The second chapter of Competitive Strategy looks at three approaches in "coping with the five competitive forces" outlined in the previous chapter, which are industry competitors, potential entrants, substitutes, suppliers, and buyers. The three strategies include overall cost leadership, differentiation, and focus. While they are not mutually exclusive, it is "rarely possible" to pursue multiple approaches.
Overall cost leadership entails "aggressive construction of efficient-scale facilities" to minimize cost, which provides "high margins which can be reinvested." This strategy is usually associated with high volume and market share. Differentiation sacrifices volume for perception of uniqueness industry-wide. Finally, focus strategy is "built around serving a particular target very well." Honed onto a particular segment only, focus can pursue either low cost, high differentiation position, or both.
The chapter notes that a "firm failing to develop its strategy in at least one of these three directions ... is in an extremely poor strategic situation" and "is almost guaranteed low profitability." These firms lose both the high-volume customers looking for low costs, and the high-margin business that depends on differentiation. While each of these strategies has its set of risks, these three generic competitive strategies give an intuitive explanation of the U-shaped relationship between profitability and market share, as observed in some industries.
Sunday, June 23, 2013
Thursday, June 20, 2013
Backward and Forward Integration
The first chapter of Competitive Strategy talks about structural analysis of industries, which aims to relate "a company to its environment." Among the five competitive forces surrounding a company are industry competitors, potential entrants, substitutes, suppliers, and buyers. A buyers or supplier can exert competitive force with credible threat of backward or forward integration, respectively.
Buyer can engage in backward integration by purchasing the parts it typically procures from suppliers. This poses competitive force on the suppliers. On the other hand, suppliers can engage in forward integration by expanding activity "to include control of the direct distribution of its products," posing competitive force on the buyers typically involved in the distribution. The same company can be both a buyer or supplier in different markets. A manufacturing company, for example, may be the buyer in the market for raw materials, but becomes the supplier in the market of the assembled goods to other companies.
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Buyer can engage in backward integration by purchasing the parts it typically procures from suppliers. This poses competitive force on the suppliers. On the other hand, suppliers can engage in forward integration by expanding activity "to include control of the direct distribution of its products," posing competitive force on the buyers typically involved in the distribution. The same company can be both a buyer or supplier in different markets. A manufacturing company, for example, may be the buyer in the market for raw materials, but becomes the supplier in the market of the assembled goods to other companies.
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Monday, June 17, 2013
Look Into Historical Unemployment vs. CPI Data
Bureau of Labor Statistics (BLS) publishes and archives monthly unemployment and consumer price index data. The CPI data is stored as 1-month percentage change, indicative of the monthly inflation rate. The current data archive goes back to 2003 for each. A quick data manipulation procedure in Excel gets each tabular output into a series output for juxtaposition.
The Phillips Curve is a historical inverse relationship between unemployment and inflation rate. The data from the 10 years here demonstrates a very strenuous inverse relationship. Here the slope of the best-fit line is -0.02135, but the R^2 value was merely 1.29%.
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The Phillips Curve is a historical inverse relationship between unemployment and inflation rate. The data from the 10 years here demonstrates a very strenuous inverse relationship. Here the slope of the best-fit line is -0.02135, but the R^2 value was merely 1.29%.
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Growing Sectors From June BLS Data
On the first Friday of every money, Bureau of Labor Statistics publishes employment reports for the previous month in the United States. In the report published on June 7th, total nonfarm payroll increased by 175,000 in May, putting the unemployment rate at 7.6%. The growth is above the 172,000 figure, which has been the monthly average over the past 12 months. The report highlights that professional and business services added 57,000 jobs in May.
A look into Table B-1, which breaks down the nonfarm payrolls by industry sector and selected industry detail, reveals which sectors have shown the highest consecutive monthly growth. At the levels of detail provided by the report, only 4 selected entries illustrated 0.5% monthly growth for both March to April, and April to May: employment services, temporary help services, business support services, and home health care services. Employment services have seen 1.47% increase from seasonally-adjusted payroll of 3.286 million in March to 3.334 million. Compared to last May, it has climbed by 6.44% during the past year. Temporary help services claim the honor of seeing the highest year-over-year payroll growth at 7.46%.
Sources:
A look into Table B-1, which breaks down the nonfarm payrolls by industry sector and selected industry detail, reveals which sectors have shown the highest consecutive monthly growth. At the levels of detail provided by the report, only 4 selected entries illustrated 0.5% monthly growth for both March to April, and April to May: employment services, temporary help services, business support services, and home health care services. Employment services have seen 1.47% increase from seasonally-adjusted payroll of 3.286 million in March to 3.334 million. Compared to last May, it has climbed by 6.44% during the past year. Temporary help services claim the honor of seeing the highest year-over-year payroll growth at 7.46%.
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