Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 63■■Strategic interrelationships (relationships of mutual dependence, such as those
between one business and other parts of a company’s operations, including shared
facilities and access to financial markets)
■■Emotional barriers (aversion to economically justified business decisions because of
fear for one’s own career, loyalty to employees, and so forth)
■■Government and social restrictions (often based on government concerns for job
losses and regional economic effects; more common outside the United States)2-5 Interpreting Industry Analyses
Effective industry analyses are products of careful study and interpretation of data
and information from multiple sources. A wealth of industry-specific data is available
for firms to analyze for the purpose of better understanding an industry’s competitive
realities. Because of globalization, international markets and rivalries must be included
in the firm’s analyses. And, because of the development of global markets, a country’s
borders no longer restrict industry structures. In fact, in general, entering international
markets enhances the chances of success for new ventures as well as more established
firms.^120
Analysis of the five forces within a given industry allows the firm to determine
the industry’s attractiveness in terms of the potential to earn average or above-average
returns. In general, the stronger the competitive forces, the lower the potential for firms
to generate profits by implementing their strategies. An unattractive industry has low
entry barriers, suppliers and buyers with strong bargaining positions, strong competitive
threats from product substitutes, and intense rivalry among competitors. These indus-
try characteristics make it difficult for firms to achieve strategic competitiveness and
earn above-average returns. Alternatively, an attractive industry has high entry barriers,
suppliers and buyers with little bargaining power, few competitive threats from product
substitutes, and relatively moderate rivalry.^121 Next, we explain strategic groups as an
aspect of industry competition.2-6 Strategic Groups
A set of firms emphasizing similar strategic dimensions and using a similar strategy
is called a strategic group.^122 The competition between firms within a strategic group
is greater than the competition between a member of a strategic group and compa-
nies outside that strategic group. Therefore, intra-strategic group competition is more
intense than is inter-strategic group competition. In fact, more heterogeneity is evident
in the performance of firms within strategic groups than across the groups. The per-
formance leaders within groups are able to follow strategies similar to those of other
firms in the group and yet maintain strategic distinctiveness as a foundation for earning
above-average returns.^123
The extent of technological leadership, product quality, pricing policies, distribution
channels, and customer service are examples of strategic dimensions that firms in a stra-
tegic group may treat similarly. Thus, membership in a particular strategic group defines
the essential characteristics of the firm’s strategy.
The notion of strategic groups can be useful for analyzing an industry’s competi-
tive structure. Such analyses can be helpful in diagnosing competition, positioning, and
the profitability of firms competing within an industry. High mobility barriers, high
rivalry, and low resources among the firms within an industry limit the formation of
strategic groups.^124 However, after strategic groups are formed, their membership remains
A strategic group is a set
of firms emphasizing similar
strategic dimensions and
using a similar strategy.