Reading 39: The Five Competitive Forces that Shape Strategy- ability, industry, structure, advantage, 2011

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Session 11: Equity Valuation: Industry and Company Analysis in a Global Context
Reading 39: The Five Competitive Forces that Shape Strategy

LOS e: Show how positioning a company, exploiting industry change, and the ability to shape industry structure are creative strategies for achieving a competitive advantage.

 

 

According to Porter, there are two fundamental questions that determine competitive strategy. Of these two questions, the one that the firm has the most control over is whether the:

A) industry is profitable.

B) firm can position itself to have a competitive advantage.

C) industry is attractive.

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The firm typically has little control over the industry’s long-term attractiveness, but it has a great deal of control over its choice of competitive position.

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Zanzibar Zanies, a novelties manufacturer, faces a number of competitive problems. It decides to use the six-step process to determine how Porter’s five forces affect its industry. Zanzibar just finished identifying competitors, buyers, suppliers, potential entrants, and potential substitutes. The next step is to:

A) assess possible changes in each force.

B) analyze the industry structure and determine how each of the five forces affect pricing.

C) determine the strength or weakness of each of the five forces.

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The process of identifying competitors, buyers, suppliers, potential entrants, and substitutes is Step 2 of the process. Step 3 is to determine the strength or weakness of the forces.

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The choice of competitive strategy is driven by two fundamental questions. These fundamental questions involve:

A) industry attractiveness and profitability.

B) industry attractiveness and competitive advantage.

C) competitive advantage and industry growth.

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According to Porter, the two key questions in determining a competitive strategy involve industry attractiveness and competitive advantage.

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Automation can help a firm improve its competitive position by affecting:

A) new entrants to the industry.

B) suppliers’ bargaining power.

C) the threat of substitutes.

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Automating production can make it more expensive for rivals to enter the market, increasing the width of a company’s economic moat. Automation on its own will not affect the threat of substitutes or increase suppliers’ bargaining power.