External Analysis I
This PESTEL factor covers regulations and government stability.
Political
This framework helps companies decide if they should compete in a market based on industry forces.
Porter’s Five Forces
According to RBV, resources must pass this test.
VRIO
Name one example of tangible resources and one example of intangible resource.
Tangible: Factory, machinery, tools etc
Intangible: Org culture, experience, leadership etc
These are three different ways to view firm performance.
Accounting profitability, shareholder value creation, and economic value creation.
This competitive force describes how much control buyers have over prices
Bargaining Power of Buyers
Porter's Five Forces model is concerned exclusively about the intensity of rivalry among direct competitors. Explain if the statement is true or false.
False, there are four other forces.
According to RBV, firms achieve sustainable competitive advantage only if resources are valuable, rare, inimitable, and this.
Firm is organized to capture the value of the resources.
According to RBV, this type of resources are more important for firm to get competitive advantage.
Intangible resources
Name some accounting profitability measures.
ROE, ROA, ROIC, ROR etc.
In an industry, the threat of entry is high when capital requirements are
Low
When firms in the healthcare industry can threaten to enter the pharmaceutical industry, they can negotiate for higher prices. Explain with a framework if the statement is true or false.
False, bargaining power of buyer is strong.
I in VRIO stands for
Costly to Imitate
The resource-based view makes two assumptions. What are they?
Resource heterogeneity and resource immobility.
Name the firm performance measures according to shareholder value creation framework.
Total shareholder returns (TSR), share price, market cap etc.
JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup are the key players competing in the banking industry. They control a significant share of the industry's total revenue and assets. Therefore, we can infer that the banking industry offers low profitability potential. Explain with a framework if the statement is true or false.
False, they are oligopoly with high profit potential.
In an industry, the threat of substitute is strong when ____ (give examples).
Buyers face low/ no switching costs.
Price-performance tradeoff is good.
Only when a resource meets all four VRIO criteria can a firm achieve this.
Sustained competitive advantage
When a firm has resources and capabilities that are valuable and rare only, what does the firm have?
Temporary competitive advantage
What are the firm performance measure according to the economic value creation framework.
Value (customer's willingness to pay) minus cost
CleanSoap, a manufacturer of cleaning products, supplies its products to GetMore, a supermarket chain. It demands that GetMore create more shelf space in its stores for CleanSoap's products. However, GetMore refuses to do this. CleanSoap decides to distribute its products with its own store. In this scenario, CleanSoap has exercised its bargaining power as a supplier through
Forward integration
In an industry, the threat of entry is high when ________ are low/ weak.
Network effects, switching costs, capital requirements, economies of scale.
Apple Inc. manufactures iPhones. If iPhones are valuable, rare, costly to imitate, and iPhone is organized to capture value of iPhones, then according to the resource-based view, Apple can sustain its competitive advantage. Explain if the statement is true or false.
False. iPhones are not a resource.
GEICO is an auto insurance company. Its insurance policies are its important intangible resources. Explain if the statement is true or false.
False, insurance policies are GEICO's products, not resources.
According to the economic value creation framework, what is firm's profit?
Price minus cost, but the framework suggests that firms should maximize value minus cost.