wahddya mean no diff in industry? a company could cut costs so much they are heinous to deal with… or cut anything else… basically they could jus tprovide a way shittier service… definitely diff prox imo
This was the dumbest question on the exam - I’ve seen cost parity and differentiation parity, but they used the term “proximity.” Is that in the CFAI text? Anyhow, I figured because they were saying transport costs were the biggest determination of value created by a company, and that they used LOCAL suppliers (which would cut down these costs due to closeness/proximity) that the greatest risk would be to lose their cost proximity. Make any sense?
This company was dealing scrap material. Is differentiation a big concern here? Who knows what the correct answer is?
I believe it was the risk of losing cost proximity. The text clearly stated that as a result of govt regulation costs were expected to increase significantly. Ergo, for a differentiator or not in a cut-throat industry, there’s very high of losing this cost proximity that’s essential.
No sterling, they are cost LEADER so in fact they are producing cheaper than the rest. To make sure they keep value they must deliver differentiation parity so losing that is the biggest threat. I’m pretty sure this was loss of differentiation parity.
The firm is a cost leader, and the risk is losing differentiation parity (proximity). Thats it. Cost parity is not an issue with cost leaders, in fact it is an oxymoron.
Yp, diff. parity for sure.
Forget it - the answer is differentiation proximity… if I read the CFAI text, like I should have, you see that they use parity and proximity interchangably. Ok - I’m agreed on differentiation parity - but that’s the same as proximity? I never saw the term proximity used with these so I thought they were getting at some other obscure breakdown of Porter’s they had somewhere…
why would it be differentiation proximity? again, the text said it was always an advantage to be close to resources (or something like that) b/c of transportation costs etc… If your costs go up b/c of regulation, and you lose that advantage, in an industry with strong competition, you basically invite others on your turf.
Lumiere_1979 Wrote: ------------------------------------------------------- > why would it be differentiation proximity? again, > the text said it was always an advantage to be > close to resources (or something like that) b/c of > transportation costs etc… If your costs go up > b/c of regulation, and you lose that advantage, in > an industry with strong competition, you basically > invite others on your turf. The answer diff prox. is right because they ARE the cost leader. The RISK to a cost leader is not having diff prox. Don’t worry, I got it wrong too!
I don’t think the answer is diff prox. There is no diff mentioned in the problem. I chose the last answer: a firm more cost efficient will dominate the segment. Since the last paragraph in the case mentioned that the cost will be likely to increase and since the industry is a capital intensive industry only firm which can achieve economics of scale can survive in the future and push out other firms. There is no differention at all here. Who can figure out the firm need differetiation to stand out? What matters here is cost, cost, cost!
It’s definitely differentiation proximity. The firm was focused on being the low cost producer. The risk is that other producers will differentiate and pull away customers by offering better service.
>I don’t think the answer is diff prox. There is no diff mentioned in the problem… No mentioning of diff means no diff prox?! Check the book.
they were tyhe low cost leader therefore differntion is there concern - go to the CFAI texta and look at the box with the competitive strategies. the answer was definitely differentain prox.
yep
The information in the case will not support diff proximity lost even if diff proximity will be a problem for cost leadership strategy. But according to the information offered in the case, the increasing regulation pressure and energy will increase the cost of the firm, while other more capital intensive firms with larger economics of scale will win during the cost drift process. On the other hand, who can tell me the difference between cost leadership and cost focus? The difference between them is very vague, esp. in this case.
It’s only 1 point 
Diff parity…asked the most common risk of that strategy, not the metal companies…tried to trick ya.
for once and for all, CFAI text clearly states, page 181 of the asset val volume, there is a chart that says the risk of cost leadership is proximity in differentiation is lost. so there.
DIFF PROX - 100%.