Текст книги "Английский язык. Практический курс для решения бизнес-задач"

Автор книги: Нина Пусенкова

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Lesson 17
Industry Analysis

Read and translate the text and learn terms from the Essential Vocabulary

Porter’s Five Forces

The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, different industries can sustain different levels of profitability, partly because of industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates.

Porter’s 5 Forces

I. Rivalry

In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. They strive for a competitive advantage over their rivals.

Economists measure rivalry by indicators of industry concentration. The Concentration Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for major Standard Industrial Classifications (SIC). The CR indicates the percent of market share held by the four largest firms. A high concentration ratio indicates that the industry is concentrated. With only a few firms holding a large market share, the competitive landscape is closer to a monopoly. A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are competitive.

If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry’s history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct. Explicit collusion generally is illegal; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market.

When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. The intensity of competition is referred to as being cutthroat, intense, moderate, or weak, based on the firms’ aggressiveness in gaining an advantage.

A firm can choose from several competitive moves:

– Price competition.

– Improving product differentiation.

– Creatively using channels of distribution, such as vertical integration.

– Exploiting relationships with suppliers.

The intensity of rivalry is influenced by the following industry characteristics:

– A larger number of firms increases rivalry because more firms must compete for the same customers and resources. The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership.

– Slow market growth causes firms to fight for market share. In a growing market, firms are able to improve revenues simply because of the expanding market.

– High fixed costs result in an economy of scale that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and result in increased rivalry. High storage costs cause a producer to sell goods as soon as possible. If other producers are attempting to unload at the same time, competition for customers intensifies.

– Low switching costs increase rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers.

– Low levels of product differentiation are associated with higher levels of rivalry. Brand identification, on the other hand, tends to constrain rivalry.

– Strategic stakes are high when a firm is losing market position or has potential for great gains. This intensifies rivalry.

– High exit barriers place a high cost on abandoning the product. High exit barriers cause a firm to remain in an industry, even when the venture is not profitable.

– When the plant and equipment required for manufacturing a product are highly specialized, these assets cannot easily be sold to other buyers in another industry.

– A diversity of rivals with different cultures, and philosophies makes an industry unstable. There is greater possibility for mavericks and for misjudging rival’s moves.

– A growing market and the potential for high profits induce new firms to enter a market and incumbent firms to increase production. A point is reached where the industry becomes crowded with competitors, and demand cannot support the new entrants and the resulting increased supply. A shakeout ensues, with intense competition, price wars, and company failures.

– BCG founder Bruce Henderson generalized this observation as the Rule of Three and Four: a stable market will not have more than three significant competitors, and the largest competitor will have no more than four times the market share of the smallest. It implies that:

– If there is a larger number of competitors, a shakeout is inevitable.

– Surviving rivals will have to grow faster than the market.

– Eventual losers will have a negative cash flow if they attempt to grow.

– All except the two largest rivals will be losers.

II. Threat of Substitutes

In Porter’s model, substitute products refer to products in other industries. A threat of substitutes exists when a product’s demand is affected by the price change of a substitute product. A product’s price elasticity is affected by substitute products – as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices. The competition engendered by a Threat of Substitutes comes from products outside the industry.

III. Buyer Power

The power of buyers is the impact that customers have on a producing industry.

When buyer power is strong, the relationship to the producing industry is near to a monopsony – a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers.

IV. Supplier Power

A producing industry requires raw materials – labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits.

V. Barriers to Entry / Threat of Entry

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.

Barriers to entry are more than the normal equilibrium adjustments that markets typically make. When industry profits increase, we would expect additional firms to enter the market to take advantage of the high profit levels, over time driving down profits for all firms in the industry. When profits decrease, we would expect some firms to exit the market thus restoring a market equilibrium. Falling prices deter rivals from entering a market. Firms also may be reluctant to enter highly uncertain markets, especially if entering involves expensive start-up costs. If firms individually keep prices artificially low as a strategy to prevent potential entrants from entering the market, such entry-deterring pricing establishes a barrier.

Barriers to entry reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry. Barriers to entry arise from several sources:

– Government creates barriers.

– Patents and proprietary knowledge serve to restrict entry into an industry.

– Asset specificity inhibits entry into an industry.

– Organizational (Internal) Economies of Scale. The most cost efficient level of production is termed Minimum Efficient Scale (MES). This is the point at which unit costs for production are at minimum.

Barriers to exit work similarly to barriers to entry. Exit barriers limit the ability of a firm to leave the market and can exacerbate rivalry – unable to leave the industry, a firm must compete.

Source: www.quickmba.com

Essential Vocabulary

1. pure competition – совершенная конкуренция

2. risk-adjusted – скорректированный на риск

3. rate of return – ставка доходности

4. learning curve – кривая освоения

5. switching costs – издержки переключения

6.forward integration – прямая интеграция

7. backward integration – обратная интеграция

8. bargain n – сделка или операция; договоренность; выгодная покупка

bargaining n – ведение переговоров

bargain v – торговаться, вести переговоры, договариваться, уславливаться

9. rival n – соперник, конкурент

rivalry n – соперничество, конкуренция

rival a – соперничающий, конкурирующий

rival v – соперничать, конкурировать

10.perfect competition – совершенная конкуренция

11. Concentration Ratio (CR) – показатель концентрации

12. Bureau of Census – Бюро переписей (Министерства торговли США)

13. Standard Industry Classification (SIC) – стандартная промышленная классификация

14. code of conduct – кодекс поведения

15. maverick n – диссидент, отступник; резко отклоняющееся значение (на графике)

16. cutthroat competition – ожесточенная конкуренция, конкуренция на удушение

17. vertical integration – вертикальная интеграция

18. unit cost – себестоимость единицы продукции

19. storage n – хранение, складирование; хранилище, площадь склада

store n – магазин, хранилище, склад, запас

store v – хранить, складировать

20. shakeout n – встряска (существенное изменение в рыночных условиях)

21. entrant n – компания, выходящая на рынок или проникающая в отрасль

22. price elasticity – эластичность по ценам

23. monopsony n – монопсония (монополия покупателей)

monopsonic a – монопсонический

24. entry barriers (barriers to entry) – барьеры к выходу на рынок

25. exit barriers (barriers to exit) – барьеры к уходу с рынка

26. market equilibrium – рыночное равновесие

27. start-up costs – начальные затраты

28. Minimum Efficient Scale (MES) – минимальный эффективный уровень

Exercise 1. Answer the following questions.

1. What forces influencing the industry did Michael Porter identify? 2. How do economists measure rivalry in an industry? 3. What competitive strategies can a firm adopt to gain an advantage over its rivals? 4. What are the determinants of the intensity of rivalry? 5. How did Michael Porter define the threat of substitutes? 6. What is the power of buyers? 7. How can suppliers exert their influence? 8. What are the entry and exit barriers?

Exercise 2*. Find at least 9 adjectives in the text to the term «competition» and make sentences of your own using them.

Exercise 3. Fill in the following table using Russian industries as examples and briefly describe key characteristics of these industries.

Exercise 4*. Fill in the blanks using terms given below.

Porter’s Generic Strategies

If the primary determinant of a firm’s……. is the……. of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally……. can generate……. returns.

A firm positions itself by……. its strengths. Michael Porter has argued that a firm’s strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths, three……. strategies result: cost leadership, differentiation, and focus. These strategies are applied at the……. level.

Cost Leadership Strategy

This generic strategy calls for being the…….. producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a……. higher than that of……., or below the…… industry prices to gain market share. In the event of a……., the firm can maintain some profitability while the competition suffers losses. Also, as the industry…….. and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. Firms acquire……… by improving process……., gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competitors are unable to lower their costs by a similar amount, the firm may be able to…….. a competitive advantage based on cost leadership.

Each generic strategy has its risks, including the low-cost strategy. For example, as technology……… the competition may be able to…… the production capabilities, thus eliminating the competitive advantage. Additionally, several firms following a focus strategy and…….. various narrow markets may be able to achieve an even lower cost within their………. and as a group gain significant market share.

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique……. that are valued by……. The……. by the uniqueness of the product may allow the firm to charge a…… price for it. The firm hopes that the higher price will more than cover the extra costs……. in offering the unique product. Because of the product’s unique attributes, if…….. increase their prices the firm may be able to…….. the costs to its customers who cannot find……… products easily.

The risks associated with a differentiation strategy include…….. by competitors and changes in customer tastes. Additionally, various firms…….. focus strategies may be able to achieve even greater differentiation in their market segments.

Focus Strategy

The focus strategy concentrates on a……. segment and within that segment attempts to achieve either a cost advantage or differentiation. A firm using a focus strategy often enjoys a high degree of customer………, and this discourages other firms from competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less……… power with their suppliers. Some risks of focus strategies include imitation and changes in the……. segments. Furthermore, it may be fairly easy for a……… cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out……. that they can serve even better.

A Combination of Generic Strategies

These generic strategies are not necessarily……. with one another. If a firm…….. to achieve an across-the-board advantage, in this attempt it may achieve no advantage at all. Michael Porter argued that to be successful over the………, a firm must select only one of these three generic strategies. Otherwise, with more than one single generic strategy the firm will be……… and will not achieve a competitive advantage.

Source: www.quickmba.com

Terms:

pass along, suppliers, imitation, broad-market, narrow, «stuck in the middle», customers, long term, premium, value added, profitability, matures, sustain, loyalty, leapfrog, sub-segment, compatible, profit, attractiveness, positioned, superior, leveraging, generic, business unit, low cost, rivals, average, price war, cost advantage, efficiencies, improves, targeting, segments, attributes, incurred, substitute, pursuing, target, attempts, bargaining

Exercise 5. Translate into English.

Предпосылки реформирования электроэнергетики России

Еще в 1980-х годах в электроэнергетике страны стали проявляться признаки стагнации: производственные мощности обновлялись заметно медленнее, чем росло потребление электроэнергии. В 1990-е годы, в период общеэкономического кризиса в России, объем потребления электроэнергии существенно уменьшился, в то же время процесс обновления мощностей практически остановился.

Общая ситуация в отрасли характеризовалась следующими показателями.

По технологическим показателям российские энергокомпании отставали от своих аналогов в развитых странах.

Отсутствовали стимулы к повышению эффективности, рациональному планированию режимов производства и потребления электроэнергии, энергосбережению.

В отдельных регионах происходили перебои энергоснабжения, наблюдался энергетический кризис. Существовала высокая вероятность крупных аварий.

Отсутствовала платежная дисциплина, были распространены неплатежи.

Предприятия отрасли были информационно и финансово не прозрачными.

Доступ на рынок был закрыт для новых, независимых игроков.

Все это вызвало необходимость преобразований в электроэнергетике, которые создали бы стимулы для повышения эффективности энергокомпаний и позволили существенно увеличить объем инвестиций в отрасли.

Цели и задачи реформы

Основная цель реформирования электроэнергетики России – повышение эффективности предприятий отрасли, создание условий для ее развития на основе стимулирования инвестиций, обеспечение надежного и бесперебойного энергоснабжения потребителей.

В связи с этим в электроэнергетике России происходят радикальные изменения: меняется система государственного регулирования отрасли, формируется конкурентный рынок электроэнергии, создаются новые компании.

В ходе реформы меняется структура отрасли: осуществляется разделение естественномонопольных (передача электроэнергии, оперативно-диспетчерское управление) и потенциально конкурентных (производство и сбыт электроэнергии, ремонт и сервис) функций, и вместо прежних вертикально-интегрированных компаний, выполнявших все эти функции, создаются структуры, специализирующиеся на отдельных видах деятельности.

Генерирующие, сбытовые и ремонтные компании в перспективе станут преимущественно частными и будут конкурировать друг с другом. В естественно-монопольных сферах, напротив, происходит усиление государственного контроля.

Таким образом, создаются условия для развития конкурентного рынка электроэнергии, цены которого не регулируются государством, а формируются на основе спроса и предложения, а его участники конкурируют, снижая свои издержки.

Целевая структура отрасли

Формируемые в ходе реформы компании представляют собой предприятия, специализированные на определенных видах деятельности (генерация, передача электроэнергии и другие) и контролирующие соответствующие профильные активы. По масштабу профильной деятельности создаваемые компании превосходят прежние монополии регионального уровня: новые компании объединяют профильные предприятия нескольких регионов либо являются общероссийскими.

Так, магистральные сети переходят под контроль Федеральной сетевой компании, распределительные сети предполагается интегрировать в межрегиональные распределительные сетевые компании (МРСК), функции и активы региональных диспетчерских управлений передаются общероссийскому Системному оператору. Активы генерации также объединяются в межрегиональные компании, причем двух видов: генерирующие компании оптового рынка и территориальные генерирующие компании.

Таким образом, в ходе реформы исчезает прежняя, монопольная структура электроэнергетики: большинство вертикально-интегрированных компаний сходят со сцены, на смену им появляются новые компании целевой структуры отрасли. Почти все они уже учреждены, однако требуется время для завершения процесса их формирования, в ходе которого каждая компания приобретет целевую конфигурацию.

Источник: www.rao-ees.ru

Lesson 18
Industry Trends

Read and translate the text and learn terms from the Essential Vocabulary.

Global Consolidation Threat: Can East European Companies Survive?

The East European oil and gas market faces the risk of being completely dominated by foreign companies. Industry leaders like BP or Royal Dutch/Shell enter the market aggressively and are able to undertake significant financial investments. Their entry strategies significantly differ: while Royal Dutch/Shell focus their investments on E&P (targeting a major stake in Gazprom), BP also intensifies its downstream presence by creating a JV with TNK. The Polish or Hungarian markets have already been strongly penetrated by global industry leaders. Former state-owned national oil and gas companies have been attacked by local consolidation on the one hand and acquisition by global majors on the other hand. Only some of them have been able to keep their local downstream dominance, i.e. Polish Orlen and Hungarian MOL. To strengthen their local market leadership both are actively internationalizing their business by forming regional leaders in Central and Eastern Europe. Latest attempts have been seen of Orlen targeting the take-over of its domestic competitor Grupa Lotos and rumours already circulate about a merger of Orlen and MOL.

«Achieve market leadership from the black forest (Schwarzwald) to the Black Sea,» Austrian market leader, OMV, has further focused its market strategy. The future expansion of OMV’s downstream presence should especially target Eastern Europe. OMV could become a major catalyst of the East European market consolidation.

But what should be the strategy of East European oil and gas companies to stay in or enter the global premier league? A.T. Kearney study reveals that consolidation trends follow a distinct logic. East European oil and gas companies need to understand in which stage of the consolidation lifecycle they are positioned to survive the consolidation threat and even dominate the endgame.