INDUSTRY ANALYSIS

Industry classification By product. Major products contribution to sales. Diversified.

Industry classification according to business cycle

Growth industries Expectation of high rates of expansion in the top line and bottom line / favorable economic conditions a boost. Cyclical industries Those industries that are likely to benefit from a period of economic prosperity and most likely to suffer from a period of economic recession. Defensive industries Probably counter cyclical food processing, consumer non durables, services items necessary for existence swings in economic factors do not affect these much.

Industry analysis

Process

Identify major players. Analyse past sales and earnings. Growth rate, cost structure.

Performance Related to products and technology. Attitude of government towards the specific industry group present government policies allowing foreign players.

Industry analysis contd..

Labour conditions labour intensive industries wage agreements. Competitive scenario in the industry

Porters five point model Distinctiveness

Product differentiation. Cost advantages. Economies of scale.

Industry analysis contd..

Industry life cycle

Pioneering stage. Expansion stage. Stabilization stage. Decline stage

Distribution of wealth among them. Consumer buying habits.

Composition of industrys population

ISSUES THAT AFFECT AN INDUSTRY

What is the nature of industry? How much is it regulated? Role of labour in the industrys growth? How critical is technological developments? Influence of interest rates, exports, imports on the industry. How important is financial and operating considerations access to capital etc..

Evaluating competitive position of one industry in relation to other industries

Growth potential. New opportunities. Drivers of demand / growth.

PORTERS 5 FORCES MODEL

RIVALRY AMONG EXISTING FIRMS

Large number of firms in the market increases rivalry. Slow market growth fight for market share intense. (High storage cost) / (highly perishable product) rivalry intense. Low switching cost i.e. customers can shift from one product to another easily market rivalry will be more to capture the customers. Low level of product differentiation higher level of rivalry.

RIVALRY AMONG EXISTING FIRMS contd..

When firms are losing market share or potential for gaining market share is very high intense rivalry. High exit barriers i.e. technology or business assets like plant and machinery cannot be deployed to produce some other product/service all firms will try to grab decent market share to continue to be in business.

BARGAINING POWER OF SUPPLIERS

Bargaining leverage / supplier concentration. Volumes. Differentiation of inputs. Presence of substitute products. Switching cost of firms in the industry.

BARGAINING POWER OF BUYERS

Buyers are powerful when Buyers are concentrated few buyers take significant part of production. Can threaten to buy products from rivals. Buyers have a credible backward integration plan.

BARGAINING POWER OF BUYERS contd..

Buyers are weak when Product differentiation significant. Producers threaten forward integration; can have their own distribution channels and retailing. Buyers are fragmented. Significant switching costs. Producers supply critical for buyers input.
(INTELs relationship with PC manufacturers)

ENTRY BARRIERS

Government policy. Economies of scale. Capital requirements. Switching costs. Expected retaliation from present players. Special access to distribution. Patent requirements. Large investments in technology / plant and machinery not capable of alternate uses.

ENTRY BARRIERS contd..

Easy to enter if there is Common technology. Low product differentiation. Easy access to distribution. Low scale threshold.

ENTRY BARRIERS contd..

Difficult to enter if.. Patented. High product differentiation. Restricted access to distribution channels. High scale threshold.

EXIT BARRIERS
Easy to exit if. Exit cost is low. Assets are easily saleable. Independent business.

EXIT BARRIERS contd..

Difficult to exit if High exit costs. Speciality assets not easily saleable or redeployable. Inter linked business.

THREAT OF SUBSTITUTES

Substitute product comes from another industry.

Packaging industry aluminium foil Vs glass bottles, steel can, plastic can, tetra pack.

Automobile tyre retreading. Buyer inclination to substitutes is more pronounced where

Product differentiation is low. Trade off with substitutes is easy.

OTHER ECONOMIC MEASURES AND WHAT IT INDICATES

Personal income Consumer buyer habits Employment Business production Construction of houses Easy availability of loans at Reasonable / affordable cost