What are the most attractive industries for the base of the pyramid?
The base of the base of the pyramid consists of the largest population that is over 4 billion with an income of about $1.5 on a daily basis. The category consists of people who are mainly consumers. Industries dealing with fast moving consumer products fit in this section of the economic pyramid. The quality of goods and services available to this level are of inferior quality and quantity that opens enormous market opportunities to consumer products industries. Unilever Inc has been seen to focus on this segment, for instance in India. The section is also open to technological innovation which means it is attractive to technology industries (Peng, 27).
There are ways in which the performances of firms are evaluated depending on the context in which they operate. The performance of a firm in the emerging economies based on resources context is determined by the capabilities of the firm in question. Such capabilities may be in the form of their capital pool, labor force, technology power or even a high competitive power (Peng, 16).
Emerging economies are different from the developed economies and their rules of the game differ in their strategies and performance both domestically and on a foreign basis. Emerging economies are seen to have weaker formal institutional constraints as compared to developed ones who have high institution structures. Additionally, developed economies are deemed more favorable for new ventures than the emerging ones. Similarly, the developed economies have more entrepreneurial friendly environments as compared to the emerging economies as most investors and agencies tend to support the established ones more.
Some argue that aggressively investing in emerging economies is not only economically beneficial but also highly ethical, because it may potentially lift many people out of poverty. However, others caution that in the absence of reasonable hopes of decent profits (the base of the pyramid is notoriously turbulent due to political and economic uncertainties), rushing to emerging economies is reckless. How would you participate in this debate?
The emerging economies make the economic base of the pyramid. Investing in this sector will have a positive effect of eradicating poverty among the over 4 billion population in this segment as the set industries would raise the living standards, like the Unilever case in India (Peng, 27). Additionally, the section has a large population that would offer adequate labor hence employment. Venturing into the base of the pyramid may have its drawbacks. Most financiers and agencies rarely support the emerging economies, and this would result in massive losses and failure in the plans implemented if conducted without caution.
Five Forces in the Beauty Products Industry
Why do incumbents have long staying power in this industry?
The incumbents have tools and techniques that enable them to stay longer in the market. They operate as monopolies hence put some entry barriers into the market to prevent other new competitors. They also enjoy economies of scale which enable them to operate at low costs by increasing the production level. The incumbents are also able to stay in the market longer due to the independence of scale. For instance, they can create patent ownership for their technologies such that the new entrants have to come up with their inventions which are expensive. Additionally, they practice product proliferation where they provide products and services in a way that no market gap is left. They also use product differentiation that makes their products look different from those of their rivals (Peng, 39-41).
How do new entrants overcome entry barriers? How do incumbents react to new entries?
Entrants overcome entry to barriers through various ways. Firstly, they may come up with innovations and inventions or even copy the existing technologies from the existing firms. They also come up with low-cost manufacturing methods as compared to those of the existing firms so that they can attract new customers and enjoy customer loyalty. They also carry out product differentiation so that their products and services appear different from those of the existing enterprises in the market. The capital requirement is one of the barriers, and the entrants can avoid the barriers by partnering with other firms to form a large capital pool and overcome the high capital barriers. Some barriers are created by the governments and can be overcome by entering into trade agreements with the governments. The incumbents always have ways of protecting themselves from new entrant’s competitions. Firstly, they seek patent rights to their existing innovations and technologies so that the entrants cannot copy. They also carry out intense advertising to regain any lost consumer loyalty. They can also retaliate by having excess capacities that lead to heavy taxes and the new entrants always opt out (Peng, 39-41).
Why do retail chains gain bargaining power as buyers at the expense of department stores?
The retailers can acquire bargaining power due to various reasons. To start with, the supply industry is composed of only a few firms and they may, therefore, have an upper hand. Similarly, they can provide differentiated products that have few or no close substitutes. They can also gain bargaining power if the source company is not a noticed and crucial customer in the market. A good example is where the company is not worried by other firms lowering their costs/prices. They also become dominant by being hostile whereby they opt to become competitors/ rivals (Peng, 41-42).
Should traditional competitors focus on expanding new country markets in emerging economies, or on entering hot new growth product markets in developed economies?
The focus should be on expansion of new markets in developing economies. These companies already enjoy economies of scale and have large capital bases that they can use to create and develop new markets and leave the developed markets to the entrants. Such a focus would bring a balanced economy with each firm having a share of the created markets and customer loyalty for their services and products.
Peng, and Mike W. Global Strategy. 2nd ed., Ohio: South-Western Cengage, N.p., 2009. Print.