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Chapter 10 creating and capturing value in the value chain
Reflect: in this chapter, we will extend our analysis to the value chain in which the industry is embedded. To do this, we shall return to a discussion of the value the chain creates and how its segments divide that value. In keeping with our framework for industry analysis, we are interested in how the characteristics of segments in the value chain and the links among them affect the division of value(PIE). We want to identify what determine the value that the manufacturing segment, the retailing segment and the final consumers in this chain each capture. How value is captured is at the heart of industry analysis because it affects the share the industry incumbents are able to retain. The value extraction problem faced by the incumbents is to maximize the share they are able to capture by reducing the share captured by other segments in the chain. In a word, the way firms manage buyer-supplier relationships and the competitive structure of the segments within the value chain determine which firm can capture the value that chain creates. Lack of competition in one’s own segment of the value chain and intense competition elsewhere facilitate value capture. From buyer’s perspective, supplier’s power is unlikely to reduce the share buyers capture when suppliers are competitive. Thus increasing the competition among suppliers will reduce supplier power. When suppliers have power, the buyer will be better off if it also has a strong bargaining position.
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