Strategy: Core Concepts
and Analytical Approaches
CHAPTER 3
Evaluating a Company’s External
Environment
Copyright © 2010 by Arthur A. Thompson and Glo-Bus Software, Inc.
“Analysis is the critical starting
point of strategic thinking.”
Kenichi Ohmae
Consultant and author
Chapter Learning Objectives
1. To gain command of the basic concepts and
analytical tools widely used to diagnose a company’s
industry and competitive conditions.
2. To become adept in recognizing the factors that cause
competition in an industry to be fierce, more or less
normal, or relatively weak.
3. To learn how to determine whether an industry’s
outlook presents a company with sufficiently
attractive opportunities for growth and profitability.
4. To understand why in-depth evaluation of specific
industry and competitive conditions is a prerequisite
to crafting a strategy well matched to a company’s
situation.
The Key Topics Covered in Chapter 3
 The Strategically Relevant Components of a
Company’s External Environment
 Thinking Strategically About a Company’s Industry
and Competitive Environment
► Question 1: What Kinds of Competitive Forces Are Industry
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Members Facing, and How Strong Is Each Force?
Question 2: What Forces Are Driving Industry Change and
What Impacts Will They Have?
Question 3: What Market Positions Do Rivals Occupy—Who Is
Strongly Positioned and Who Is Not?
Question 4: What Strategic Moves Are Rivals Likely to Make
Next?
Question 5: What Are the Key Factors for Future Competitive
Success?
Question 6: Does the Outlook for the Industry Present the
Company with Sufficiently Attractive Prospects for
Profitability?
Understanding a Company’s Situation
 Managers are not prepared to act wisely in
steering a company in a different direction or
altering its strategy until they have a deep
understanding of two especially pertinent facets
of a company’s situation:
► The industry and competitive environment
in which the company operates and the
forces acting to reshape this environment
► The company’s own market position and
competitiveness—its resources and
capabilities, its strengths and weaknesses
vis-à-vis rivals, and its windows of opportunity.
 Insightful diagnosis of a company’s external and
internal environment is a prerequisite for
managers to succeed in crafting a strategy that
is an excellent fit with the company’s situation
Figure 3.1: From Thinking Strategically About the
Company’s Situation to Choosing a Strategy
A Company’s Macroenvironment
 A company’s macroenvironment includes all
factors and influences outside the company’s
boundaries that are important enough to have a
bearing on the decisions the company ultimately
makes about its direction, objectives, strategy, and
business model.
 The categories of these forces and
influences include
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General economic conditions
Population demographics
Societal values and lifestyles
Governmental legislation and regulation
Technology
The immediate industry and competitive arena in which the
company operates
Figure 3.2: The Components of a Company’s
Macro-environment
Question 1: What Kinds of Competitive Forces
Are Industry Members Facing?
The state of competition in an industry is a composite of
competitive pressures operating in five areas of the
overall market:
1. Competitive pressures associated with the market
maneuvering and jockeying for buyer patronage that
goes on among rival sellers in the industry.
2. Competitive pressures associated with the threat of
new entrants into the market.
3. Competitive pressures coming from the attempts of
companies in other industries to win buyers over to
their own substitute products.
4. Competitive pressures stemming from supplier
bargaining power and supplier–seller collaboration.
5. Competitive pressures stemming from buyer
bargaining power and seller–buyer collaboration.
Figure 3.3: The Five Forces Model of
Competition
Analyzing the Five Competitive Forces: How
to Do It
Step 1: Identify the specific competitive
pressures associated with each of
the five forces
Step 2: Evaluate how strong the pressures
comprising each competitive force
are (fierce, strong, moderate to
normal, or weak?)
Step 3: Determine whether the collective
strength of the five competitive
forces is conducive to earning
attractive profits
Competitive Pressures Created by the Rivalry
among Competing Sellers
 Rivalry among competing sellers is usually the
strongest of the five forces because
► When one firm deploys a strategy or makes a new
strategic move that produces good results, its
rivals typically respond with offensive or defensive
countermoves of their own.
► This pattern of action and reaction, move and
countermove, adjust and readjust produces a
continually evolving competitive landscape where
the market battle ebbs and flows, sometimes takes
unpredictable twists and turns, and produces
winners and losers.
In effect, a market is a competitive battlefield
where the contest among competitors is
ongoing and dynamic.
Figure 3.4: Weapons for Competing and
Factors Affecting Strength of Rivalry
The Common “Weapons” that Companies Use
in Competitive Battles with Rivals
 Lower prices
 More or different
performance features
 Better product
performance
 Higher quality
 Stronger brand name
and image
 Wider selection of
models and styles
 Bigger/better dealer
network
 Low interest rate
financing
 Higher advertising
and/or better ads
 Stronger product
innovation capabilities
 Better customer service
 Stronger capabilities to
provide buyers with
custom-made products
 Better warranty
coverage
What Causes Rivalry to be Stronger?
The rivalry among industry members is weaker
when
 Competing sellers are active in making fresh moves to improve their
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market standing and business performance.
Buyer demand is growing slowly.
Buyer demand falls off and sellers find themselves with excess
capacity and/or inventory.
The number of rivals increases and rivals are of roughly equal size
and competitive capability.
The products of rival sellers are commodities or else weakly
differentiated.
Buyer costs to switch brands are low.
One or more rivals are dissatisfied with their
current position and market share and make
aggressive moves to attract more customers.
Rivals have diverse objectives and strategies
and/or are located in different countries.
Outsiders have recently acquired weak competitors and are trying to
turn them into major contenders.
One or two rivals have powerful strategies and
other rivals are scrambling to stay in the game.
What Causes Rivalry to be Weaker?
The rivalry among industry members is weaker
when
 Industry members move only infrequently or in
a non-aggressive manner to draw sales and
market share away from rivals.
 Buyer demand is growing rapidly.
 The products of rival sellers are
strongly differentiated and
customer loyalty is high.
 Buyer costs to switch brands are high.
 There are fewer than five sellers or else so
many rivals that any one company’s actions
have little direct impact on rivals’ business.
Competitive Pressures Associated With the
Threat of Potential Entry
Several factors determine whether the threat
of new companies entering the marketplace
adds to the competitive pressures faced by
industry members:
 The size of the pool of likely
entry candidates and the
resources at their command
 Whether the likely entry candidates
face high or low entry barriers
 How attractive the growth and profit
prospects are for new entrants
Figure 3.5: Factors Affecting Threat of Entry
Figure 3.5: Factors Affecting Threat of Entry
Common Barriers to Entry
 The cost advantages enjoyed by industry
incumbents
 Strong brand preferences and high degrees of
customer loyalty
 High capital requirements
 The difficulties of building a network of
distributors–retailers and securing adequate
space on retailers’ shelves.
 Restrictive regulatory policies
 Tariffs and international trade restrictions
 The ability and willingness of industry
incumbents to launch strong defensive
maneuvers to maintain their positions and make
it harder for a newcomer to build a clientele
When Is the Threat of Entry Stronger?
Entry threats are stronger when:
 The pool of entry candidates is large and
some have resources that would make
them formidable market contenders.
 Entry barriers are low or can be readily
hurdled by the likely entry candidates.
 When existing industry members are looking
to expand their market reach by entering
product segments or geographic areas where
they currently do not have a presence.
 Newcomers can expect to earn
attractive profits.
 Buyer demand is growing rapidly.
 Industry members are unable (or unwilling) to
strongly contest the entry of newcomers.
When Is the Threat of Entry Weaker?
Entry threats are weaker when:
 The pool of entry candidates is small.
 Entry barriers are high.
 Existing competitors are struggling to
earn good profits.
 The industry’s outlook is risky
or uncertain.
 Buyer demand is growing
slowly or is stagnant.
 Industry members will strongly contest
the efforts of new entrants to gain a
market foothold.
Factors That Make the Entry of New
Competitors Likely
 Potential entrants are highly motivated to commit
the resources needed to hurdle entry barriers when
► Market demand is growing rapidly
► The profit prospects for new entrants are good
• When profits are sufficiently attractive, entry barriers
are unlikely to be an effective entry deterrent. At most,
they limit the pool of candidate entrants.
The best test of whether potential entry is a
strong or weak competitive force in the
marketplace is to ask if the industry’s growth
and profit prospects are strongly attractive to
potential entry candidates.
When the answer is no, potential entry is a weak
competitive force.
When the answer is yes and there are entry candidates
with sufficient expertise and resources, potential entry is a
strong competitive force.
Competitive Pressures from the Sellers of
Substitute Products
Concept
Substitutes matter when customers
are attracted to the products of
firms in other industries
Examples
 Sugar vs. artificial sweeteners
 Eyeglasses and contact lens
vs. laser surgery
 Music CDs vs. digital music players
(iPod)
How to Tell Whether Substitute
Products Are a Strong Competitive Force
Whether the competitive pressures from
substitute products are strong, moderate, or
weak depends on three factors:
 Whether substitutes are readily
available and attractively priced
 Whether buyers view substitutes
as being comparable or better
 How much it costs end users
to switch to substitutes
Figure 3.6: Factors Affecting Competition
From Substitute Products
When Is the Competition
From Substitutes Stronger?
Competitive pressures from
substitutes are stronger when:
 Good substitutes are readily
available or new ones are emerging.
 Substitutes are attractively priced.
 Substitutes have comparable or better
performance features.
 End users have low costs in switching
to substitutes.
 End-users grow more comfortable with
using substitutes.
When Is the Competition From Substitute
Products Weaker?
Competitive pressures from
substitutes are weaker when:
 Good substitutes are not readily
available or don’t exist.
 Substitutes are higher priced relative to
the performance they deliver.
 End users have high costs in switching
to substitutes.
Signs that Competition from the Sellers of
Substitute Products Is Strong
There are three signals that competitive
pressures from the sellers of substitute
products are strong:
 Sales of substitutes are growing faster
than sales of the industry being analyzed
(an indication that the sellers of
substitutes are drawing customers away
from the industry in question).
 Producers of substitute products are
moving to add new capacity.
 Profits of the producers of substitutes are
on the rise.
Competitive Pressures From Suppliers
and Supplier-Seller Collaboration
Whether the relationships between industry
members and their suppliers represent a weak,
moderate, or strong competitive force depends
on
 The degree to which suppliers have
sufficient bargaining power to
influence the terms and conditions
of supply in their favor
 Whether close collaboration between one or
more industry members and certain important
suppliers allow these industry members to
capture competitively valuable supply chain
benefits that put other industry members at a
competitive disadvantage
Figure 3.7: Factors Affecting Bargaining Power of Suppliers
Figure 3.7: Factors Affecting the Bargaining
Power of Suppliers
When Is the Bargaining
Power of Suppliers Stronger?
Supplier bargaining power is stronger when:
 Industry members incur high costs in switching
their purchases to alternative suppliers.
 Needed inputs are in short supply (which gives
suppliers more leverage in setting prices).
 A supplier has a differentiated input that
enhances the quality or performance of sellers’
products or is a valuable or critical part of sellers’
production processes.
 There are only a few suppliers
of a particular input.
 Some suppliers are a threat to integrate forward
into the business of industry members and
perhaps become a powerful rival.
When Is the Bargaining
Power of Suppliers Weaker?
Supplier bargaining power is weaker when:
 The item being supplied is a “commodity” that is readily
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available from many suppliers at the going market price.
Seller switching costs to alternative suppliers are low.
Good substitute inputs exist or new ones emerge.
There is a surge in the availability of supplies (thus greatly
weakening supplier pricing power).
Industry members account for a big fraction of suppliers’
total sales and continued high volume purchases are
important to the well-being of suppliers.
Industry members are a threat to integrate backward into
the business of suppliers and to self-manufacture their own
requirements.
Collaborative partnerships between
industry members and select suppliers
provide attractive win-win opportunities.
How Industry Member-Supplier Collaboration
Creates Competitive Pressures
 Industry members often forge strategic partnerships with
select suppliers to
► Reduce inventory and logistics costs
► Speed availability of
next-generation components
► Enhance quality of parts being supplied
► Squeeze out cost savings for both parties
 Benefits of these collaborative partnerships can translate
into
► Competitive advantage for industry members who capture
sizable benefits from their partnership arrangements
► Competitive disadvantage for industry members who do
not enjoy the benefits of such arrangements, which then
heightens the supplier-related competitive pressures they
experience
Competitive Pressures From Buyers
and Seller-Buyer Collaboration
Whether buyers are able to exert strong
competitive pressures on industry
members depends on
 The degree to which some or many buyers
have sufficient bargaining leverage to obtain
price concessions and other favorable terms
and conditions of sale
 The extent and competitive
importance of collaborative
arrangements that certain
industry members may have
with important customers.
Figure 3.8: Factors Affecting the Bargaining
Power of Buyers
When Is the Bargaining
Power of Buyers Stronger?
Buyer bargaining power is stronger when:
 Buyer switching costs to competing brands or substitute
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products are low.
Buyers are large and can demand concessions when
purchasing large quantities.
Large volume purchases by buyers are
important to sellers.
Buyer demand is weak or declining.
There are only a few buyers—so that each
one’s business is important to sellers.
Identity of buyer adds prestige to
the seller’s list of customers.
Quantity and quality of information
available to buyers improves.
Buyers have the ability to postpone purchases if they do
not like the present deals being offered by sellers.
Some buyers are a threat to integrate backward into the
business of sellers and become an important competitor.
When Is the Bargaining Power
of Buyers Weaker?
Buyer bargaining power is weaker when:
 Buyers purchase the item infrequently or in small
quantities.
 Buyer switching costs to
competing brands are high.
 There is a surge in buyer
demand that creates a
“sellers’ market.”
 A seller’s brand reputation is
important to the buyer.
 A particular seller’s product delivers quality or
performance that is very important to buyers and
that is not matched in other brands.
 Buyer collaboration or partnering with selected
sellers provides attractive win–win opportunities.
How Industry Member-Customer
Collaboration Creates Competitive Pressures
 Collaborative partnerships between industry
members and some/many of their customers may
result in mutual benefits
regarding
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Just-in-time deliveries
Order processing
Electronic invoice payments
Data sharing
 Benefits of these collaborative
partnerships can translate into
► Competitive advantage for industry members who capture
sizable benefits from their partnership arrangements with
key customers
► Competitive disadvantage for industry members who do
not enjoy the benefits of such arrangements, which then
heightens the competitive pressures they experience
Is the Collective Strength of the Five Competitive
Forces Conducive to Good Profitability?
 As a rule, the stronger the collective impact of
the five competitive forces, the lower the
combined profitability of industry participants.
 The most extreme case of a “competitively
unattractive” industry is when
► Rivalry among industry members
is vigorous
► Entry barriers are low
and entry is likely
► Competition from the producers of
substitute products is strong
► Both suppliers and customers have
considerable bargaining power
Is the Collective Strength of the Five Competitive
Forces Conducive to Good Profitability?
An industry is “competitively attractive” in the
sense that industry members can reasonably
expect to earn good profits and a good return
on investment when
 Rivalry is weak to moderate
 High barriers block
further entry
 Good substitutes
do not exist
 Both suppliers and customers are
in a weak bargaining position
Coping With the Five Competitive Forces
 Working through the five-forces model step by step
not only aids strategy makers in assessing whether
the intensity of competition allows good profitability
but also promotes sound strategic thinking about
how to better match company strategy to the
specific competitive character of the marketplace.
 Effectively matching a company’s
strategy to prevailing competitive
conditions has two aspects:
► Pursuing avenues that shield the firm
from as many of the different competitive
pressures as possible.
► Initiating actions calculated to produce sustainable
competitive advantage, thereby shifting competition in
the company’s favor, putting added competitive
pressure on rivals, and perhaps even defining the
business model for the industry.
Question 2: What Forces Are Driving Industry
Change and What Impacts Will They Have?
 Industry conditions change because
important forces are driving industry
participants (competitors, customers,
or suppliers) to alter their actions.
 Driving forces are the
major underlying causes
of changing industry and competitive
conditions—they have the biggest influence
on how the industry landscape will be altered.
 Where do driving forces originate?
► Outer ring of macroenvironment
► Inner ring of macroenvironment
Analyzing an Industry’s Driving Forces
Driving-forces analysis has three steps:
1. Identifying what the driving forces are
2. Assessing whether the drivers of change
are, on the whole, acting to make the
industry more or less attractive
3. Determining what strategy
changes are needed to prepare
for the impacts of the driving forces.
Common Types of Driving Forces
Most drivers of industry and competitive change
fall into one of the following categories
 Changes in long-term industry growth rate
 Increasing globalization
 Emerging new Internet
capabilities and applications
 Changes in who buys the
product and how they use it
 Product innovation
 Technological change and manufacturing
process innovation
 Marketing innovation
Common Types of Driving Forces (continued)
 Entry or exit of major firms
 Diffusion of technical know-how across more
companies and more countries
 Changes in cost and efficiency
 Growing buyer preferences for differentiated
products instead of a commodity product (or for a
more standardized product instead of strongly
differentiated products)
 Regulatory influences and
government policy changes
 Changing societal concerns,
attitudes, and lifestyles
 Reductions in uncertainty
and business risk
Assessing the Impact of the Driving Forces
 Stopping with an identification of the
driving forces is not sufficient. The second,
and more important, step in driving forces
analysis is to determine whether the prevailing
driving forces are, on the whole, acting to make
the industry environment more or less
attractive.
 Answers to three questions are needed:
► Will the combined impacts of the driving forces
cause demand for the industry’s product to
increase or decrease?
► Will the combined impacts of the driving forces
make competition more or less intense?
► Will the combined impacts of the driving forces
lead to higher or lower industry profitability?
Developing a Strategy that Takes the Impacts
of the Driving Forces into Account
 The third step of driving forces analysis—where
the real payoff for strategy-making comes—is for
managers to draw some conclusions about what
strategy adjustments will be needed to deal
with the impacts of the driving forces.
 To the extent that managers are unclear about the
drivers of industry change and their impacts, or if
their views are off-base, the chances of making
astute and timely strategy adjustments are slim.
► One cannot hope to wisely adjust a company’s
strategy if one does not know what the driving
forces are and what their likely impacts will be!!!
 So driving-forces analysis is not something to take
lightly; it has practical value and is basic to the task
of thinking strategically about where the industry is
headed and how to prepare for the changes ahead.
Question 3: What Market
Positions Do Rivals Occupy?
 Understanding which companies are
strongly positioned and which are weakly
positioned is an integral part of analyzing
an industry’s competitive structure.
 The best technique for revealing the
market positions of industry competitors is
strategic group mapping
 A strategic group is a cluster of industry
rivals that have similar competitive
approaches and market positions.
Strategic Group Mapping
 Companies in the same strategic group
can resemble one another in any of
several ways: They may have
► Comparable product-line breadth
► Sell in the same price/quality range,
Emphasize same distribution channels
► Use same product attributes to appeal
to similar types of buyers
► Use identical technological approaches
► Offer buyers similar services
► Cover same geographic areas
Procedure for Constructing
a Strategic Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an
industry from one another
STEP 2: Plot firms on a two-variable
map using pairs of these
differentiating characteristics
STEP 3: Assign firms that fall in about the same
strategy space to same strategic group
STEP 4: Draw circles around each group, making
circles proportional to size of group’s
respective share of total industry sales
Figure 3.9 Comparative Market Positions of Selected
Retail Chains: An Example of a Strategic Group Map
Guidelines for Constructing a
Strategic Group Map
 Variables selected as axes should not be highly
correlated—if they are, then the circles will all fall along a
diagonal and reveal nothing more about the relative
positions of competitors than would be revealed by
comparing the rivals on just one of the variables
 Variables chosen as axes should expose big differences
in how rivals compete—when rivals differ on both
variables, the locations of the rivals will be scattered,
thus showing how they are positioned differently
 Variables chosen for either axis do not have to be either
quantitative or continuous
 Drawing sizes of circles proportional to combined sales of
firms in each strategic group allows map to reflect relative
sizes of each strategic group
 If more than two good competitive variables can be used,
several maps can be drawn
Interpreting Strategic Group Maps
 Firms in the same strategic group are the
closest rivals; the next closest rivals are in the
immediately adjacent groups. Firms in strategic
groups that are far apart on the map may
hardly compete at all.
 Not all positions on the map
are equally attractive
► Prevailing competitive pressures and driving
forces often favor some strategic groups and hurt
others
► Profit potential of different strategic
groups varies due to strengths and
weaknesses in each group’s market
position
Question 4: What Strategic Moves
Are Rivals Likely to Make Next?
 Keeping close tabs on competitors enables a
company to better anticipate what important
actions rivals are likely to take next and to
prepare needed defensive countermoves, to
craft its own strategic moves with some
confidence about what market maneuvers to
expect from rivals, and to capitalize on
opportunities stemming from competitors’
missteps or strategy flaws.
Good competitive intelligence helps
managers avoid the damage to
sales and profits that comes from
being caught napping by the
surprise moves of rivals.
What to Look For in Trying to Predict
Rivals’ Next Moves
 To predict what rival companies are likely to do
next, one needs competitive intelligence about
► Rivals’ strategies and how well these strategies are
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working (companies with weak or flawed strategies
are certain to undertake fresh strategic initiatives)
Their financial performance and which rivals are
under pressure to improve their financial performance
(pressures for better performance nearly always
trigger new strategic moves and initiatives)
Their resource strengths and weaknesses and which
rivals have important problems/issues they need to
address—the presence of thorny problems that need
to be addressed signals likely new initiatives
The actions and plans they have announced
The thinking and leadership styles of their executives
Questions to Consider in Predicting What
Moves Rivals Are Likely to Make
 Answers to the following questions can help predict the
likely actions of important rivals
► Which competitors have strategies that are producing good
results—and thus are likely to make only minor strategic
adjustments?
► Which competitors are losing ground in the marketplace or
otherwise struggling to come up with a good strategy—and
thus are strong candidates for adjusting important elements
of their strategy?
► Which rivals badly need to increase their unit sales and
market share and what strategic options are they most
likely to pursue?
► Which rivals are likely to enter new geographic markets or
make major moves to substantially increase their sales and
market share in a particular geographic region?
► Which rivals are good candidates to be acquired? Which
rivals may be looking to make an acquisition and are
financially able to do so?
Question 5: What Are the Key
Factors for Competitive Success?
 Key Success Factors (KSFs) are those competitive
factors that affect every industry member’s ability to
be competitively and financially successful
 KSFs can relate to
► Specific strategy elements
► Product attributes
► Resource strengths
► Competencies
► Competitive capabilities
► Market achievements
KSFs are so important to a company’s competitive
success in the marketplace that all firms in the
industry must pay close attention to them or risk
becoming an industry also-ran.
Identifying Industry Key Success Factors
 Key success factors vary from industry to
industry, and even from time to time within the
same industry, as driving forces and competitive
conditions change.
 The answers to 3 questions often help
pinpoint an industry’s KSFs
► On what basis do customers choose
between competing brands of sellers?
► What resources and competitive capabilities does a
company need to have to be competitively successful?
► What shortcomings are likely to place a company at a
significant competitive disadvantage?
 Rarely are there more than 5 - 6
factors that are truly key to the future financial and
competitive success of industry members
Example: KSFs for Bottled Water Industry
 Access to distribution – to get a
company’s brand stocked and
favorably displayed in retail outlets
 Image – to induce consumers to
buy a particular company’s product
(brand name and attractiveness of packaging
are key deciding factors)
 Low-cost production capabilities –
to keep selling prices competitive
 Sufficient sales volume – to achieve
scale economies in marketing expenditures
Example: KSFs for
Ready-to-Wear Apparel Industry
 Appealing designs and color
combinations – to create buyer appeal
 Low-cost manufacturing efficiency – to
keep selling prices competitive
 Strong network of retailers/company-
owned stores – to allow stores
to keep best-selling items in stock
 Clever advertising – to effectively
convey a specific image to induce
consumers to purchase a particular label
Question 6: Does the Outlook for the
Industry Offer an Attractive Opportunity?
 Involves assessing whether the industry and
competitive environment presents a company with an
attractive or unattractive opportunity
for earning good profits
 Factors to consider:
► The industry’s growth potential.
► Whether competitive forces are conducive to good
profitability and whether competition appears destined to
grow stronger or weaker.
► Whether industry profitability will be favorably or unfavorably
affected by the prevailing driving forces.
► The degrees of risk and uncertainty in the industry’s future
and whether the industry confronts severe problems relating
to regulatory or environmental issues, stagnating buyer
demand, industry overcapacity, and so on.
Factors to Consider in
Assessing Industry Attractiveness
 As a general proposition
► If an industry’s overall profit prospects are above
average, the industry environment is basically attractive
► If an industry’s overall profit prospects are below average,
the industry environment is basically unattractive
 However
► A particular industry is not equally attractive
or unattractive to all industry participants
and all potential entrants.
► The attractiveness of the opportunities an industry presents
depends heavily on whether a company has the resource
strengths and competitive capabilities to capture them.
► A weak competitor in an “attractive” industry may conclude
that its prospects for good profitability are dim because it
cannot compete successfully against competitively stronger
companies.