312MKT International Marketing Lecture Four

Learning objectives for this lecture: Understand elements of micro-environment Explain Poster’s five forces framework Understand the value net

Micro-environment The micro-environment is the environment within which a particular company conducts its business (i.e., industry and a particular market). Global and national/regional microenvironments Elements of micro-environment: groups of a company stakeholders that the company regularly deals with. The way a company manages its micro-environment (manages relationships with stakeholders) can affect the costs, quality and overall success of a business

Suppliers Can they? Provide right quality at the right price? On time? As much as we need (volumes)? Are they of acceptable standard (work practice; ethics; code of conduct)? Can we trust (rely on) them? What is their bargaining power? How dependent are we one them?

Customers What are specific characteristics and needs of our customers? What are their consumption patterns? Greater complexities in behavioural patterns and response to brands and products/services (macro-environmental influences) How can we access them and gather information about them? Greater complexities and barriers/challenges in communicating with customers

Competition Greater variety of competitors: local, regional, multinational More brands to compete with Entry time & strategy can be critical. Imitators – fast & cheaper

Media Influences public perception of organisation Huge media diversity Problems of availability, cost & coverage Global accessibility of national/regional media – greater exposure and potential for good, bad or mixed publicity Greater complexities in managing media and marketing communications in global context

Employees Central to organisational competence-building New markets – do employees have relevant competences? Do they require specific training? Greater complexities with managing and ensuring communicating between a multi-country, multicultural workforce

Distributors Types of distributors in a market (for example, supermarkets, news shops, specialised stores) What is the company’s relationship with them? What is their bargaining power? Can they sell our products in target volumes/target value? What is their general background?

Shareholders Shareholders’ support/pressure have detrimental effect on organisational performance. Careful relationship management required

Selecting foreign markets: Source: D.Jobber (1996)

Porter’s Five Forces Framework A tool of analysis to assess the attractiveness of an industry based on the strength of five competitive forces This analysis is best used at the level of an organization’s strategic business unit (SBU) Although each organization in an industry is unique, the forces within the industry which affects its performance, and hence its profitability, will be common to all organizations in this industry. This analysis can also determine whether a firm outside the industry should enter the industry (Henry, 2011)

Porter’s Five Forces Framework The five forces framework is an analytical tool for assessing the competitive environment This framework will hence determine the attractiveness of the profit potential of a particular industry by examining the interaction of five competitive forces. It is the combined strength of these five forces which will determine an organization’s return on investment or the potential for profits within a given industry. (Henry, 2011)

Porter’s Five Forces Framework The Threat of New Entrants The problem for many industries is that they are too easy to enter. The easier it is for organizations to enter the industry, the greater the excess capacity and more intense the competition. The threat to entry will depend on the existence of barriers to entry and the reaction of existing competitors. (Henry, 2011)

Porter’s Five Forces Framework Barriers To Entry Economies of scale occur when the cost of each individual unit produced falls as the total number of units produced increases. Capital requirements, if organizations need to invest substantial financial resources to compete in an industry Product differentiation Entering an industry where organizations are established in terms of their products’ offers and brand awareness. (Henry, 2011)

Porter’s Five Forces Framework Barriers To Entry Switching costs buyers from firm in the industry will be faced with one-off costs when switching from one supplier’s product to another Access to distribution channels, A new entrant will need to have access to distribution for its product in order to compete successfully in the industry. Cost advantages independent of size Some competitors within an industry may possess advantages that are independent of size or economies of scale. (Henry, 2011)

Porter’s Five Forces Framework The Bargaining Power of Buyers There is a concentration of buyer and buying volumes are high The products it purchases from the industry are standard or undifferentiated Switching costs are low There is threat of backward integration The industry’s product is unimportant to the quality of the buyer’s products The buyer earns low profits The buyer has full information (Henry, 2011)

Porter’s Five Forces Framework The Bargaining Power of Supplier The suppliers’ industry is dominated by a few companies and is more concentrated than the industry it sells to. Suppliers are faced with few substitutes The industry is not an important customer of the supplier The supplier’s products are differentiated or it has built up switching costs for the buyer There is a threat of forward integration (Henry, 2011)

Porter’s Five Forces Framework The Threat of Substitute Products and Services The intensity of rivalry among competitors in an industry Numerous or equally balanced competitors Slow industry growth High fixed costs Lack of differentiation or switching costs Extra capacity in large increments High exit bariers (Henry, 2011)

Critisims of Porter’s Five Forces The five forces framework assumes a zero-sum game Competitors can only succeed on the expense of other players in the industry. The five forces framework is a static analysis Which assumes a relatively stable market. It tells us little bout how players in the industry interact with each other and the effects of actual and anticipated competitors move on an organization’s decision making. Many strategies are not deliberate but are allowed to emerge Mintzberg and waters (1985) argue that organizations may develop an intended or deliberate strategy, but unexpected changes in the environment may force them to abandon that strategy. (Henry, 2011)

The Value Net This represents a map of the competitive game, the players in the game, and their relationship to each other. In this game the business success for one player can also mean success for another player, there can be win-win solutions. In business the rules of the game are not fixed, as in most games, but the game itself can be changed. The players in the game are usually seen as the customers, suppliers, and competitors (where competitors include rivals, threat of new entrants and substitute products or services). Brandenburger and Nalebuff (1995) introduce a new player called a complementor (Henry, 2011)

The Value Net Complementors are organizations that supply complements to the industry; in so doing they create value for the industry and can effect its dynamics through their bargaining power. Nintendo’s domination of the video games industry in the 1990s to show how an organization can successfully add and appropriate value. Nintendo effectively reduced the bargaining power of its buyer by keeping its games cartridge in short supply Nintendo’s complementors were game developers. (Henry, 2011)

The Value Net In this game the business success for one player can also mean success for another player, there can be win-win solutions. In business the rules of the game are not fixed, as in most games, but the game itself can be changed. The players in the game are usually seen as customers, suppliers, and competitors (where competitors include rivals, threat of new entrants and substitute products or services). (Henry, 2011)

The Value Net (Source: Henry, 2011)

The Micro-Environment https://www.youtube.com/watch?v=PoVvgGGSFtU

Readings Doole & Lowe: Chapters 1 and 2 Henry: Chapter 3 Jobber: Chapter 3 Reference (available in library) Henry, A. (2011). Understanding strategic management. Oxford University Press, USA Jobber, D., & Ellis-Chadwick, F. (2016). Principles and practice of marketing (No. 7th). McGraw-Hill Higher Education.