Industry Analysis

1
Industry Analysis
Chapter 10
2
Classifying Industries and Some Related Data
NAICS
Industry Census Data
3
Porters five forces Framework
Purposes of the framework
Provides for the assessment of industry
profitability
Identifies opportunities for success and threats
to success
Provides basis for generating strategic choices
Applies equally well to industrial and service
sectors
4
Porters Five Forces Framework
Entry
Firm Rivalry Profitability
Supplier Power
Buyer Power
Government
Chance
Substitute Products
5
Internal Rivalry
Starting point for assessing internal rivalry
must begin with a clear definition of the market
Factors which enhance the degree of competition
Many sellers in the market
Stagnant or declining industry
Differential firm cost levels
Presence of excess capacity
Undifferentiated products with low switching cost
Prices are hard to observe, high adjustment costs
Non-cooperative pricing
Strong exit barriers
6
Entry
Factors affecting the threat of entry include
Minimum efficient scale relative to the size of
the market
Government protection of incumbents
Strong reputation or brand loyalty
Access of entrants to key inputs including
technological Know-how, raw materials,
distribution, and location
Experience curve
Network externalities
Expectations concerning post-entry competition
7
Substitutes
Factors to consider when assessing
substitutes include
Availability of close substitutes
Price-value Characteristics
8
Supplier Power and Buyer Power
Factors of relevance from the perspective of
buyer power are as follows
Competitiveness of input markets
Relative concentration of the industry in
question, and its upstream, and its downstream
industries
Purchase volume of downstream firms
Availability to substitute inputs
Relationship-specific investments by the industry
and its suppliers
Threat of forward integration by suppliers
Ability of suppliers to price discriminate
9
Strategies for Reducing Competitive Rivalry
Avoid price competition
Achieve product differentiation
Buy-out competition
Reduce industry over-capacity
Segment market
Communicate with competitors
10
Strategies for Reducing Threat of New Entrants
Increase minimum efficient scale of production
Create entry barriers via brand loyalty
Patents and intellectual property
Alliances with linked products and upstream and
downstream firms
Retaliation tactics
11
Strategies for Reducing Threat of Substitutes
Legal actions
Increase switching costs
Build strategic alliances
Enter substitute market and influence from within
Accentuate real or perceived differences
12
Strategies for Reducing Bargaining Power of
Suppliers
Partnering
Supply Chain Management
Increase dependency
Build knowledge of supplier cost and methods
Take over a supplier
13
Strategies for Reducing Bargaining Power of
Customers
Partnering
Supply Chain Management
Increase loyalty
Increase incentives and value-added
Move purchase decision away from price
Cut out powerful intermediaries