The biggest surprise for
me in the reading was the chart on page six. This chart showed a graph of the
profitability of selected U.S. Industries using Return on invested capitol
(ROIC) as the appropriate measure. What was surprising to me about this was that
oil and as Machinery are below the national average in terms of ROIC.
One part of the reading
that was confusing to me was the differences between the threat of a substitute
and the threat of an entry. Threat of a new entry puts pressure on prices, costs,
and the rate of investment. Doesn’t the threat of the substitute do the same? I
was confused as to what the differences are between the threat of substitute
vs. threat of entry.
Should an organization
that operates in the field of household appliances be more concerned about a
threat of a new entry or the threat of a substitute?
The Profitability of
Selected U.S. Industries graph on page six, where do you see that changing in
the next ten years? Do Security Brokers, Soft Drinks and Prepackaged Software
stay at the top? Or is there a change in trend?
I disagree that the five
competitive forces reveal whether an industry is truly attractive in terms of
investing. Also, I disagree that an investor can make solid economic predictions
based on the five forces. The five forces of competition can help us identify
strong and weak industries but should not be the guide for which companies to
invest.
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