978-1259278211 Chapter 2 Solution Manual Part 2

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B. The Sociocultural Segment

Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples

include a higher percentage of women in the workforce, dual-income families, increases in the

Discussion Question 24: Name two industries that have benefited from the growing

awareness about health and fitness. Also name two that have been adversely affected by

this trend.

Discussion Question 25: What must firms do to attract and retain women employees?

Why are such efforts becoming increasingly important?

The section also addresses the increased educational attainment of women in the

Ask:

Discussion Question 26: Can you think of any other important implications this trend

has for businesses in a specific industry?

The SUPPLEMENT below provides some perspective on why the job market for women

should be very attractive over the next several years.

 Extra Example: A Favorable Job Market for Women for Years to Come!

The job market for women should be very good, according to British futurist Ian Pearson, founder of consultancy

Futurizon and author of You Tomorrow. As we move further toward a service economy, skills like communication

and collaboration will move to the forefront. “I call it the care economy,” he says. “A lot of women already work in

those roles, and there will be more tomorrow.”

Health care and personal services are the fastest-growing sectors of the economy and are dominated by women. In

the U.S. 15 million women hold health and education jobs, up from 2.5 million in 1964. They are already the

majority of nurses, pharmacists, and physical therapists, and by 2020 employment in health care is projected to grow

29 percent and personal care and services by 27 persent. The trend is not limited to the U.S. Globally, women are

more than two-thirds of the graduates in health care and education programs.

In the U.S. women now hold 51.6 percent of all managerial and professional jobs. A new focus on “soft skills” like

mentoring, inspiring, collaboration and building relationship may benefit women. In a comprehensive study of more

than 7,000 leaders, women ranked higher than men in 12 out of 16 leadership attributes.

Source: Goudreau, J. 2012. A golden age for working women. Forbes. December 24: 56.

C. The Political/Legal Segment

Political processes and legislation influence the regulations with which industries must

comply. Some important elements of the political/legal arena include tort reform, the Americans

Discussion Question 27: What do you see as some of the pros/cons of the Americans

with Disabilities (ADA) Act?

We close this section with a brief discussion of how legislation in the U.S. has restricted

the number of H-1B visas for highly skilled professionals. We discuss the proactive step

Discussion Question 28: Should the U.S. Congress increase the number of H-1B visas?

Why? Why not?)

Strategy Spotlight 2.3 provides some interesting figures on how immigrants to the United

States have enhanced innovation and created new jobs. It provides data on the number of founder

Discussion Question 29: What factors may explain the large level of innovation and job

creation by immigrants?

D. The Technological Segment

Developments in technology lead to new products and services and improve how they’re

Discussion Question 30: Ask students to speculate on the impact of the following

technologies on American industry: (1) the Internet, (2) manufacturing innovations (e.g.,

We discuss the key implications that the Internet, information technology, and

We also address a fascinating issue: some of the promising future applications of

We close out the section by addressing some of the “downsides” of technology. In

The SUPPLEMENT below discusses how SkyMall, the inflight magazine was forced into

bankruptcy by technology—smartphones and tablets.

 Extra Example: It Seems That Technology Killed SkyMall

The firm behind the inflight catalog, SkyMall, filed for bankruptcy protection. It is clearly a victim of evolving rules

and technology that now permit airline passengers to keep their smartphones and tablets powered up during flights.

For 25 years it sold quirky products like a Darth Vader toaster or a paper-towel holder with USB ports. However,

SkyMall is now seeking a court supervised sale of its assets, according to papers filed on January 22, 2015 with the

Phoenix Bankruptcy Court.

CEO Scott Wiley cited a “crowded, rapidly evolving and intensely competitive” retail environment as the reason for

the firm’s recent struggles. And, he said, “With the increased use of electronic devices on planes, fewer people

browsed the SkyMall inflight catalog.”

SkyMall had revenue of $33.7 million in 2013. But, its sales sank to only 15.8 million for the nine months ending on

September 28, 2014.

Source: Corrigan, T. 2015. SkyMall Succumbs to a New Jet Age. Wall Street Journal. January 24–25: B3.

Discussion Question 31: Are you aware of other cases where technology is a key factor

that is reshaping—or adversely affecting—an industry? What industries are most likely to

be influenced by technological changes?

E. The Economic Segment

The economy has an impact on all industries, from suppliers of raw materials to

manufacturers of finished goods and services, as well as all organizations in the service,

Discussion Question 32: Compare the impact of rising (or declining) interest rates on

the overall demand for the following industries: (1) housing (will have a significant

F. The Global Segment

Globalization provides both opportunities to access larger potential markets and a broad

base of factors of production such as raw materials, labor, skilled managers, and technical

professionals. However, such endeavors carry many political, social, and economic risks.

Discussion Question 33: Provide examples of firms that have succeeded (stumbled) in

their efforts to expand into international markets. What factors can explain their success

(failure)?

We also address the rising middle class in emerging countries and how it has led to increased

Discussion Question 34: What are the risks associated with accessing a larger potential

market overseas as a result of the process of globalization? Do the risks of globalization

outweigh its benefits?

G. Relationships among Elements of the General Environment

In our discussion of the general environment, we have addressed many relationships

among the various elements.

EXHIBIT 2.3 provides many examples of how the impact of trends or events in the

The SUPPLEMENT below provides some insights on how many elements of the General

 Extra Example: Entrepreneurship in Cairo after the Arab Spring

A different type of grassroots revolution has begun in the aftermath of the Arab Spring. According to Ramez

Mohamed, CEO of Flat6Labs, a Cairo-based startup accelerator, entrepreneurship has thrived over the past two

years. He contends that Egypt’s youth feel empowered to make a difference, one venture at a time.

Here are some of his firm’s most promising startups and the opportunity that they are tackling:

Ekshef: With an Arabic-only platform and Yelp-like rating system, the service enables Egyptians to search,

review, and recommend doctors from the directory. Opportunity: The country has more than 75,000 health care

clinics, but it is hard for patients to find the right physician.

Nafham: The service condenses the country’s public school curriculum into online, crowdsourced lessons.

Users can vote up or down based on quality. Its staff also produces video content. Opportunity: Egypt’s rising

population is putting a squeeze on classroom space.

Eshtery: The utility lets users shop by scanning codes on signs around town and having the items delivered to

them. The business was inspired by Home Plus, a supermarket that offers a similar service in South Korea.

Opportunity: It is hard to buy groceries if you work two hours from the market.

Ogra: A mobile app, a la Uber, which connects passengers with reliable drivers. Opportunity: With social

tensions spilling onto the street, public transportation that is dependable is hard to find.

Source: Anonymous. 2013. Emerging tech scene: Cairo. Fast Company. March: 31.

1. Crowdsourcing: A Technology that Impacts Multiple Segments of the General

Environment

We introduce the term and provide examples, including STRATEGY SPOTLIGHT 2.4—

Here, we define crowdsourcing as “a practice where the Internet is used to tap a broad

range of individuals and groups to generate ideas and solve problems.” We list examples of the

Discussion Question 35: To get the students familiar with the concept, ask them what

other examples of crowdsourcing they are familiar with, And, ask if they are successful.

Why? Why not?

III. The Competitive Environment

Here, we draw upon a well-known analytic tool, Michael Porter’s five-forces model of

industry competition. We introduce this model and discuss examples of each force. We then

A. Porter’s Five-Forces Model of Industry Competition

EXHIBIT 2.4 illustrates Porter’s five-forces model of industry competition

When introducing this model, it is useful to show how the model provides insight into an

industry’s dynamics and expected profit levels. The SUPPLEMENT below provides such an

Note: For our purposes of illustrating the “basics” of the “five forces,” the analysis has

been simplified. We assume buyers to be consumers, although there are, of course, other distinct

 Extra Example: The Paint and Allied Products (PAP) Industry

An analysis of the Paints and Allied Products industry (SIC 2851), using the five-forces model, demonstrates why

this industry has traditionally been caught in a price-cost squeeze and is unable to pass on rising raw material costs

to its customers.

To illustrate the price-cost squeeze that this industry is facing, consider that between the years 1995 to 2000, the PPI

(producer price index—the price for which it sells its output) of the PAP industry increased an average of only 2

percent. The PPI for petroleum refining and related products—a key supplier to this industry—increased at a rate of

6 percent over this same period of time. Hence the price of this key raw material was roughly twice the rate of

inflation (about 3 percent); whereas, the PAP industry was lower than the rate of inflation. Thus, the PAP industry

has been unable—due to unfavorable industry competitive forces—to pass on cost increases to their suppliers; thus

eroding profitability.

Consider the PAP industry in terms of each of Porter’s Five Forces:

Threats of Entry: Very High (minimal capital investment needed, little proprietary technology, regional firms can

compete in local markets due to high transportation costs, little brand identification of existing competitors)

Buyer Power: Very High (low brand loyalty, relatively little product differentiation, relatively low switching costs)

Supplier Power: High (especially for petroleum derivative raw materials—a key input in industry)

Substitute Products: High (plastics, wood paneling, wallpaper coverings, etc.)

Rivalry: High (competition is based mostly on price competition, because of little brand loyalty and product

differentiation; easy entry and exit from the industry gives rise to frequent price wars; little price leadership

exhibited by larger firms)

Sources: www.bls.gov (Bureau of Labor Statistics); www.ita.doc.gov (International Trade Administration)

It is useful to point out that there can also be very profitable opportunities to compete in

industries that have overall low profits. For example, in the paint industry, Olympic Stain has

1. Threat of New Entrants

After summarizing the major barriers to entry, ask students to provide examples of

We discuss the concept of “the era of Lego innovation.” Here, valuable advances in

Teaching Tip: The chapter explains how economies of scale and economies of

experience (learning curve) erect significant entry barriers. In the auto industry, U.S.

manufacturers such as Ford and G.M. have high economies of scale (being the large

producers) and all the benefits of learning curve (having been in the business for almost

2. Bargaining Power of Buyers

Briefly summarize some of the conditions under which a supplier group may become

powerful. It may be interesting how things have changed (if they have) with regard to the power

We also discuss how universities (during the recent recession) may take advantage of

The SUPPLEMENT below explains that many huge consumer product firms are going to

 Extra Example: Large Consumer Product Firms Cut Advertising Budgets

Procter & Gamble is planning to make deep cuts in its number of advertising agencies. It hopes to save up to half-a-

billion dollars in fees that it now pays to outside firms to help pitch its wide variety of everyday items—from

Gillette razors, to Tide detergent, to Pantene hair care, to Bounty paper towels.

Needless to say, this worries Madison Avenue. P&G is joining other companies—such as Unilever, L’Oreal SA,

Coca-Cola Co, S.C. Johnson, and Visa—that are all trying to force advertisers to either lower prices or risk losing

the business altogether. These firms are striving to offset slow growth with cost cuts.

P&G CFO Jon Moeller said the household-products giant plans to “significantly simplify and reduce” the number of

agencies it works with on ads, media buying, public relations, package design and in-store marketing. Similarly,

Unilever, which spent about $7 billion on advertising and marketing in 2014, is currently reviewing its global

media-buying business. A person familiar with the issue said the process is driven in part by the need to find “cost

savings and efficiencies.”

Such pressures have prompted extensive industry consolidation. For example, giants Publicis Groupe SA and

Omnicom Group Inc. tried—but failed—to merge in 2014. The agencies remain at the behest of clients that are in an

increasingly frugal mood.

Source: Tadena, N. & Ng, Serena, A. S. 2015. P&G Joins the Movement to Reduce Costs. Wall Street Journal. April

27: B1-B2.

3. Bargaining Power of Suppliers

Briefly discuss some of the conditions under which a supplier group may become

powerful. The bargaining power of suppliers can be presented as the mirror opposite of the

The section discusses how catfish farmers in Mississippi increased their buyer power by

forming a cooperative—Delta Pride Catfish.

4. The Threat of Substitute Products and Services

Emphasize that the viability of a substitute product depends largely on its relative price-

performance trade-off, i.e., more value for the same price or the same value for a lower price.

We discuss substitutes and give the example of how the use of teleconferencing poses a

threat to the airline industry. We also explain why hybrid cars are becoming a less attractive

5. The Intensity of Rivalry among Competitors in an Industry

After discussing the factors that lead to intense rivalry in an industry, provide an example

of an industry in which competition has recently been intense. For example, most students are

familiar with the recurring price wars in the U. S. airline industry. Ask them to explain this using

In this section we discuss the intense rivalry between Uber and Lyft in the taxi industry.

The SUPPLEMENT below is Michael Porter’s response to a question as to whether or

 Extra Example: Should There Be a “Sixth Force?” Michael Porter’s Perspective

“There have been two nominees for the sixth force. One is government. After much further work using and teaching

the framework, I have reaffirmed my original conclusion that government is not a sixth force because there is no

monotonic (direct linear) relationship between the strength and influence of government and profitability of an

industry. You can’t say that ‘government is low, industry profitability is high.’ It all depends on exactly what

government does. Also, there are many different parts of government, each with its own distinct impacts. And, how

do you assess the consequence of what government does? Well, you look at how it affects the five forces.

“The other, more recent, candidate for a sixth force involves organizations whose products and services are

complementary to the primary organization’s products and services. Again, there is no monotonic relationship

between the extent of complements and profitability. Sometimes having many complements is consistent with high

industry profitability, sometimes with low profitability. It has to do with how complements affect the five forces.…

Clearly, complements have much to do with the size of the pie, but their role in the division of the pie is independent

of other factors.”

Source: Argyres, N. & McGahan, A. M. 2002. An interview with Michael Porter. Academy of Management

Executive. 16 (2): 43-52.

EXHIBIT 2.5 provides a summary of key points from the discussion of industry five-

forces analysis.

B. How the Internet and Digital Technologies Are Affecting the Five Competitive

Forces

The changes caused by the Internet economy have made strategizing more challenging.

Strategic analysis, informed formulation, and successful implementation may be even more

1. The Threat of New Entrants

In most industries, new entrants will be a bigger threat because the Internet lowers

Businesses launched on the Internet may enjoy savings on traditional expenses such as

office rent, salaries, and postage. Thus, a new entrant could use the savings to charge lower

Another potential benefit for Internet-based businesses is access to distribution channels.

Manufacturers or distributors that can reach potential outlets for their products via the Internet

Discussion Question 36: What are some examples of industries where there have been a

lot of new entrants because of the Internet? Have these new entrants been successful?

How have incumbent firms reacted?

2. The Bargaining Power of Buyers

The Internet may increase buyer power by providing consumers with more information to

make buying decisions and lowering switching costs. But, by giving buyers new ways to access

End users are the final customers in a distribution channel. Internet sales activity that is

labeled “B2C”is concerned with end users. Because a large amount of consumer information is

Buyer channel intermediaries are the wholesalers and distributors who serve as

“middlemen” between manufacturers and end users. In some industries buyer channels are