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York University
Administrative Studies
ADMS 4900
You- Ta Chuang

Session 2 General manager must always forecast the direction of environmental change. This always includes uncertainty because information is not always perfect o 3 types of uncertainty  State uncertainty: you don’t know how the environment will turn out  Response uncertainty: you don’t know how or when to respond to change  Outcome uncertainty: given certain actions, you don’t know how it will turn out o Reduce uncertainty by (descriptive model)  Imitation of leaders, similar firms, direct competitors, large firm External Environment General Environment  Political (e.g. r&d, tax incentives, regulations)  Economic (e.g. GDP, interest rates, unemployment rate)  Socio-Cultural (e.g. demography, cultural change)  Technological (e.g. smartphones, internet, clouding computing, solar energy) o Change in P.E.S.T will lead to change in firm behavior/strategy, because they want to respond to changes in external environment. Firms are passive. o At times firm’s strategy can change the environment. These firms are active. Competitive Environment Structural Perspective  Industry Evolution; descriptive model # Of firms Industry age Founding Rate Failure Rate Industry Age Industry Age 1. Legitimacy: Social acceptance of your industry 2. Competition: Firms will die out if they are not efficient and innovative  Leads to market consolidation, mergers and acquisitions and inefficient firms will die out  Resource Partitioning: company tries to divide resources within the market, leads to two types of firms; generalists and specialists Industry Structure (Porters Five Forces Model); prescriptive/descriptive Model can be used to assess whether the industry is attractive or whether your firm is in a good position.  You need to take into consideration industry boundary, both in operations and geographic (Furniture manufacture vs. Furniture retailer; National vs. Global)  Who are your players? (Suppliers, Buyers, Competitors); Be critical in your choices  What are the implications from the analysis? Is the industry attractive? Why? Is the firm in a good position or bad position? Threats of New Entrants  Barriers to entry  Capital requirement  Regulations  Switching Costs  Economies of Scale  Product Differentiation  Access to Distribution Channels  Learning Curve Marginal Cost Marginal Cost Units Produced Cumulative Units Economies of Scale Learning Curve Increase in both economies of scale and learning curve decrease marginal cost. The Bargaining Power of Buyers  Symbiotic relationship = one parties output is input of the other; non- competitive, rather co-dependent  Power Relationship depends on: o Availability, Volume of Purchase, Lack of Uniqueness, Low Switching Costs, Threat of Backward Integration, Importance of Resource  These factors will determine whether the buyer has more power over the firm Bargaining Power of Supplier Supplier can threaten to raise prices, alter the terms of supply or even reduce quality if:  The supplier industry is dominated by a few companies and is more concentrated  The industry is not an important customer of the supplier  The suppliers product is an important input to the buyer’s business  The suppliers products are differentiated or it has built up switching costs for the buyer  T
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