The related question are related to Twitter.Inc
Question :
A.Identify the economic characteristics of the industry in which the firms participate and assess their level of competitiveness.
a.Economic attributes : demand, supply, manufacturing & marketing
b.Threat of Substitutes.
How easily can customers switch to substitute products or services? How likely are they to switch?
B.Identify the corporate strategy that the firms pursue to compete in their industry.
a.Nature of Product or Service.
b.Degree of Geographical Diversification.
Thanks for the help ~
i wouldn't use the tutor's word , i'll use my own i just want to have a clear pic
example are given of pepsi and coke that may help you
Step 1 : Identify the Industry Economic Characteristics Beverage companies produce their concentrates and syrups with raw materials that are commodities . Although Pepsico does not disclose every ingredient , Pepsico is not likely to be dependent on one supplier ( or even a few suppliers ) for its raw materials . It also is unlikely that any of these ingredients are sufficiently unique that the suppliers could exert much power over PepsiCo . Given Pepsico's size , the power more likely resides with Pepsico than with its suppliers In summary : Competition in the soft drink / beverage industry rates low on supplier power , threat of new entrants and threat of substitutes The industry rates tes low on buyer power of consumers but moderate on buyer power of fast food chains and large retail and grocery chains The industry rates moderate on rivalry within the industry . Unless Pepsico or Coca-cola decides to compete on the basis of low price , you might expect these firms to continue to generate relatively high profitability Economic Attributes Framework We find the following framework useful in studying the economic attributes of a busi - ness , in part because it ties in with items reported in the financial statements 1 . Demand . Are customers highly price -sensitive , as in the case of automobiles , or are they relatively insensitive , as in the case of soft drinks ? . Is demand growing rapidly , as in the case of long-term health care , or is the industry relatively mature , as in the case of grocery stores ? . Does demand move with the economic cycle , as in the case of construction of new homes and offices , or is demand insensitive to business cycles , as in the case of food products and medical care ? Does demand vary with the seasons , as in the case of summer clothing and ski equipment , or is demand relatively stable throughout the year , as in the case of most grocery store products ? 2 . Supply Are many suppliers offering similar products , or are a few suppliers offering unique products ? Are there high barriers to entry , or can new entrants gain easy access ? Are there high barriers to exit , as in the case of firms that face substantial environment cleanup costs ? Manufacturing anufact . Is the manufacturing process capital - intensive , as in the case of electric power generation ; labor- intensive , as in the case of advertising , investment banking , auditing , and other professional services ; or a combination of the two , as in the case of automobile manufacturing and airline transportation ? Is the manufacturing process complex with low tolerance for error , as in the case of heart pacemakers and microchips , or relatively simple with ranges of products that are of acceptable quality , as in the case of apparel and nonmechanized toys ? Marketing Is the product promoted to other businesses , in which case a sales staff plays a key role , or is it marketed to consumers , so that advertising , location , and coupons serve as principal promotion mechanisms ?CHAPTER1 Overview of Financial Reporting , Financial Statement Analysis , and Valuation Does steady demand pull products through distribution channels , or must firms continually create demand ? 5 . Investing and Financing Are the assets of firms in the industry relatively short -term , as in the case of commercial banks , which require short-term sources of funds to finance them ? Or are assets relatively long-term , as in the case of electric utilities , which require primarily long-term financing ? . Is there relatively little risk in the assets of firms in the industry , such as from technological obsolescence , so that firms can carry high proportions of debt financing ? Alternatively , are there high risks resulting from short product life cycles or product liability concerns that dictate low debt and high shareholders equity financing ? . Is the industry relatively profitable and mature , generating more cash flow from operations than is needed for acquisitions of property , plant , and equipment ? idly as Alternatively , is the industry growing rapidly and in need of external financing ? Exhibit 1 .8 summarizes the economic attributes of the soft drink / beverage industry what you Demand Demand is relatively insensitive to price There is low growth in the United States , but more rapid growth opportunities are available in other countries Demand is not cyclical supply Two principal suppliers ( Pepsico and Coca-cola ) sell branded products Branded products and domination of distribution channels by two principal suppliers create significant competitive advantages Manufacturing Manufacturing process for concentrate syrup is not capital - intensive Bottling and distribution of final product are capital - intensive Manufacturing process is simple ( essentially a mixing operation ) with some tolerance for quality variation Marketing rand recognition and established demand pull products through distribution channels ation channels , but advertising can stimulate demand to some extent . Investing and Financing * Bottling operations and transportation of products to retailers require long-term financing * Profitability is relatively high and growth is slow in the United States , leading to excess cash flo generation Growth markets in other countries require financing from internal domestic cash flow or from external sourcesStep 2 : Identify the Company Strategies Step 2 : Identify the Company Strategies ONE Identify firm - specific Firms establish business strategies to differential late themselves from competitors , but strategies for achievi industry's economic characteristics affect the flexibility that firms have in designing competitive advan those strategies . In cases , firms can create sustainable competitive advantages an industry Pepsico's size , brand name , and access to distribution channels give it sustainable com - petitive advantages over smaller , less - known beverage companies Similarly , the reputa tion for quality family entertainment provides Disney with a sustainable advantage whereas a reputation for low prices generates advantages for Walmart In many industries , however , products and ideas quickly get copied . Consider the following examples : cell phones , tablets , and computer hardware ; chicken , pizza , and hamburger restaurant chains ; and financial services . In these cases , firms may achieve competitive advantage by being the first with a new concept or idea ( referred to as first mover advantage ) or by continually investing in product development to remain on the leading edge of change in an industry . Such competitive advantages are difficult ( but not impossible ) to sustain for long periods of time Framework for Strategy Analysi The set of strategic choices confronting a particular firm varies across industries following framework dealing with product and firm characteristics helps you identify and structure the set of trade - offs and choices a firm must face Nature of Product or Service . Is a firm attempting to create unique products or services for particular market niches , thereby achieving relatively high profit mar gins ( referred to as a product differentiation strategy ) ? Or is it offering nondiffer entiated products at lo low prices , accepting a lower profit margin in return for a higher sales volume and market share ( referred to as a low - cost leadership strategy ) ? Is a firm attempting to achieve both objectives by differentiating ( perhaps by creating brand loyalty or technological innovation ) and being price ompetitive by maintaining tight control over costs ? Degree of Integration in Value Chain , Is the firm pursuing a vertical integration strategy , participating in all phases of the value chain , or selecting just certain phases in the chain ? With respect to manufacturing , is the firm conducting all manufacturing operations itself as usually occurs in steel manufacturing ) , out sourcing all manufacturing ( common in athletic shoes ) , or outsourcing the man Ufacturing of components but conducting the assembly operation in- house ( common in automobile and computer hardware manufacturing ) With respect to distribution , is the firm maintaining control over the distribu - jon function or outsourcing it ? Some restaurant chains , for example , own all of their restaurants , while other chains operate through independently owned franchises . Computer hardware firms have recently shifted from selling through their own sales staffs to using various indirect sellers , such as value-added resellers and systems integrators - in effect shifting from in - house sourcing to outsourcing the distribution function Degree of Geographical Diversification . Is the firm targeting its products to its domestic market or integrating horizontally across many countries ? Operating in other countries creates opportunities for growth but exposes firms to risks from changes in exchange rates , political uncertainties , and additional competitorsCHAPTER 1 Overview of Financial 4. Degree of Industry Diversification. Is the firm operating in a single industry or diversifying across multiple industries? Operating in multiple industries permits firms to diversify product, cyclical, regulatory, and other risks encountered when operating in a single industry but raises questions about management's ability to understand and manage multiple and different businesses effectively. Application of Strategy Framework to Pepsico's Beverage Division To apply this strategy framework to PepsiCo's beverage division, we rely on the descrip- tion provided by PepsiCo's management (Appendix B). Most U.S. firms include this type of management discussion and analysis in their Form 10-K filing with the Securities and Exchange Commission (SEC). 1. Nature of Product or Service. PepsiCo's beverage division competes broadly in the beverage industry, with offerings in soft drinks, fruit juices, bottled waters, sports drinks, teas, and coffees. However, its principal beverage products are soft drinks. Although one might debate whether its products differ from similar products offered by Coca-Cola and other competitors (a debate that invariably involves taste), PepsiCo relies on brand recognition and distribution channels to differentiate its products. . Degree of Integration in Value Chain. PepsiCo engages in new product devel- opment, manufactures concentrates and syrups, and bottles, distributes, and pro- motes its products. Maintaining product quality and efficient and effective distribution channels are critical to PepsiCo's success, so PepsiCo emphasizes the important role of much of the value chain. However, bottling operations are rela- tively simple, yet capital-intensive, and require long-term financing, typically debt. After many years of these operations being delegated to affiliated bottlers, PepsiCo recently began repurchasing financial interests in such operations, which has resulted in an increase in debt financing. . Degree of Geographical Diversification. Note 1 to PepsiCo's financial state- ments and Exhibit 1.5 indicate that the PepsiCo Americas Beverages division gen- erated 33% of the firm's revenues during 2012. PepsiCo Europe and PepsiCo Asia, Middle East and Africa (AMEA) represented 21% and 10% of revenues, respectively. The remainder of revenues came from the three distinct foods divi- sions (Frito-Lay North America, Quaker Foods North America, and Latin America Foods). Note that the Europe and AMEA divisions include both bever- age and food sales, so it is not possible from these disclosures to identify the exact amount of food versus beverage revenues for PepsiCo overall. Nevertheless, it is clear that PepsiCo is not strictly a beverage company. 4. Degree of Industry Diversification. To focus and streamline the presentation of industry analysis and strategic analysis techniques, our discussion thus far has focused on PepsiCo's beverages business. However, PepsiCo generates greater reve- nues and higher operating profit margins from the snack food and breakfast foods divisions than from the beverage division. As seen in Exhibit 1.5, PepsiCo's three foods divisions generated nearly 37% of the company's total revenues. Although PepsiCo is more industry-diverse than Coca-Cola, many economic characteristics of the beverage, snack food, and cereal industries are similar in nature, involving the selling of branded consumer products. These industries can be characterized as hav- ing low barriers to entry but a small number of powerful rivals with brand recogni tion and access to key distribution channels. These industries rely on commodity
