1.

Using Porters five forces of competition model, analyze the competitive environment of the Company you have been given. Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit. Using the force of threat of new competition, the industry of electricity distribution in Uganda is very attractive. Umeme as a distributor of power in Uganda is not only a monopoly but also a monopsony. The company, being a product of long standing government policy of nationalization, faces no competition. Even after privatization, potential competitors are put off by the logistical advantage Umeme possesses in form of inherited installations, customer loyalty access to unique raw materials. This means Umeme controls the quantity, quality and price of power and enjoys abnormal profits as a result. Basing on the threat of substitute products or services, the existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. It may not be competitors' similar products but entirely different ones instead. For example, many Ugandans are seeking alternatives such as solar, inverters, generators, biogas, natural gas and other cheaper alternatives. Buyers propensity to substitute, relative price of substitutes, buyer switching costs, perceived level of product differentiation, number of substitute products available in the market, ease of substitution, quality depreciation all affect Umemes competitiveness and affects its profitability.

Using the bargaining power of suppliers, suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources or cut off supply completely as Aggreko did. Umemes profitability, in this case is affected by supplier switching costs relative to firm switching costs, degree of differentiation of inputs, impact of inputs on cost or differentiation, presence of substitute inputs, strength of distribution channel, supplier concentration to firm concentration ratio, employee solidarity (e.g. labor unions), supplier competition - ability to forward vertically integrate and cut out the buyer. For example, Umeme only sell power and there is only and there are few suppliers of power such as UETCL, and so Umeme has no alternative but to buy it from them.

Another force is the bargaining power of customers (buyers).The bargaining power of customers is described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. In this case Umeme is concerned with buyer concentration to firm concentration ratio, degree of dependency upon existing channels of distribution, bargaining leverage, particularly in industries with high fixed costs, buyer volume, buyer switching costs relative to firm switching costs, buyer information availability, availability of existing substitute products, buyer price sensitivity, uniqueness of industry products Lastly, intensity of competitive rivalry. For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. This may entail sustainable competitive advantage through innovation, competition between online and offline companies, level of advertising expense, powerful competitive strategy. Umeme 2

has an advantage in this regard due to lack of pure competitive substitutes. The intensity of rivalry between competitors in an industry will depend on: The structure of competition- for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting Degree of differentiation- industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry Switching costs- rivalry is reduced where buyers have high switching costs i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier Strategic objectives- when competitors are pursuing aggressive growth strategies, rivalry is more intense. Where competitors are "milking" profits in a mature industry, the degree of rivalry is less Exit barriers- when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry. 2. Using the value chain analysis model of Porter, analyze the value chain of the company that you have been given. Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and

(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced"). The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on). Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance. The Maintenance Value Chain approach is particularly successful when used as a tool for helping Change Management as it is seen as more user friendly than other business process tools. Value chain approach could also offer a meaningful alternative to valuate private or public companies when there is a lack of publically known data from direct competition, 4

where the subject company is compared with, for example, a known downstream industry to have a good feel of its value by building useful correlations with its downstream companies. Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain.[4]Although commonly associated with export-oriented trade, development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones.

3. Referring to the chapter that you have covered, explain how it can be enable the company you have been given to achieve competitiveness. Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced"). What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will

require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used. Primary Activities Primary value chain activities include: Primary Activity Inbound logistics Operations Outbound logistics sales Service All those activities concerned with receiving and storing externally sourced materials The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products) All those activities associated with getting finished goods and services to buyers about products and services (benefits, use, price etc.) All those activities associated with maintaining product performance after the product has been sold Support activities include: Secondary Activity Procurement Human Resource Management Technology Development Activities concerned with managing information processing and the development and protection of "knowledge" in a business This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business Description Description

Marketing and Essentially an information activity - informing buyers and consumers

Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management