Chapter 3 Lecture 4 PDF

Chapter 3 Conducting a Feasibility Analysis and Designing a Business Model Lecture 4 Copyright © 2016 Pearson Education, Inc. 4-1 Copyright © 2016 Pearson Education, Inc 4-2 After evaluating the macro environment, the entrepreneur changes focus to the more immediat...

Chapter 3 Conducting a Feasibility Analysis and Designing a Business Model Lecture 4 Copyright © 2016 Pearson Education, Inc. 4-1 Copyright © 2016 Pearson Education, Inc 4-2 After evaluating the macro environment, the entrepreneur changes focus to the more immediate competitive environment A useful too for analyzing a specific industry’ attractiveness within the competitive environment is the Five Forces Model developed by Michael Porter Ch. 4: Feasibility Analysis & Business Plan 4-3  The five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry: 1. Rivalry (‫ )منافسة‬among companies in the industry 2. Bargaining (‫ )مساومة‬power of suppliers 3. Bargaining power of buyers 4. Threat of new entrants 5. Threat of substitute products or services Copyright © 2016 Pearson Education, Inc 4-4 Copyright © 2016 Pearson Education, Inc 4-5 The strongest of the five forces Industry is more attractive when:  Number of competitors is large, or, at the other extreme, quite small (< 5)  Competitors are not similar in size or capacity  Industry is growing fast  Opportunity to sell a differentiated product or service exists Copyright © 2016 Pearson Education, Inc 4-6 (continued from 4-17) Copyright © 2016 Pearson Education, Inc 4-7 The greater the leverage of suppliers of key raw material or components, the less attractive the industry. Industry is more attractive when:  Many suppliers sell a commodity product  Substitutes are available Copyright © 2016 Pearson Education, Inc 4-8  Companies find it easy to switch from one supplier to another or substitute product (Switching costs are low)  Items account for a small portion of the cost of finished products Ch. 4: Feasibility Analysis & Business Plan 4-9 (continued from 4-19) Copyright © 2016 Pearson Education, Inc 4 - 10 Buyers’ influence is high when number of customers is small and cost of switching to a competitor’s product is low. Industry is more attractive when:  Customers’ switching costs to competitors’ products are high  Number of buyers is large Copyright © 2016 Pearson Education, Inc 4 - 11  Customers want differentiated products rather than purchase commodity products they can obtain from any supplier  Customers find it difficult to collect information on suppliers’ costs, prices, and product features (for comparison)  Items companies sell to the industry account for a small portion of customers’ finished products Ch. 4: Feasibility Analysis & Business Plan 4 - 12