Swot Analysis

Exercise 1.

Select a high-profit industry and a low-profit industry from Appendix D. From what you know of the structure of your selected industries, use the five forces framework (Figure 6-4 in SSP) to explain why profitability has been either high or low.

Attempted Answer:

Considering the Mining and Crude Oil Production as a high profit industry and that of Airlines as a low profit industry, the following five forces framework explains why profitability has been high and low in these industries respectively.

(i)Bargaining power of buyers:

It’s low in the Mining and Crude Oil Industry since there is no price sensibility and concentration is very high. In the oil industry, buyers are the industrial players and have low power because upstream suppliers have the incentive to limit supply and keep prices high while individual buyer power is low because of the high volume of demand as energy prices rises.

In the Airline industry, the concentration, the volume of the single buyer, switching costs and backward integration are low while substitutability is high with buyers been more price sensitive except for business travelers who are price intensive.

In summary, higher bargaining power of buyers leads to low industry attractiveness and hence low levels of profitability and vice versa.

(ii)Bargaining power of suppliers:

It’s high for both the oil and aircraft industry. In the oil industry, suppliers are the oil mining and extraction firms, for example, Exxon. Supplier power is high because OPEC controls 40% of the world supply of oil and thus has a strong influence on the prices of oil. In addition, unstable countries that host Exxon oil reserves are a threat because they can seize Exxon’s asset at any time. For example, Venezuela recently seized one of Exxon’s major products.

In the Airline industry since there are only two major suppliers in the airline industry (i.e., Boeing and Airbus) with hundreds airlines operating on them, suppliers are...