1. Give different instances where substitute products pose threats to an industry

Threats of Substitute Products A substitute product can pose great threats in an industry environment if the following factors are present: 1. The price of a substitute product is substantially lower. 2. The preferences and tastes of customers easily change. 3. The quality of substitute products dramatically improves. 4. The switching cost is low. 5. Product differentiation is hardly noticeable. A product is considered a substitute when it is not considered the leader in the market but can satisfy the same needs of the consumers. In the absence of the desired product and if the switching . costs are low, customers look for substitute products.THE INDUSTRY ENVIRONMENT The industry environment is the immediate external environment of a company. It is the environment where a company operates, which has an immediate effect on its operation, and where it interacts and faces its direct competitors. The primary objective of an industry environment analysis is to determine the different factors that influence competition so that a company can correctly position itself for continued growth and existence. Hence, the industry environment is sometimes referred to as the competitive environment of a company. Table 4.1 differentiates the concerns of the three external environment analyses. Table 4.1 Differences among the Three External Environmental Layers Layers of the Forces or Variables Existing Objective of the External Environment in the Environment Environmental Analysis Physical resources, climate, and To determine sustainability issues that will Physical environment wildlife reduce the impact of physical or natural resources on a business Sociocultural, technological, To determine the strategic forces that can Societal environment economic, environmental, and influence the growth, future, and direction of a political forces company or an industry Customers, suppliers, creditors, To determine the level of competition and the Industry environment employees, the government, forces that drive competition in the industry for and competitors a business to position itself accordingly The different players in the industry environment are as follows: 1. Customers 2. Suppliers 3. Creditors 4. Employees 5. Government 6. Competitors Customers Customers are the buyers of goods or services produced or rendered by a company. The company realizes profit from its transactions with its customers. It must constantly evaluate and study the behavior, tastes, preferences, inclinations, and the future activities of its customers. It must protect its customers in order to win their loyalty and attract new patrons. Suppliers Suppliers refer to persons or companies that provide the required materials, parts, or services to a business. They play a crucial role in the production of goods and services, and they can adversely affect the production process by delaying the delivery of raw materials and services or by providing defective materials or inefficient services. Strategic managers must define the criteria used in the Scanned with CamScanner Chapter 4 | The Industry Environment Analysis process of selecting a supplier such as the quality of goods or services provided, terms of payment, stability, ability to respond to urgent needs, and proximity of the location.Creditors Creditors refer to banks, financial institutions, and financial intermediaries engaged in lending money to a borrower, usually for a fee in the form of interest. Creditors usually provide much- needed funds by extending credit to a company. Banks and other types of financial institutions are major players in the economy in terms of credit extension. They are the regulatory arm for the flow of money in the economy. In the Philippines, banks and other types of financial institutions are highly regulated by the national government. A strategic manager must know the different financial services provided by banks and other financial institutions. Maintaining a good business image and orderly financial records with them gives a favorable advantage to an entrepreneur in times of financial needs. Employees The employees are the workers of a company who are highly responsible for the production of goods or delivery of services to the consumers. They help ensure the quality and quantity of products or services provided to customers. They are the backbone of a business. They are selected according to their educational background, character, experience, skills, and competencies. Their aspirations and priorities must be in line with those of the business. They must possess the necessary technical and interpersonal skills in the performance and delivery of the required services. They must be motivated in their assigned tasks by providing them with desirable working conditions. Their respective cultural and religious beliefs and practices must be respected by their employer and other employees to minimize, if not eliminate, conflicts and prokl--- - the workplace. 3 / 12 Government The government refers to the system or institution that handles the affairs of a particular country. Since the government usually has jurisdiction over major activities happening within its territory, including international trade relations, the type of government system operating in a particular country highly influences a business. A government can be a democracy, autocracy, republic, monarchy, or dictatorship. The Philippine government is a democratic republic which follows the presidential system. Competitors Competitors are forces existing in the industry environment that produce, sell, or render products or services which are similar to those of a company. Competitors can be classified as direct or indirect. Direct competitors produce and sell similar products or services, while indirect competitors produce and sell substitute products. For example, Coca-cola Beverages Philippines, Inc. is a direct competitor of Pepsi-Cola Products Philippines, Inc. On the other hand, companies that manufacture and sell fruit juices are indirect competitors of Coca-Cola and Pepsi Cola. Strategic managers must critically evaluate and study competitors and find strategic ways to surpass them in the production and delivery of goods or services to customers.Gather Information about the Relevant Economlc Features of the Industry The relevant economic features of the industry to be gathered must include the following: 1. Market size and growth rate . 2. Position in the industry life \"cycle . ' 3. Number of rivals or competitors 4. Buyers' needs and requirements 5. Production capacity . 6. Pace of. technological change _ 7. I Product innovation 8. Scope of competitive rivalry 9. Economies of scale I It is highly emphasized that the relevant data or information, whether primary or secondary must be generated from reliable sources for the industry analysis to be credible. . Define the Industry and the Boundaries of a Company An industry is a group of companies offering similar or closely related products or services satisfy the same needs of consumers. Strategic managers must correctly define the industry to wl a company belongs, its boundaries, rivals, and products or services in order to be prepared aga competitors. Strategic managers must also determine the particular stage of the industry life cycle where industry is situated. The objective is to anticipate the strengths of the existing competitive force the industry moves from one stage to the next. The following are the five stages in the evolution an industry: 1. Embryonic industry 2. Growth industry 3. Shakeout industry 4. Mature industry 5. Decline industry Scanned with CamScanner Chapter 4 | The Industry Environment Analysis 33 The embryonic or new industry is characterized by slow growth, high prices, innovative efforts, and poor distribution channels. When the demand for a product or service starts to increase, the embryonic industry evolves to the next stage, which is the growth industry. This industry is characterized by growing customer demand, falling prices because of the economies of scale, new competitors entering the market, developed infrastructure facilities, and improved distribution channels. Once the demand and growth begin to slow down, the industry moves to the shakeout industry where competition is intense, companies have excess production, and prices are cut down to attract customers. The shakeout industry ends when it enters the next stage, which is the mature industry. A mature industry is characterized by a saturated market, slow growth, and limited demand. Companies at this stage tend to consolidate to reduce intense rivalry and allow a higher profitability level. The final stage is the decline industry characterized mainly by negative growth. The structure of an industry can be fragmented or consolidated. In a fragmented industry, there are many small- and medium-sized local firms competing for small shares in the market. A consolidated industry is characterized by the dominance of a few large companies.The following situations irnlpy strong entry threats; hence, new competitors are enticed to H11 e industry: 1. The demand of consumers increases rapidly. 2. The pool of new competitors is considerably large with significant amounts of resources. 3. The entry barriers can easily be overcome by new competitors. 4. The existing members of an industry do not take measures to deter the entry of nee competitors. 5. New competitors expect. a high profit level and industry growth. However, the entry threats are weak under the following situations: - 1. The demand of consumers is decreasing. ' ' ' 2. The pool of new competitors is small in terms of resources. 3. The entry barriers for new competitors are high or costly to overcome. 4. The industry' is shaking or declining. 5. The existing members of an industry are taking various strategic moves and objectives it ' improve their protability level. \\