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All rights reserved.All rights reserved.
PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook
The University of West AlabamaThe University of West Alabama
StrategicStrategic
ManagementManagementCompetitiveness and Globalization:Competitiveness and Globalization:
Concepts and CasesConcepts and Cases Michael A. Hitt • R. Dane !relan" • Robert #. Hoskisson
$eventh e"ition
STRATEGIC
MANAGEMENT
INPUTS
Chapter 2Chapter 2
Analysis of the Analysis of the
External Environment External Environment
Management of StrategyManagement of Strategy
Concepts and CasesConcepts and Cases
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K K NOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES
.. !"#lain the im#ortan$e of analy%ing and understanding!"#lain the im#ortan$e of analy%ing and understanding
the firm&s e"ternal environment.the firm&s e"ternal environment.
2.2. 'efine and des$ri(e the general environment and the'efine and des$ri(e the general environment and the
industry environment.industry environment.
).). 'is$uss the four a$tivities of the e"ternal environmental'is$uss the four a$tivities of the e"ternal environmental
analysis #ro$ess.analysis #ro$ess.
*.*. +ame and des$ri(e the general environment&s si"+ame and des$ri(e the general environment&s si"
segments.segments.
,.,. dentify the five $om#etitive for$es and e"#lain ho theydentify the five $om#etitive for$es and e"#lain ho they
determine an industry&s #rofit #otential.determine an industry&s #rofit #otential.
Studying this chapter should provide you with the strategic
management knowledge needed to:
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K K NOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES (cont’d)(cont’d)
.. 'efine strategi$ grou#s and des$ri(e their influen$e on'efine strategi$ grou#s and des$ri(e their influen$e on
the firm.the firm.
7.7. 'es$ri(e hat firms need to no a(out their'es$ri(e hat firms need to no a(out their$om#etitors and different methods 1in$luding ethi$al$om#etitors and different methods 1in$luding ethi$al
standards used to $olle$t intelligen$e a(out them.standards used to $olle$t intelligen$e a(out them.
Studying this chapter should provide you with the strategic
management knowledge needed to:
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FIGUREFIGURE 2.12.1 The External Environment The External Environment
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General EnvironmentGeneral Environment
3 'imensions in the (roader so$iety that influen$e'imensions in the (roader so$iety that influen$ean industry and the firms ithin it4an industry and the firms ithin it4
'emogra#hi$'emogra#hi$
!$onomi$!$onomi$5oliti$al/legal5oliti$al/legal
So$io$ulturalSo$io$ultural
Te$hnologi$alTe$hnologi$al
6lo(al6lo(al
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TABLE TABLE 2.12.1 The General Environment: Segments and Elements The General Environment: Segments and Elements
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Industry EnvironmentIndustry Environment
3 The set of fa$tors dire$tly influen$ing a firm andThe set of fa$tors dire$tly influen$ing a firm andits $om#etitive a$tions and $om#etitiveits $om#etitive a$tions and $om#etitive
res#onsesres#onses
Threat of ne entrantsThreat of ne entrants
5oer of su##liers5oer of su##liers
5oer of (uyers5oer of (uyers
Threat of #rodu$t su(stitutesThreat of #rodu$t su(stitutes
ntensity of rivalry among $om#etitorsntensity of rivalry among $om#etitors
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Cometitor AnalysisCometitor Analysis
3 6athering and inter#reting6athering and inter#retinginformation a(out all of theinformation a(out all of the
$om#anies that the firm$om#anies that the firm
$om#etes against.$om#etes against.
3 8nderstanding the firm&s8nderstanding the firm&s$om#etitor environment$om#etitor environment
$om#lements the insights$om#lements the insights
#rovided (y studying the#rovided (y studying the
general and industrygeneral and industry
environments.environments.
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Analysis o! the External EnvironmentsAnalysis o! the External Environments
3 6eneral environment6eneral environment :o$used on the future:o$used on the future
3 ndustry environmentndustry environment
:o$used on fa$tors and $onditions influen$ing a firm&s:o$used on fa$tors and $onditions influen$ing a firm&s#rofita(ility ithin an industry#rofita(ility ithin an industry
3 ;om#etitor environment;om#etitor environment
:o$used on #redi$ting the dynami$s of $om#etitors&:o$used on #redi$ting the dynami$s of $om#etitors&a$tions< res#onses and intentionsa$tions< res#onses and intentions
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TABLE TABLE 2.2 2.2 Comonents o! the External Environmental AnalysisComonents o! the External Environmental Analysis
$cannin% 3 dentifying early signals of environmental$hanges and trends
Monitorin% 3 'ete$ting meaning through ongoing
o(servations of environmental $hanges
and trends
&orecastin% 3 'evelo#ing #ro=e$tions of anti$i#ated
out$omes (ased on monitored $hanges
and trends
Assessin% 3 'etermining the timing and im#ortan$e
of environmental $hanges and trends for
firms& strategies and their management
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"ortunities and Threats"ortunities and Threats
3 >##ortunity>##ortunity A $ondition in the general A $ondition in the general
environment that< if e"#loited<environment that< if e"#loited<
hel#s a $om#any a$hievehel#s a $om#any a$hieve
strategi$ $om#etitiveness.strategi$ $om#etitiveness.
3 ThreatThreat
A $ondition in the general A $ondition in the general
environment that may hinder aenvironment that may hinder a$om#any&s efforts to a$hieve$om#any&s efforts to a$hieve
strategi$ $om#etitiveness.strategi$ $om#etitiveness.
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Segments o! the General EnvironmentSegments o! the General Environment
3 The 'emogra#hi$ SegmentThe 'emogra#hi$ Segment5o#ulation si%e5o#ulation si%e
Age stru$ture Age stru$ture
6eogra#hi$ distri(ution6eogra#hi$ distri(ution
!thni$ mi"!thni$ mi"
n$ome distri(utionn$ome distri(ution
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Segments o! the General EnvironmentSegments o! the General Environment
#$ont%d&#$ont%d&
3 The !$onomi$ SegmentThe !$onomi$ Segment
nflation ratesnflation rates
nterest ratesnterest rates
Trade defi$its or sur#lusesTrade defi$its or sur#luses
?udget defi$its or sur#luses?udget defi$its or sur#luses
5ersonal savings rate5ersonal savings rate
?usiness savings rates?usiness savings rates
6ross domesti$ #rodu$t6ross domesti$ #rodu$t
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Segments o! the General EnvironmentSegments o! the General Environment
#$ont%d&#$ont%d&
3 The 5oliti$al/@egal SegmentThe 5oliti$al/@egal Segment
Antitrust las Antitrust las
Ta"ation lasTa"ation las
'eregulation #hiloso#hies'eregulation #hiloso#hies
@a(or training las@a(or training las
!du$ational #hiloso#hies and!du$ational #hiloso#hies and
#oli$ies#oli$ies
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Segments o! the General EnvironmentSegments o! the General Environment
#$ont%d&#$ont%d&
3 The So$io$ultural SegmentThe So$io$ultural Segment
Women in the or#la$eWomen in the or#la$e
Worfor$e diversityWorfor$e diversity
Attitudes a(out uality of orlife Attitudes a(out uality of orlife
;on$erns a(out environment;on$erns a(out environment
Shifts in or and $areer #referen$esShifts in or and $areer #referen$es
Shifts in #rodu$t and servi$e #referen$esShifts in #rodu$t and servi$e #referen$es
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Segments o! the General EnvironmentSegments o! the General Environment
#$ont%d&#$ont%d&
3 The Te$hnologi$al SegmentThe Te$hnologi$al Segment
5rodu$t innovations5rodu$t innovations
A##li$ations of noledge A##li$ations of noledge
:o$us of #rivate and government-su##orted BC':o$us of #rivate and government-su##orted BC'
e"#enditurese"#enditures
+e $ommuni$ation te$hnologies+e $ommuni$ation te$hnologies
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Segments o! the General EnvironmentSegments o! the General Environment
#$ont%d&#$ont%d&
3 The 6lo(al SegmentThe 6lo(al Segment
m#ortant #oliti$al eventsm#ortant #oliti$al events
;riti$al glo(al marets;riti$al glo(al marets+ely industriali%ed $ountries+ely industriali%ed $ountries
'ifferent $ultural and institutional'ifferent $ultural and institutional
attri(utesattri(utes
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Industry Environment AnalysisIndustry Environment Analysis
3 ndustry 'efinedndustry 'efined A grou# of firms #rodu$ing #rodu$ts that are $lose A grou# of firms #rodu$ing #rodu$ts that are $lose
su(stitutessu(stitutes
3 :irms that influen$e one another:irms that influen$e one another
3 n$ludes a ri$h mi" of $om#etitive strategies thatn$ludes a ri$h mi" of $om#etitive strategies that$om#anies use in #ursuing strategi$$om#anies use in #ursuing strategi$
$om#etitiveness and a(ove-average returns$om#etitiveness and a(ove-average returns
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FIGUREFIGURE 2.2 2.2 The Five For$es o! Cometition 'odel The Five For$es o! Cometition 'odel
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Threat o! (e) Entrants: Barriers to Threat o! (e) Entrants: Barriers to
EntryEntry3 !$onomies of s$ale!$onomies of s$ale3 5rodu$t differentiation5rodu$t differentiation
3 ;a#ital reuirements;a#ital reuirements
3Sit$hing $ostsSit$hing $osts
3 A$$ess to distri(ution $hannels A$$ess to distri(ution $hannels
3 ;ost disadvantages inde#endent of s$ale;ost disadvantages inde#endent of s$ale
3 6overnment #oli$y6overnment #oli$y
3 !"#e$ted retaliation!"#e$ted retaliation
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Barriers to EntryBarriers to Entry
3 !$onomies of S$ale!$onomies of S$aleMarginal im#rovements in effi$ien$y that a firmMarginal im#rovements in effi$ien$y that a firm
e"#erien$es as it in$rementally in$reases its si%ee"#erien$es as it in$rementally in$reases its si%e
3 :a$tors 1advantages and disadvantages related:a$tors 1advantages and disadvantages related
to large- and small-s$ale entryto large- and small-s$ale entry
:le"i(ility in #ri$ing and maret share:le"i(ility in #ri$ing and maret share
;osts related to s$ale e$onomies;osts related to s$ale e$onomies
;om#etitor retaliation;om#etitor retaliation
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Barriers to Entry #$ont%d&Barriers to Entry #$ont%d&
35rodu$t differentiation5rodu$t differentiation 8niue #rodu$ts8niue #rodu$ts
;ustomer loyalty;ustomer loyalty
5rodu$ts at $om#etitive5rodu$ts at $om#etitive
#ri$es#ri$es
3 ;a#ital Beuirements;a#ital Beuirements 5hysi$al fa$ilities5hysi$al fa$ilities
nventoriesnventories
Mareting a$tivitiesMareting a$tivities
Availa(ility of $a#ital Availa(ility of $a#ital
3 Sit$hing ;ostsSit$hing ;osts
>ne-time $osts $ustomers>ne-time $osts $ustomers
in$ur hen they (uy from ain$ur hen they (uy from a
different su##lier different su##lier
3 +e eui#ment+e eui#ment
3 Betraining em#loyeesBetraining em#loyees3 5sy$hi$ $osts of ending a5sy$hi$ $osts of ending a
relationshi#relationshi#
3 A$$ess to 'istri(ution A$$ess to 'istri(ution
;hannels;hannels
Sto$ing or shelf s#a$eSto$ing or shelf s#a$e
5ri$e (reas5ri$e (reas
;oo#erative advertising;oo#erative advertising
alloan$esalloan$es
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Barriers to Entry #$ont%d&Barriers to Entry #$ont%d&
3;ost 'isadvantages;ost 'isadvantages
nde#endent of S$alende#endent of S$ale 5ro#rietary #rodu$t5ro#rietary #rodu$t
te$hnologyte$hnology
:avora(le a$$ess to ra:avora(le a$$ess to ra
materialsmaterials 'esira(le lo$ations'esira(le lo$ations
3 6overnment #oli$y6overnment #oli$y @i$ensing and #ermit@i$ensing and #ermit
reuirementsreuirements
'eregulation of industries'eregulation of industries
3!"#e$ted retaliation!"#e$ted retaliation Bes#onses (y e"istingBes#onses (y e"isting
$om#etitors may de#end$om#etitors may de#end
on a firm&s #resent stae inon a firm&s #resent stae in
the industry 1availa(lethe industry 1availa(le
(usiness o#tions(usiness o#tions
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Bargaining *o)er o! SuliersBargaining *o)er o! Suliers
3 Su##lier #oer in$reases hen4Su##lier #oer in$reases hen4Su##liers are large and fe in num(er.Su##liers are large and fe in num(er.
Suita(le su(stitute #rodu$ts are not availa(le.Suita(le su(stitute #rodu$ts are not availa(le.
ndividual (uyers are not large $ustomers of su##liersndividual (uyers are not large $ustomers of su##liersand there are many of them.and there are many of them.
Su##liers& goods are $riti$al to the (uyers&Su##liers& goods are $riti$al to the (uyers&
maret#la$e su$$ess.maret#la$e su$$ess.
Su##liers& #rodu$ts $reate high sit$hing $osts.Su##liers& #rodu$ts $reate high sit$hing $osts.
Su##liers #ose a threat to integrate forard intoSu##liers #ose a threat to integrate forard into
(uyers& industry.(uyers& industry.
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Bargaining *o)er o! BuyersBargaining *o)er o! Buyers
3 ?uyer #oer in$reases hen4?uyer #oer in$reases hen4?uyers are large and fe in num(er.?uyers are large and fe in num(er.
?uyers #ur$hase a large #ortion of an industry&s total?uyers #ur$hase a large #ortion of an industry&s total
out#ut.out#ut.
?uyers& #ur$hases are a signifi$ant #ortion of a?uyers& #ur$hases are a signifi$ant #ortion of a
su##lier&s annual revenues.su##lier&s annual revenues.
?uyers& sit$hing $osts are lo.?uyers& sit$hing $osts are lo.
?uyers $an #ose threat to integrate (a$ard into the?uyers $an #ose threat to integrate (a$ard into the
sellers& industry.sellers& industry.
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Threat o! Su+stitute *rodu$ts Threat o! Su+stitute *rodu$ts
3 The threat of su(stitute #rodu$ts in$reasesThe threat of su(stitute #rodu$ts in$reaseshen4hen4
?uyers fa$e fe sit$hing $osts.?uyers fa$e fe sit$hing $osts.
The su(stitute #rodu$t&s #ri$e is loer.The su(stitute #rodu$t&s #ri$e is loer.
Su(stitute #rodu$t&s uality and #erforman$e areSu(stitute #rodu$t&s uality and #erforman$e are
eual to or greater than the e"isting #rodu$t.eual to or greater than the e"isting #rodu$t.
3 'ifferentiated industry #rodu$ts that are valued'ifferentiated industry #rodu$ts that are valued
(y $ustomers redu$e this threat.(y $ustomers redu$e this threat.
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Intensity o! Rivalry Among CometitorsIntensity o! Rivalry Among Cometitors
3 ndustry rivalry in$reases hen4ndustry rivalry in$reases hen4 There are numerous or eually (alan$ed $om#etitors.There are numerous or eually (alan$ed $om#etitors.
ndustry groth slos or de$lines.ndustry groth slos or de$lines.
There are high fi"ed $osts or high storage $osts.There are high fi"ed $osts or high storage $osts.
There is a la$ of differentiation o##ortunities or loThere is a la$ of differentiation o##ortunities or lo
sit$hing $osts.sit$hing $osts.
When the strategi$ staes are high.When the strategi$ staes are high.
When high e"it (arriers #revent $om#etitors fromWhen high e"it (arriers #revent $om#etitors from
leaving the industry.leaving the industry.
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Lo) entry +arriers
Interreting Industry AnalysesInterreting Industry Analyses
Unattra$tiveUnattra$tiveIndustryIndustry
Suliers and+uyers have strongositions
Strong threats!rom su+stituterodu$ts
Intense rivalryamong$ometitors
Low profit potential
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Interreting Industry Analyses #$ont%d&Interreting Industry Analyses #$ont%d&
Attra$tiveAttra$tiveIndustryIndustry
,igh entry+arriers
Suliers and+uyers have )ea-
ositions
Fe) threats !romsu+stitute
rodu$ts'oderate rivalryamong$ometitors
High profit potential
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Strategi$ GrousStrategi$ Grous
3 Strategi$ 6rou# 'efinedStrategi$ 6rou# 'efined A set of firms em#hasi%ing similar strategi$ A set of firms em#hasi%ing similar strategi$
dimensions and using similar strategiesdimensions and using similar strategies
3 nternal $om#etition (eteen strategi$ grou# firmsnternal $om#etition (eteen strategi$ grou# firms
is greater than (eteen firms outside that strategi$is greater than (eteen firms outside that strategi$grou#.grou#.
3 There is more heterogeneity in the #erforman$e ofThere is more heterogeneity in the #erforman$e of
firms ithin strategi$ grou#s.firms ithin strategi$ grou#s.
– Similar maret #ositionsSimilar maret #ositions – Similar #rodu$tsSimilar #rodu$ts
– Similar strategi$ a$tionsSimilar strategi$ a$tions
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Strategi$ GrousStrategi$ Grous
3 Strategi$ 'imensionsStrategi$ 'imensions!"tent of te$hnologi$al leadershi#!"tent of te$hnologi$al leadershi#
5rodu$t uality5rodu$t uality
5ri$ing 5oli$ies5ri$ing 5oli$ies'istri(ution $hannels'istri(ution $hannels
;ustomer servi$e;ustomer servi$e
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Cometitor AnalysisCometitor Analysis
3 ;om#etitor ntelligen$e;om#etitor ntelligen$e The ethi$al gathering of needed information and dataThe ethi$al gathering of needed information and data
that #rovides insight into4that #rovides insight into4
3 A $om#etitor&s dire$tion 1 A $om#etitor&s dire$tion 1future objectivesfuture objectives ) )
3 A $om#etitor&s $a#a(ilities and intentions 1 A $om#etitor&s $a#a(ilities and intentions 1currentcurrent
strategy strategy ) )
3 A $om#etitor&s (eliefs a(out the industry 1 A $om#etitor&s (eliefs a(out the industry 1itsits
assumptionsassumptions
3 A $om#etitor&s A $om#etitor&s capabilitiescapabilities
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FIGUREFIGURE 2.2 2.2
CometitorCometitor
AnalysisAnalysis
ComonentsComonents
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Cometitor Analysis #$ont%d&Cometitor Analysis #$ont%d&
3 Do do our goalsDo do our goals
$om#are ith our$om#are ith our
$om#etitors& goalsE$om#etitors& goalsE
3 Where ill the em#hasisWhere ill the em#hasis
(e #la$ed in the futureE(e #la$ed in the futureE3 What is the attitudeWhat is the attitude
toard risEtoard risE
&tre 'b(ectives&tre 'b(ectives
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Cometitor Analysis #$ont%d&Cometitor Analysis #$ont%d&
3 Do are e $urrentlyDo are e $urrently
$om#etingE$om#etingE
3'oes this strategy'oes this strategy
su##ort $hanges in thesu##ort $hanges in the
$om#etitive stru$tureE$om#etitive stru$tureE
&tre 'b(ectives&tre 'b(ectives
Crrent $trate%yCrrent $trate%y
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Cometitor Analysis #$ont%d&Cometitor Analysis #$ont%d&
3 'o e assume the'o e assume the
future ill (e volatileEfuture ill (e volatileE3 Are e o#erating under Are e o#erating under
a status uoEa status uoE
3 What assum#tions doWhat assum#tions do
our $om#etitors holdour $om#etitors holda(out the industry anda(out the industry and
themselvesEthemselvesE
&tre 'b(ectives&tre 'b(ectives
Crrent $trate%yCrrent $trate%y
Assm)tionsAssm)tions
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Cometitor Analysis #$ont%d&Cometitor Analysis #$ont%d&
3 What are our strengthsWhat are our strengths
and eanessesEand eanessesE
3 Do do e rateDo do e rate
$om#ared to our$om#ared to our
$om#etitorsE$om#etitorsE
&tre 'b(ectives&tre 'b(ectives
Crrent $trate%yCrrent $trate%y
Assm)tionsAssm)tions
Ca)abilitiesCa)abilities
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Cometitor Analysis #$ont%d&Cometitor Analysis #$ont%d&
3 What ill ourWhat ill our
$om#etitors do in the$om#etitors do in thefutureEfutureE
3 Where do e hold anWhere do e hold an
advantage over ouradvantage over our
$om#etitorsE$om#etitorsE
3 Do ill this $hangeDo ill this $hange
our relationshi# ithour relationshi# ith
our $om#etitorsEour $om#etitorsE
Res)onseRes)onse&tre 'b(ectives&tre 'b(ectives
Crrent $trate%yCrrent $trate%y
Assm)tionsAssm)tions
Ca)abilitiesCa)abilities
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ComlementorsComlementors
3;om#lementors;om#lementors The netor of $om#anies that sell $om#lementaryThe netor of $om#anies that sell $om#lementary
#rodu$ts or servi$es or are $om#ati(le ith the fo$al#rodu$ts or servi$es or are $om#ati(le ith the fo$al
firm&s on #rodu$t or servi$e.firm&s on #rodu$t or servi$e.
3 f a $om#lementor&s #rodu$t or servi$e adds valuef a $om#lementor&s #rodu$t or servi$e adds valueto the sale of the fo$al firm&s #rodu$t or servi$e< itto the sale of the fo$al firm&s #rodu$t or servi$e< it
is liely to $reate value for the fo$al firm.is liely to $reate value for the fo$al firm.
3 Doever< if a $om#lementor&s #rodu$t or servi$e isDoever< if a $om#lementor&s #rodu$t or servi$e is
in a maret into hi$h the fo$al firm intends toin a maret into hi$h the fo$al firm intends toe"#and< the $om#lementor $an re#resent ae"#and< the $om#lementor $an re#resent a
formida(le $om#etitor.formida(le $om#etitor.
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Ethi$al ConsiderationsEthi$al Considerations
35ra$ti$es $onsidered (oth legal and ethi$al45ra$ti$es $onsidered (oth legal and ethi$al4>(taining #u(li$ly availa(le information>(taining #u(li$ly availa(le information
Attending trade fairs and shos to o(tain $om#etitors& Attending trade fairs and shos to o(tain $om#etitors&
(ro$hures< vie their e"hi(its< and listen to(ro$hures< vie their e"hi(its< and listen to
dis$ussions a(out their #rodu$tsdis$ussions a(out their #rodu$ts
3 5ra$ti$es $onsidered (oth unethi$al and illegal45ra$ti$es $onsidered (oth unethi$al and illegal4
?la$mail?la$mail
Tres#assingTres#assing!avesdro##ing!avesdro##ing
Stealing draings< sam#les< or do$umentsStealing draings< sam#les< or do$uments
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