2 hours out, but here is a summary of the readings. Session 11 | Reading 38 LOS Explanation Two central questions provide the basis for the firm’s choice of a competitive strategy: Industry attractiveness: Is the industry attractive in terms of long-term profitability potential? Competitive advantage: What determines a firm’s relative competitive position within an industry? These can be analyzed through Porter’s Five Forces: Threat of new entrants. Threat of substitutes. Bargaining power of buyers. Bargaining power of suppliers. Rivalry among existing competitors. The attractiveness or profitability of any industry is determined by the interaction of the following five competitive forces (Porter’s Five Forces): Entry of new competitors: Analyze threat of new entrants/entry barriers. Threat of substitutes: Relative price of substitutes and switching costs. Bargaining power of buyers: Influences prices that firms can charge. Bargaining power of suppliers: Determines costs of raw materials and other inputs. Rivalry among existing competitors: Look at industry growth, product differences, brand identity, and switching costs. LOS Explanation Not all factors that affect an industry are considered one of Porter’s Five Forces. For example, industry growth rate, technology and innovation, government, and complementary products and services are transient factors that do not have a clear-cut impact on profitability. These should be evaluated in terms of their influence on Porter’s Five Forces. LOS Explanation Eliminating rivals is a risky strategy because the increased industry profits are likely to attract new competitors. The entry of new competitors into the industry will eventually cause an increase in rivalry among competitors in the industry—one of Porter’s Five Forces—and reduce industry attractiveness in the long term LOS Explanation A firm’s strategic alternatives should consider how the firm can use the five forces in its favor. These include: Positioning the company where the five forces appear to be the weakest. Projecting changes in the forces and exploiting industry changes that result. Inducing changes in the industry structure that will play to the strengths of the firm (where its factor exposure is weakest).
Do we have Equities at L2?
Sweet, I found a better way to put up questions. Enjoy, I’ll put the answer sheet up at my lunchtime 
The Five Competitive Forces that Shape Strategy -------------------------------------------------------------------------------- Question 1 - 96265 Daniel Tipton and Jesse Torrez are first-year MBA students at the Haas School of Business. Torrez has an economics background, but Tipton’s background is in music. To help Tipton study one of the main tenets of competition theory, Torrez creates the following question and asks Tipton to identify the statement that is most inconsistent with Porter’s five forces. Which statement should Tipton select? A) Supplier power is higher when there are only a few suppliers to an industry. B) Porter’s five forces are: rivalry among current competitors, economies of scale, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers. C) To sustain above average returns on invested capital, firms should strive for economies of scale. -------------------------------------------------------------------------------- Question 2 - 96210 An industry that manufactures and sells a commodity-like product will face increased competition primarily because of greater: A) threat of substitute products. B) bargaining power of buyers. C) threat of new entrants. -------------------------------------------------------------------------------- Question 3 - 96224 Which of the following is NOT one of Porter’s five factors determining the intensity of competition within an industry? A) Threat of substitute products. B) Bargaining power of the firm’s creditors. C) Rivalry among existing competitors. -------------------------------------------------------------------------------- Question 4 - 88616 For pharmaceutical companies, the time it takes to get a drug through the clinical trials, regulatory approval and finally to the market is approximately 12 years. In a competitive strategy analysis, this lengthy pre-product period would raise concerns about the: A) threat of substitutes. B) rivalry among existing suppliers. C) bargaining power of buyers. -------------------------------------------------------------------------------- Question 5 - 88602 Which one of the following is least likely a competitive force according to Porter’s article? A) Bargaining power of buyers. B) Entry of new competitors. C) Availability of resources such as cheap labor. -------------------------------------------------------------------------------- Question 6 - 88605 According to Porter’s Five Forces, which of the following should least likely be considered when analyzing a firm’s competitive strategy? A) The bargaining power of suppliers. B) The bargaining power of employees. C) The bargaining power of buyers. -------------------------------------------------------------------------------- Question 7 - 88639 While Joseph Donovan, CFA, was interviewing Gene Hickman, the CEO of Hickman Supply, Hickman made the following comments on the auto supply industry: Auto manufacturers are relying on Tier 1 suppliers for more and more sub-assembly work and quality control and testing. The additional subassembly work facilitates specialization among suppliers and allows them to resell their expertise to other auto manufacturers. The additional subassembly work requires additional capital investment and risk taking by the suppliers. Given these statements, Donovan is most likely to conclude that barriers to entry to the auto supply industry have increased due to: A) Statements 1 and 2 only. B) Statements 2 and 3 only. C) Statements 1 and 3 only. -------------------------------------------------------------------------------- Question 8 - 88640 Mary Moore is preparing a report on the commercial banking industry. As she gleaned information from the competitors annual reports she encountered the following statements in the CEO’s letters to their shareholders and the Management Discussion and Analysis (MD&A) section: William Spencer, CEO of Western Banks, stated in the MD&A: “Consolidation within the industry will continue at its current pace, or perhaps accelerate, as banking concerns seek to increase their presence and market share.” Margaret Acosta, CEO of Southwest Banking, stated in her letter to the shareholders: “Competition is becoming increasingly diverse as banks continue to increase in size and offer products ranging from insurance and mutual funds to high tech interaction with customers.” Maria Bellini, CEO of Atlantic Mercantile Banks, noted in the MD&A that: “Cost advantages in most traditional banking activities seem to be mostly gone now, which will impact the industry future profitability.” Moore is most likely to report that the commercial banking industry has high rivalry among competitors based on: A) Margaret and Maria’s statements only. B) William and Maria’s statements only. C) William and Margaret’s statements only.
Question 1 - 96265 A? Question 2 - 96210 A Question 3 - 96224 B Question 4 - 88616 A Question 5 - 88602 C Question 6 - 88605 B Question 7 - 88639 C Question 8 – 88640 C
1 A. 2 A 3 B 4 A 5 C 6 B 7 B 8 C
1 B 2 A 3 B 4 A 5 C 6 B 7 C 8 C (?)
- b 2. c 3. b 4. a 5. c 6. b 7. b 8. c
- B 2. A 3. B 4. A 5. C 6. B 7. B 8. B
Q1- B) Porter’s five forces are: rivalry among current competitors, economies of scale, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers. Q2- A) threat of substitute products. Q3- B) Bargaining power of the firm’s creditors. Q4- A) threat of substitutes. Q5- C) Availability of resources such as cheap labor. Q6- B) The bargaining power of employees. Q7- C) Statements 1 and 3 only. Q8- A) Margaret and Maria’s statements only.
I just tried to get the answer sheet up for you all and my Qbank crashed. Now the questions are all randomized. Who is certain they are right, it would take me awhile to get all the answers.
This is yet another opportunity demonstrating Threat of Substitutes.
Industry Analysis -------------------------------------------------------------------------------- Question 1 - 88720 Which of the following factors would least likely be considered while an analyst is performing an industry demand and supply analysis? A) Availability of property and casualty insurance coverage in the event plant capacity in the industry is affected by natural disasters such as earthquakes and floods. B) Short-term imbalances between demand and supply. C) Extent of foreign imports. -------------------------------------------------------------------------------- Question 2 - 88646 Infomaster Inc. is a financial web portal company that collects and translates financial news releases into Chinese for Chinese readers worldwide. The technology platform that Infomaster developed several years ago is now operating smoothly. Nevertheless from time to time, there are a few flaws in the system. Currently Infomaster is aggressively marketing its products via financial forums and investor websites. Last year, Infomaster was able to earn a small profit. Part 1) Which stage of the industry cycle is Infomaster operating in? A) Mature. B) Growth. C) Pioneer. Part 2) Which of the following external forces have the most favorable impact on Infomaster? A) Widespread use of the Internet among Chinese investors to read financial news. B) Technological innovations that encourage new product development. C) Aging baby-boomers have higher disposable incomes to invest. Part 3) In conducting a demand and supply analysis of Infomaster’s industry, which of the following is least likely a factor to consider? A) Software that can translate English into Chinese. B) The current availability of Chinese financial news on the Internet. C) Both of the choices listed are factors to consider. -------------------------------------------------------------------------------- Question 3 - 88734 Which of the following elements least likely belongs in an industry analysis model? A) The Life Cycle Phase. B) An industry dividend payout ratio. C) A macroeconomic forecast. -------------------------------------------------------------------------------- Question 4 - 88724 Which of the following types of industries is typically characterized by profitability tracking the business cycle, often in an exaggerated manner? A) Counter-cyclical. B) Cyclical. C) Growth.
B A B A C B C C
Industry analysis 1. B 2. B, A, C 3. C ? that would already be done before industry analysis 4. B
jut111 Wrote: ------------------------------------------------------- > Industry analysis > > 1. B > 2. B, A, C > 3. C ? that would already be done before industry > analysis > 4. B Points Possible: 6 Points Correct: 3 Score: 50%
and the fvcker crashed again! What a POS! Beware printable exams on the Qbank!
here are the answers to the first batch… looked them up on Qbank. 1. B 2. A 3. B 4. A 5. C 6. B 7. B 8. B nice, i haven’t gotten to this yet, but porters was big in one of my grad classes.
Dunno every option looks correct in the 2nd set. 1. A 2P1. B 2P2. A 2P3. C 3. B 4. B
Industry Analysis 1. a 2 c a c 3. c 4. b
answers for industry analaysis, from qBank 1. A 2. C, A, C 3. B 4. B