Shaping Strategy

How competitive forces shape strategy

I. 6 sources of barriers to entry

1. economies of scale

2. product differentiation- must spend lots to overcome customer loyalty

3. capital requirements- huge capital for comp manufacturing limits entrants

4. cost disadvantages independent of size- entrenched companies have advantages (learning curve, access, gov subsides etc.)

5. access to distribution channels- existing companies may have those tied up

6. government policy- may limit entry to industries like raw materials and ski resorts

II. However...

1. things change- patent lost, new needs

2. decisions by large segment of an industry can have a major impact on conditions determining threat to entry- auto industry decide to vertically integrate

3. can also have powerful suppliers who squeeze profit out of industry (depends on their importance)

4. powerful buyers (price sensitive, expensive, don't care about quality)

III. Companies can improve position by finding suppliers/ buyers who have least power

IV. substitute products can put damper on companies profitability, especially if they price performance trade off is attractive

V. Companies try to fight for position through price, product and advertising, But if it can't compete anymore, acquisition introduces something new, creates a shift.

VI. Formulating strategy

1. position company

a. strategy can be viewed as building defense against competitive forces or as finding positions in the industry where the forces are weakest

b. Dr