater levels of service, and lower
prices.1'8 These outcomes are achieved by encouraging competitive battles among the indus
try’s firms. Customers (buyer groups) are powerful when
They purchase a large portion of an industry’s total output.
The sales of the product being purchased account for a significant portion of the seller’s
annual revenues.
They could switch to another product at little, if any, cost.
The industry’s products are undifferentiated or standardized, and the buyers pose a
credible threat if they were to integrate backward into the sellers’ industry.
Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
57
Consumers armed with greater amounts of information about the manufacturers costs and
the power of the Internet as a shopping and distribution alternative have increased bargain
ing power in many industries.
2-4d Threat of Substitute Products
Substitute products are goods or services from outside a given industry that perform simi
lar or the same functions as a product that the industry produces. For example, as a sugar
substitute, NutraSweet (and other sugar substitutes) places an upper limit on sugar manu
facturers’ prices—NutraSweet and sugar perform the same function, though with different
characteristics. Other product substitutes include e-mail and fax machines instead of over
night deliveries, plastic containers rather than glass jars, and tea instead of coffee.
Newspaper firms have experienced significant circulation declines over the past decade
or more. The declines are a result of the ready availability of substitute outlets for news
including Internet sources, cable television news channels, and e-mail and cell phone alerts.
Likewise, satellite TV and cable and telecommunication companies provide substitute ser
vices for basic media services such as television, Internet, and phone. Tablets such as the
iPad are reducing the number of PCs sold as suggested by the fact that worldwide shipments
of PCs declined 14 percent during the first quarter of 2013 compared to the same quarter a
year earlier. At the same time, “tablets like Apple’s iPad flew off the shelves.”99
In general, product substitutes present a strong threat to a firm when customers face
few if any switching costs and when the substitute product’s price is lower or its quality
and performance capabilities are equal to or greater than those of the competing product.
Differentiating a product along dimensions that are valuable to customers (such as quality,
service after the sale, and location) reduces a substitute’s attractiveness.
2-4e Intensity of Rivalry among Competitors
Because an industry’s firms are mutually dependent, actions taken by one company usu
ally invite responses. In many industries, firms actively compete against one another.
Competitive rivalry intensifies when a firm is challenged by a competitors actions or when
a company recognizes an opportunity to improve its market position.
Firms within industries are rarely homogeneous; they differ in resources and capabili
ties and seek to differentiate themselves from competitors. Typically, firms seek to differen
tiate their products from competitors’ offerings in ways that customers value and in which
the firms have a competitive advantage. Common dimensions on which rivalry is based
include price, service after the sale, and innovation.
Next, we discuss the most prominent factors that experience shows affect the intensity
of rivalries among firms.
Numerous or Equally Balanced Competitors
Intense rivalries are common in industries with many companies. With multiple com
petitors, it is common for a few firms to believe they can act without eliciting a response.
However, evidence suggests that other firms generally are aware of competitors’ actions,
often choosing to respond to them. At the other extreme, industries with only a few
firms of equivalent size and power also tend to have strong rivalries. The large and often
similar-sized resource bases of these firms permit vigorous actions and responses. The
competitive battles between Airbus and Boeing exemplify intense rivalry between rela
tively equal competitors, especially as airlines place bids for the new wide-body planes
they are producing. As discussed in the Opening Case, Coca-Cola Company and PepsiCo
have a strong rivalry in an array of liquid drinks as consumers demand great taste and
real health benefits.100
J
i
Learn more about
Substitute Products.
www.cengagebrain.com
Part 1 Strategic Management Inputs
Slow Industry Growth
When a market is growing, firms try to effectively use resources to serve an expanding cus
tomer base. Markets increasing in size reduce the pressure to take customers from competi
tors. However, rivalry in no-growth or slow-growth markets becomes more intense as firms
battle to increase their market shares by attracting competitors’ customers. Certainly, this
has been the case in the fast-food industry as McDonalds, Wendy’s, and Burger King use
their resources, capabilities, and core competencies to try to win each other’s customers.101
The instability in the market that results from these competitive engagements may reduce
the profitability for all firms engaging in such battles.
High Fixed Costs or High Storage Costs
When fixed costs account for a large part of total costs, companies try to maximize the use
of their productive capacity. Doing so allows the firm to spread costs across a larger volume
of output. However, when many firms attempt to maximize their productive capacity, excess
capacity is created on an industry-wide basis. To then reduce inventories, individual compa
nies typically cut the price of their product and offer rebates and other special discounts to
customers. However, doing this often intensifies competition. The pattern of excess capacity
at the industry level followed by intense rivalry at the firm level is frequently observed in
industries with high storage costs. Perishable products, for example, lose their value rapidly
with the passage of time. As their inventories grow, producers of perishable goods often use
pricing strategies to sell products quickly.
Lack of Differentiation or Low Switching Costs
When buyers find a differentiated product that satisfies their needs, they frequently pur
chase the product loyally over time. Industries with many companies that have successfully
differentiated their products have less rivalry, resulting in lower competition for individual
firms. Firms that develop and sustain a differentiated product that cannot be easily imitated
by competitors often earn higher returns. However, when buyers view products as com
modities (i.e., as products with few differentiated features or capabilities), rivalry intensi
fies. In these instances, buyers’ purchasing decisions are based primarily on price and, to a
lesser degree, service. Personal computers are a commodity product and the cost to switch
from a computer manufactured by one firm to another is low. Thus, the rivalry among Dell,
Hewlett-Packard, Lenovo, and other computer manufacturers is strong as these companies
consistently seek to find ways to differentiate their offerings.
High Strategic Stakes
Competitive rivalry is likely to be high when it is important for several of the competitors
to perform well in the market. Competing in diverse businesses (such as semiconductors,
petrochemicals, fashion, medicine, and skyscraper and plant construction, among others),
Samsung has now become a formidable foe for Apple in the global smartphone market.
Samsung has committed a significant amount of resources to develop innovative products
as the foundation for its efforts to try to outperform Apple in selling this particular product.
The fact that the end of the first quarter of 2013 found Samsung holding 33 percent of the
global smartphone market compared to an 18 percent share for Apple seemed to suggest
that the firm’s commitment was yielding desirable outcomes.102 However, this market is
extremely important to Apple as well, suggesting that the smartphone rivalry between these
two firms (along with others) will remain quite intense.
High strategic stakes can also exist in terms of geographic locations. For example, a num
ber of automobile manufacturers have committed or are committing to establishing manu
facturing facilities in China, which has been the world’s largest car market since 2009.103
General Motors recently announced that it received permission from Chinese authorities
Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
to build an 8 billion yuan ($1.3 billion) factory to manufacture its Cadillac brand. The
Shanghai GM joint venture is to build this facility.104 Because of the high stakes involved
in China for both General Motors and other firms producing luxury cars (including Audi,
BMW, and Mercedes-Benz), rivalry among these firms in this market is quite intense.
High Exit Barriers
Sometimes companies continue competing in an industry even though the returns on their
invested capital are low or negative. Firms making this choice likely face high exit barriers,
which include economic, strategic, and emotional factors causing them to remain in an
industry when the profitability of doing so is questionable.
Exit barriers are especially high in the airline industry. Profitability in this industry has
been very difficult to achieve since the start of the latest global financial crisis (beginning
in roughly late 2007 or early 2008). However, profits in the airline industry were expected
to increase by approximately 40 percent in 2013 compared to 2012. Industry consolidation
and efficiency enhancements to how airline alliances integrate their activities helped reduce
airline companies’ costs while improving economic conditions in a number of countries.
This resulted in a greater demand for travel. These are positive signs, at least in the short
run, for these firms given that they do indeed face very high barriers if they were to con
template leaving the airline travel industry.105 Common exit barriers that firms face include
the following:
Specialized assets (assets with values linked to a particular business or location)
Fixed costs of exit (such as labor agreements)
Strategic interrelationships (relationships of mutual dependence, such as those between
one business and other parts of a company’s operations, including shared facilities and
access to financial markets)
Emotional barriers (aversion to economically justified business decisions because of fear
for one’s own career, loyalty to employees, and so forth)
Government and social restrictions (often based on government concerns for job losses
and regional economic effects; more common outside the United States).
2-5 Interpreting Industry Analyses
Effective industry analyses are products of careful study and interpretation of data and
information from multiple sources. A wealth of industry-specific data is available for firms
to analyze for the purpose of better understanding an industry’s competitive realities.
Because of globalization, international markets and rivalries must be included in the firm’s
analyses. And, because of the development of global markets, a country’s borders no longer
restrict industry structures. In fact, in general, entering international markets enhances the
chances of success for new ventures as well as more established firms.106
Analysis of the five forces within a given industry allows the firm to determine the
industry’s attractiveness in terms of the potential to earn average or above-average returns.
In general, the stronger the competitive forces, the lower the potential for firms to generate
profits by implementing their strategies. An unattractive industry has low entry barriers,
suppliers and buyers with strong bargaining positions, strong competitive threats from
product substitutes, and intense rivalry among competitors. These industry characteristics
make it difficult for firms to achieve strategic competitiveness and earn above-average
returns. Alternatively, an attractive industry has high entry barriers, suppliers and buy
ers with little bargaining power, few competitive threats from product substitutes, and
relatively moderate rivalry.107 Next, we explain strategic groups as an aspect of industry
competition.
59
60
Part 1 Strategic Management Inputs
2-6 Strategic Groups
A set of firms emphasizing similar strategic dimensions and using a similar strategy is called
a strategic group.108 The competition between firms within a strategic group is greater
than the competition between a member of a strategic group and companies outside that
Find out more
about Mercedes.
www.cengagebrain.com
strategic group. Therefore, intra-strategic group competition is more intense than is interstrategic group competition. In fact, more heterogeneity is evident in the performance
of firms within strategic groups than across the groups. The performance leaders within
groups are able to follow strategies similar to those of other firms in the group and yet main
tain strategic distinctiveness as a foundation for earning above-average returns.I0,i
The extent of technological leadership, product quality, pricing policies, distribution
channels, and customer service are examples of strategic dimensions that firms in a strate
gic group may treat similarly. Thus, membership in a particular strategic group defines the
essential characteristics of the firm’s strategy.110
The notion of strategic groups can be useful for analyzing an industry’s competitive
structure. Such analyses can be helpful in diagnosing competition, positioning, and the
profitability of firms competing within an industry.1" High mobility barriers, high rivalry,
and low resources among the firms within an industry limit the formation of strategic
groups.112 However, after strategic groups are formed, their membership remains relatively
stable over time.113 Using strategic groups to understand an industry’s competitive struc
ture requires the firm to plot companies’ competitive actions and responses along strategic
dimensions such as pricing decisions, product quality, distribution channels, and so forth.
This type of analysis shows the firm how certain companies are competing similarly in
terms of how they use similar strategic dimensions.
Strategic groups have several implications. First, because firms within a group offer
similar products to the same customers, the competitive rivalry among them can be intense.
The more intense the rivalry, the greater the threat to each firms profitability. Second, the
strengths of the five forces differ across strategic groups. Third, the closer the strategic groups
are in terms of their strategies, the greater is the likelihood of rivalry between the groups.
German-based car manufacturers Audi (a part of the Volkswagen group), Bayerische
Motoren Werke AG (BMW), and Daimler-Benz (Mercedes-Benz) implement similar strate
gies (based on the differentiation business-level strategy), emphasize similar strategic dimen
sions, and compete aggressively against each other. These three firms constitute a strategic
group (in the performance/luxury segment) as do Maruti-Suzuki, Tata Motors, and Skoda
(these three firms form a passenger car strategic group with the distinctive feature that they
sell their products primarily in their domestic markets and very little internationally). We
describe the strategic group featuring the three German companies in the Strategic Focus.
2-7 Competitor Analysis
The competitor environment is the final part of the external environment requiring study.
Competitor analysis focuses on each company against which a firm competes directly.
Coca-Cola Company and PepsiCo, Home Depot and Lowe’s, Carrefour SA and Tesco PLC,
and Boeing and Airbus are examples of competitors who are keenly interested in under
standing each others objectives, strategies, assumptions, and capabilities. Indeed, intense
rivalry creates a strong need to understand competitors.114 In a competitor analysis, the firm
seeks to understand the following:
A set of firms emphasizing
similar strategic dimensions
and using a similar strategy
is called a strategic group
What drives the competitor, as shown by its future objectives
What the competitor is doing and can do, as revealed by its current strategy
Chapter 2 The External Environment Opportunities. Threats. Industry Competition, and Competitor Analysis
Strategic Focus
61
GLOBALIZATION
German Performance/Luxury Cars: If You Have Seen One, Have You Seen Them All?
Audi, BMW, and Mercedes-Benz (Mercedes) have long com
peted against each other in the performance/luxury segment
of the automobile industry. Given that they implement similar
strategies in many of the same markets throughout the world
and emphasize similar dimensions to do so, these firms form
a strategic group. This means that the rivalry within this group
is more intense than is the rivalry between members of this
group and companies offering products that are intended to
functionally serve and satisfy a mass-market appeal among
large customer groups. One could even argue that three substrategic groups exist for these firms in that each offers prod
ucts in the large, mid-size, and small parts of the performance/
luxury segment. (Think of the Audi S8 versus the BMW 7 series
versus the S Mercedes series as products through which these
firms compete against each other in terms of large perfor
mance/luxury cars.)
The similarities among these firms as they compete are exten
sive. For example, the Chinese and U.S. markets are critical to their
The 2014 CLA 45 AMG Mercedes-Benz is presented at the New
York International Auto Show in New York's Javits Center in
March 2013. The new addition to Mercedes-Benz' product mix is
aimed at customers typically targeted by mass market brands.
success. With respect to China, an analyst recently noted that
“BMW, Audi and Daimler's Mercedes-Benz units have benefited as
States, and other countries as well. Because of this, the three of
China's fast-growing wealthy population has flocked to high-end
them recently joined a few other companies to develop a Web
cars in recent years." In response to this growth in demand for
site (www.clearlybetterdiesel.org) that touts diesel's benefits of
their products, all three firms are investing billions of dollars to
superior fuel economy and a reduced environmental impact. To
expand production and their sales operations In China.
better serve the needs of younger consumers, all three compa
For the U.S. market, the firms are introducing new models that
nies are're-thinking everything from dashboard entertainment
are intended to significantly expand their sales. One way these
systems to the relative importance of mileage over horsepower to
competitors are doing this is to offer "lower priced models that
fundamental marketing strategies." An initial outcome from these
would draw younger, less affluent U.S. customers away from mass
evaluation processes is a decision to include smartly presented,
market brands such as Ford Motor Co., Honda Motor Co., and
smartphone-driven multimedia systems in models being devel
Toyota Motor Corp.” A lower-cost version of the A3 sedan is Audi's
oped for the U.S. market.
initial offering to reach this objective. BMW has developed a new
As is often the case with strategic groups, the one among
version of its top-selling 3 series sedan (the 320) that will have a
Audi, BMW, and Mercedes has remained stable over the years. As
base price roughly $4,000 below the currently least expensive car
such, we can anticipate that the rivalry among them will remain
in this series. Similarly, Mercedes intends to offer the CLA, which is
intense as they rely on similar strategic dimensions to implement
a 4-cyclinder car with a base price just below $30,000. Essentially,
similar strategies.
introducing these products is a strong attempt by the three firms
to lower price as an entry barrier to...