Question 1.

Perform an industry analysis and provide an overall assessment on the

attractiveness of the movie-theater industry. (see article - Adapted from "Struggling Cinemas
Go Luxe to Survive --- Theaters add giant recliners and fine dining to lure movie fans from
Netflix and the couch") - (25 points)

Using Porter's Five Forces, we can break down the Movie Theater industry into the following
categories:
1) Competitive Rivalry within the Industry
a. Overall Competition: Moderate to High
b. Three key players emerged from the 2008 Financial Crisis (AMC Entertainment
Holdings Inc., Regal Entertainment Group, and Cinemark Holdings Inc).
c. AMC, Cinemark, and Regal have very similar business models, and pricing tends
to be homogenous across theaters in a local market.
d. The majority of other theater businesses operate as either small theaters that
focus on quality and the movie experience or focusing on niche offerings such as
foreign or independent films and classic movies.
e. All theaters most likely receive newly released movies at the same time, which
focuses on movie patrons experience (such as promotional pricing, theater-
quality, concession offerings, etc.)

2) Threat of Substitute Services

a. Overall Threat: Moderate to High
b. The rise of Streaming Services; An increasing number of consumers are "cutting
the cord" & opting to stay at home and stream movies/TV shows rather than
going out and spending more money than need be.
c. This could be caused by a decrease in the supply of motion pictures, the quality
of those produced, and the spending levels on motion picture marketing.
d. Movie theaters are working to revolutionize the experience by offering 3-D
showings, reclining seats, and premium dine-in options.
e. While this approach doesn't serve to differentiate the majority of theaters that
are shifting to or have always offered these types of services, the belief is that it
will help attract families out of the house.

3) Threat of New Entrants

a. Overall Threat: Low
b. High Entry Cost is where a considerable amount of capital is needed to open and
operate a movie theater.

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 c. Geographic location plays a critical role; once a theater (like the Big Three) has
established a footprint in a particular location, competitors are usually deterred
from opening a rival business in the same area.
d. Key Markets are already established.

4) Bargaining Power of Suppliers

a. Overall Power: Moderate to High
b. The movie theater business is mainly dependent on what Movie Studios
produce.
c. They can dictate the cost of the new movie offerings
d. Suppliers being in the dominant position can decrease the margins for what
movie theaters can earn in the market.
e. In terms of the concession, the theaters could utilize many suppliers; thus, if one
particular supplier is not performing to their standards.

5) Bargaining Power of Customers

a. Overall Power: Moderate
b. Most moviegoers are at the mercy of their local movie theater for newly
anticipated releases (such as the MARVEL movies)
c. Consumers could choose between the Big Three or smaller Mom & Pop theaters
if they live in a major city that is capable of accommodating the competition
d. Low switching costs
e. They can dictate the trend of the experience and force theaters to cater to new
and unique offerings
Question 2. What is your recommendation for how a movie-theater company can position
itself for competitive advantage in this industry? (see article - Adapted from "Struggling
Cinemas Go Luxe to Survive --- Theaters add giant recliners and fine dining to lure movie fans
from Netflix and the couch") - (25 points)
I believe that a movie-theater company needs to recognize and relate better to its growing
customer base. Each generation brings in a different version of the same customer. The ultimate
goal is getting a consumer to come to your theater, but the traditional nostalgic popcorn and
candy-bar experience does not cut it in a technologically advanced world. Movie-Theater
companies need to invest in more technological capabilities and drive the experience to warrant
the premium price a moviegoer pays. I believe the luxury/private route is one of the critical
drivers for this. We are pushing towards a direction where people want to experience the Movie
in private (whether that is by themselves or with people they want to watch the Movie with). I
believe that regardless of the advancement, Movie-Theater companies need to find a way to
"package" the movie experience at home. That is because, at some point, patrons will become
disinterested in all of the offerings and services and will look to just being home.

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 Question 3. You are part of investor group that has hired a consulting firm to explain why it
makes sense to breakup United Technologies into three separate companies and how the
merger with Rockwell Collins can create value. What explanations and arguments would you
want to hear from the consulting firm on the breakup of United Technologies and merger with
Rockwell Collins? (see article - Adapted from "Investors bash United Technologies' plan to
split in three following a year-long antitrust battle") - (25 points)
I would want to hear that the three-business line's differentiation would lead to a higher
valuation over time. That is because when you have an organization that could have a pattern of
underperforming businesses where value is diminished due to the "one size fits all" approach to
corporate strategy, incentive compensation, and capital allocation. This breakup is like a spin-off
of Google creating the Parent Holding Company Alphabet. Investors want to see how each part
of the business performs and can help each piece of its businesses operate more efficiently. This
new separation allows for more accountability financially, since each company will now be
treated as an independent entity, and allows investors to assess each company's financial health
and evaluate how they can better allocate their investments. It also allows them to understand
where specific financial line items could be underperforming and force senior leadership to find
innovative ways of rounding out that line item while differentiating themselves against its
competitors. I would also want them to talk about how it will bring a balance between civil
aerospace and defense that could better position each company to handle the cost pressures
and uncertainties from both segments. I would also want to hear how the separation could lead
to a tailored focus on innovation and product development in each company, where each
company can strive to be the leader of their sector. Ultimately, the closing argument should be
that the profit gained from operating through three companies will be more than just one.
When everything is housed under one roof, layers of complexities naturally are established to
satisfy each branch of its product line. Now everything can be retrofitted to each business's
need, leading to even more cost-cutting and efficiencies.
Question 4. Your consulting firm has been hired by Orange Motors, which competes with Tesla
and other electric automobile manufacturing companies. Orange Motors wants advice on
whether it should vertically integrate backward into electric-car battery manufacturing and, if
so, whether it should acquire an existing electric-car battery supplier or internally develop on
its own. First, what explanations and arguments would you present on whether to vertically
integrate backward? Second, we assume that Orange Motors does vertically integrate
backward, what explanations and arguments would you present on whether to acquire or
internally develop? - (25 points)
When consulting for Orange Motors, I would begin by discussing the benefits of vertically
integrating backward and forward. Each strategy has its own set of benefits, and it would be
essential to learn more from them on what specific needs they are looking to grasp better. For
Vertical Integration Backwards, I would ask if this was being considered due to issues with the
suppliers they are working with for the inputs into their product. If so, then yes, it would make

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 sense to focus backward, for it can lower the supplies' pressure and cost. Especially if there are
a limited number of suppliers or if there are issues within the supply chain. These options will
ultimately improve their supply chain because they have direct control and can find ways to cut
down the manufacturing costs by directly obtaining the raw materials. However, several risks
are associated with this, as well. If companies are unable to manage their supply chain after
acquiring their suppliers successfully could lose on significant profits and produce more
mediocre quality products. The costs of managing may also not be suitable for the company as
it may not align under their interests or business, especially if they do not have the proper
expertise to manufacture its products. However, if the focus is to take control of the post-
production process, where concerns from its suppliers are non-existent than vertically
integrating forward would be the better option. For example, if Orange Motors wants to get
closer to the consumer, than the creation or acquisition of a dealership would be more
beneficial. This could help drive revenue because they can understand what the consumer is
looking for by working directly with them versus through third-party dealer ownership and work
with its suppliers to develop that ideal model faster.
Now that Orange Motors has integrated vertically (backward), we need to evaluate on if
acquiring or internally developing would be a better long-term strategy. The best way to
determine that comes down to vital strategic concepts that the organization needs to evaluate.
The investment serves as one of the key drivers on whether the firm can develop internally or
acquire one that already exists. Investments take on financing, R & D, knowledge/expertise,
thought leadership, and culture. The ultimate decision comes down to how many of these
components are or are not possible. If you have the financing capabilities, with the appropriate
personnel who knows the supply chain/raw materials needed, then it can make sense to
develop internally. R&D costs could be significantly less since experts are already available and
know the market/industry, which appropriately being coordinated by senior management who
has the vision to adjust to market demands and trends. Ultimately, instilling a culture where the
employees are willing to put behind that constant work to ensure its sustainability. If the firm
does not have enough financing, does not have experts or senior leaders who know and
understands this component of the backward integration, everything points to the acquisition
route. It is generally easier to align the in-house developed choice over retrofitting a pre-existing
organization to match your needs and interests.

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