to the U.S. market, threatening the market position of established U.S. players GM, Ford,and Chrysler. The existence of substantial barriers to entry helps protect the profit potentialof existing firms and makes an industry more attractive.3. Substitutes and Complements. Besides firms that directly compete, other firms can affectindustry dynamics by providing substitute products or services that are functionally similar(i.e., accomplishing the same goal) but technically different. The existence of substitutesthreatens demand in the industry and puts downward pressure on prices and margins.While substitutes are a potential threat, a complement is a potential opportunity becausecustomers buy more of a given product if they also demand more of the complementaryproduct. For example, iTunes was established as an important complement to Apple’s iPod,and now the firm has leveraged connections among its suite of products including iPhone,iPad, and the like.4. Power of Suppliers. Suppliers provide resources in the form of people, raw materials, components,information, and financing. Suppliers are important because they can dictate thenature of exchange and the potential value created farther up the chain toward buyers.Suppliers with greater power can negotiate better prices squeezing the margins of downstreambuyers.5. Power of Buyers. Buyers in an industry may include end consumers, but frequently the termrefers to distributors, retailers, and other intermediaries. Like suppliers, buyers may haveimportant bargaining powers that dictate the means of exchange in a transaction.
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