Section Twopotential profitability of an industry: These forces, which have
some foundation in the economic reasoning of the economist
Alfred Marshall, include the ease with which new competitors
can enter an industry, customers’ bargaining power, suppliers’
bargaining power, the strength of rivalry among the industry’s
competing firms, and the availability of substitutes for the
industry’s goods or services. In turn, there are several specific
characteristics by which each of these forces can be evaluated.
For example, the strength of barriers to entry into an industry is
determined by such influences as economies of scale, capital
costs, and governmental regulation. These forces provide the
basis for the development of an analytical tool called the value
chain, which provides insights into how firms assess their
capabilities to compete and make decisions regarding their
competitive strategies. Examples of primary activities in the
value chain include operations, outbound logistics, and service,
while examples of support activities include human resources
and technology.^31
The combined understanding of an industry’s
attractiveness and an awareness of the firm’s capabilities to
compete allows firms to chose a strategy for competing in the
industry. Essentially, there are three generic strategies for
competing in an industry: low-cost leadership, differentiation
(distinctive products or services), and niche or focus variations
that apply low-cost leadership or differentiation in a narrow or