The textile industry consists of firms that manufacture and distribute fabrics for use in clothing, furniture, carpeting, and so forth. Several firms have invested heavily in sophisticated manufacturing technology, and many lower-cost firms located in Asia have begun fabric production. Textiles are not branded products. Recently, tariffs on some imported textiles have been implemented. The industry has numerous firms; the largest have less than 10 percent market share. Traditional fabric materials (such as cotton and wool) have recently been threatened by the development of alternative chemical-based materials (such as nylon and rayon), although many textile companies have begun manufacturing with these new materials as well. Most raw materials are widely available, although some synthetic products periodically may be in short supply. There are numerous textile customers, but textile costs are usually a large percentage of their final product's total costs. Many users shop around the world for the lowest textile prices.
1. Which of the following approaches to strategy formulation is more likely to generate economic profits:
a. a) evaluating external opportunities and threats and then developing resources and capabilities to exploit these opportunities and neutralize these threats or
b. b) evaluating internal resources and capabilities and then searching for industries where they can be exploited? Explain your answer.
2. Which firm will have a higher level of economic performance:
a. a) a firm with valuable, rare, and costly-to-imitate resources and capabilities operating in a very attractive industry or
b. b) a firm with valuable, rare, and costly-to-imitate resources and capabilities operating in a very unattractive industry? Assume both these firms are appropriately organized. Explain your answer.