Entrepreneurship:
Successfully Launching New
Ventures, 2/e
Bruce R. Barringer
R. Duane Ireland
Chapter 5
5-1
Case Study
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www.drz.com.my
‘Awesome’ anti-aging product – ‘The Body
Shop’
1) sell serum 2) offer an online/offline
business opportunity
Launch in December 2013
Anti-aging industry
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Case Study
Four extremes:
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Cheap serum – risk - will not work
effectively is high
Luxury serum – too expensive – RM 300
<
Surgery-based
Non-halal products
Middle position – affordable luxury,
same level of performance, natural, Halal
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1. Industry Types and Opportunities
 Emerging Industries
 Standard operating procedures have yet to be
developed (pioneer)
 Opportunity: First-mover advantage E.g. Tutti Frutti
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 Fragmented Industries
 A number of companies of approximately equal size
(Celcom, Telekom, Maxis, Digi)
 Opportunity: Consolidation to synergise Celcom
and Telekom.
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 Mature Industries
 Experiencing slow or no increase in demand.

Opportunities: Process innovation and aftersale service innovation. E.g. Innovative pricing
strategy - Airasia
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 Declining Industries
 Experiencing a reduction in demand.
Opportunities: Leadership / niche market /
cost reduction strategy.
 E.g groceries – Online RM 5
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 Global Industries
 Experiencing significant international sales.
Opportunities: Multidomestic (competing
for market share on a country-by-country
basis and vary their product offerings to
meet the local demands) and global
strategies.
 Tesco, IKEA, Carrefour

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2. What is Industry Analysis?
 A business research - focuses on potential of
an industry
 Industry
 A group of companies producing a similar
product or service
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Why is Industry Analysis Important?
 Once determined - a new venture is
feasible – enter into an industry /
market - a more in-depth analysis is
needed
 To
learn ins and outs
 To reduce unknown unknowns
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 If niche markets identified during
feasibility analysis
 Helps to determine which point of
entry - accessible and the best ones
 E.g.
 Businessatoz.com?
Web-hosting services
 drz.com.my?
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Three Key Questions
When studying an industry - must answer three
questions
Question 1
Question 2
Is it
accessible—
is it a realistic
place for a new
venture?
Does it
contain markets
- are ripe
(matured)
for innovation
Or underserved?
Question 3
Are there positions
it can avoid some
negative
attributes of the
Industry?
(e.g. crowded)
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3. Techniques to Assess Industry
Attractiveness
Study Environmental
and Business Trends
Five Competitive
Forces Model
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a. Studying Industry Trends
 Environmental Trends
 Not so much because management skills
P E S T E L
 Political, Environmental, Social,
Technological, Economic, Law

In favor NOT against your product / service
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 Business Trends
 Other trends - impact an industry – not
environmental trends.
 E.g.
are profit margins in the industry increasing or
falling?
 Is innovation accelerating or declining?
 Are input costs going up or down?

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b. Studying Five Competitive Forces
 Developed by Professor Porter, Harvard Univ.
 A framework for understanding structure of an
industry.
 Composed of FIVE forces - S, N, R, B-S and B-B
 Each - impacts average rate of return - by
applying pressure on industry profitability.
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 Well-managed companies –
Position in a way that avoids or diminishes
the forces—why? To beat average rate of
return.
 E.g. Drz diminished impact on profitability –
avoiding head-to-head competition with
major players – online purchase, no sales
force, easy set up, utilizing ‘distributor’s
talent, time and energy
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Five Competitive Forces –
Determine Industry Profitability
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i. Threat of Substitutes
 Price and Propensity
 PRICE - willing to pay for a product depends
- availability of substitute products.
 Halal anti-aging industry - few substitutes profitable.
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 When close substitutes for a product exist,
profitability is suppressed - because
consumers will opt out if price gets too high.
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 PROPENSITY for buyers - alternatives.
 Also suppress profitability of an industry.
 What other companies do?
 Companies in the same industry - offer their
customers value added services to reduce
likelihood - switch to a substitute product –
despite relatively expensive price.
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ii. Threat of New Entrants
 If companies in an industry are highly
profitable - becomes a magnet to new
entrants.
E.g. IT industry in 1990s, Islamic Banking,
stem cell
 Unless something is done to stop –
competition will increase - average industry
profitability will decline.
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 Companies in an industry - keep number of
new entrants low by erecting barriers to
entry.
 A barrier to entry - a condition that
creates a disincentive for a new
company to enter an industry.
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 Traditional Barriers to Entry (G E C C A P)
• Government and legal barriers
• Economies of scale
• Cost advantages independent of size
• Capital requirements
• Access to distribution channels
• Product differentiation
 Government and legal barrier:
Some industries – require a license by a
public authority
e.g Education
 Economies of scale:
Occurs when mass-producing a product
results in lower average cost
e.g Simplysiti
 Capital requirements:
Need to invest large amount of money to
gain entrance to an industry.
E.g Airasia
 Cost advantages independent of size:
Grounded on the company’s history such
as cost of land, equipment, building in the
past. E.g Jakel
 Access to distribution channels:
Often hard to crack especially in crowded
markets - convenience store market.
E.g Colgate
 Product differentiation: companies with
strong brands are difficult to break into without spending heavily on advertising.
E.g Oral-B
 Nontraditional Barriers to Entry
 Difficult for start-ups to execute traditional
barriers to entry - expensive - economies of
scale because capital is tight.
 Start-ups - rely on nontraditional barriers to
entry to discourage new entrants.
 ‘Passion First – IIUM’ 
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Passion:
If management team / employees highly motivated
First Mover Advantage:
If start-up pioneers an industry or a
new concept - name recognition
 Internet Domain Name:
“spot-on” - to a specific product or service give a start-up a meaningful advantage in
terms of e-commerce opportunities.
 Inventing A New Approach:
If start-up invents a new approach to an
industry and executes it in an exemplary
fashion
 Unique Business Model:
Establish a network of relationships –
makes business model work.
 Management Team:
World-class management team - may give
potential rivals a pause before competing.
iii. Rivalry Among Existing companies
 In most industries - major determinant of
industry profitability - level of competition.
 Some industries - fiercely competitive to
point - prices are pushed below level of
costs - industry-wide losses occur.
 In other industries, competition is much
less intense - price competition is
controlled.
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Factors affecting the intensity
 Number and Balance of Competitors:
More competitors - more likely will gain customers
by cutting its price.
Occurs more often - all competitors are about the
same size - no clear market leader. E.g ???
 Degree of Difference Between Products:
Commodity industries - tend to compete on price
because little difference between one
manufacturer’s products and another. E.g ???
 Growth Rate of An Industry:
Competition among companies in a slowgrowth industry - stronger than among those
in fast-growth industries.
Slow-growth industry - must fight for market
share - tempt them to lower prices.
E.g ???
Fast-growth industries - enough customers to
go around, making price-cutting less likely.
E.g ???
 Level of Fixed Cost:
Companies – have high fixed costs
must sell a higher volume of product to
reach break-even point than
companies with low fixed costs.
Why? Anxious to fill capacity - this
anxiety may lead to price-cutting.
iv. Bargaining Power of Suppliers
 Can suppress profitability of the industries - by
raising prices or reducing quality of the
components. E.g. Proton parts
 If a supplier:
Reduces quality of components - quality of
finished product will suffer - manufacturer will
have to lower its price.
 Powerful relative to companies / manufacturers
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 Supplier Concentration:
Only a few suppliers - supply a critical product to a
large number of buyers - supplier has an advantage.
E.g ???
 Switching Cost:
Fixed costs buyers encounter when switching or
changing from one supplier to another.
If switching costs are high - a buyer will be less likely
to switch suppliers. E.g. ???
 Attractive of Substitutes:
Supplier power is enhanced - no attractive
substitutes for product or services the supplier
offers.
E.g. What PC industry can do when Microsoft
raise prices - no practical substitutes.
 Threat of Forward Integration:
Supplier power is enhanced - a credible
possibility – supplier might enter buyer’s industry.
E.g. Microsoft’s power as a supplier – enter PC
industry
v. Bargaining Power of Buyers
 Can suppress the profitability –
by demanding price concessions or increases
in quality.
 Automobile industry is dominated by a handful
of large companies - buy products from
thousands of suppliers.
 Allows automakers (e.g. Proton, Perodua) to
suppress profitability - by demanding price
reductions.
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 Buyer Group Concentration:
Only a few large buyers - can pressure the suppliers
to lower costs (e.g. Proton, Perodua)
 Buyer’s Cost:
The greater the importance of an item - the more
sensitive - to the price.
E.g.
If component sold represents 50% of cost - Proton
will bargain hard to get the best price.
 Degree of Standardisation:
Degree to which a supplier’s product
differs from its competitors
affects buyer’s bargaining power.
E.g.
Daya Bersih - purchasing a standard
product - ‘chemical product’, can play one
supplier against another until it gets the
best - price and service.
Factors affecting the ability of buyers to exert
pressure on suppliers
 Threat of Backward Integration:
Power of buyers is enhanced - a credible
threat - buyer might enter supplier’s
industry.
E.g. PC manufacturers can threaten to
make their own monitors if price gets too
high.
4. Value of Five Forces Model
 First Application
 Can be used to assess the industry
attractiveness by determining the level of
threat to its profitability for each force.
 Result - if a company filled out the form and
several of the threats to industry
profitability were high - need to reconsider
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Determining the Attractiveness of an Industry Using
Five Forces Model
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 Second Application
 Can apply to help determine whether it
should enter an industry by answering
several key questions.
 Questions - help to project the potential
success of a new venture
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Pose Questions to Determine the Potential Success
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5. Competitor Analysis
 What?
 A detailed analysis of a company’s
competition.
 Helps understand positions of major
competitors + opportunities available.
 How? 2 ways – competitive intelligence
exercise and competitive analysis grid
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Identifying Competitors
Types of Competitors New Ventures Face
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a. Competitive Intelligence
 Information gathered by a company to learn
about its competitors
 Collects competitive intelligence in
a professional and ethical manner.
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Sources of Competitive Intelligence
• Attend conference and trade shows.
• Read industry-related books, magazines.
• Talk to customers - what motivated them to buy
your product as opposed to competitors.
• Purchase competitor’s products to understand
features, benefits, and shortcomings.
• Study competitor’s Web sites.
• Study online sites - news and information.
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b. Completing a Competitive Analysis Grid
 Competitive Analysis Grid - a tool for organizing
information a company collects about its
competitors.
 Must first understand - strategies and behaviors
of its competitors.
 Can help a company:
 See how it stacks up against competitors.
 Provides ideas for markets to pursue.
 Identify its primary sources of competitive
advantage.
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Expresso Fitness
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Competitive a Analysis Grid for
Expresso Fitness
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Revision
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