Social structure The national/ The national/ international international economy economy Technology Technology Government Government & Politics & Politics The natural The na[r]
(1)Industry Analysis: The Fundamentals
Industry Analysis: The Fundamentals
• The objectives of industry analysis
• From environmental analysis to industry analysis
• Porter’s Five Forces Framework
• Applying industry analysis
• Industry & market boundaries
• Identifying Key Success Factors
(2)The Objectives of Industry Analysis
The Objectives of Industry Analysis
• To understand how industry structure drives competition, which determines the level of industry profitability.
• To assess industry attractiveness
• To use evidence on changes in industry structure to forecast future profitability
• To formulate strategies to change industry structure to improve industry profitability
(3)THE INDUSTRY ENVIRONMENT
• Suppliers
• Competitors
• Customers
Social structure The national/ The national/ international international economy economy Technology Technology Government Government & Politics & Politics The natural The natural environment environment Demographic Demographic structure structure Social structure Social structure
From Environmental Analysis to Industry Analysis
From Environmental Analysis to Industry Analysis
•The Industry Environment lies at the core of the Macro Environment
(4)Profitability of US Industries
Profitability of US Industries
Pharmaceuticals 26.8 Gas & Electric Utilities 10.5 Tobacco 22.0 Food and Drug Stores 10.3 Household & Personal Products 20.5 Motor Vehicles & Parts 9.8 Food Consumer Products 20.3 Home Equipment 9.5 Medical Products & Equipment 18.8 Railroads 9.0 Beverages 18.8 Hotels, Casinos, Resorts 8.0 Scientific & Photographic Equipt. 16.5 Insurance: Life and Health 7.6 Commercial Banks 16.0 Building Materials, Glass 7.0
Publishing, Printing 14.3 Metals 6.0 Petroleum Refining 14.3 Semiconductors &
Apparel 14 Electronic Components 5.8 Computer Software 13.5 Insurance: Property & Casualty 5.3 Electronics, Electrical Equipment 13.3 Food Production 5.3 Furniture 13.3 Telecommunications 3.5 Chemicals 12.8 Forest and Paper Products 3.5 Computers, Office Equipment 11.8 Communications Equipment (4.0) Health Care 11.5 Airlines (34.8)
(5)Long-term Profitability of US Industries: EVA and ROA, 1986-97
Industry EVA/CE ROA Industry EVA/CE ROA
Tobacco 9.4 14.4 Paper and products (1.5) 5.2 Computer software Broadcasting and
& services 5.9 10.4 publishing (1.5) 6.0 Personal care Cars & trucks (1.5) 2.2 products 2.8 8.0 Healthcare services (1.7) 3.3 Medical products 2.7 9.5 Machine tools, hand tools (1.7) 6.0 Printing & Appliances and home
advertising (2.0) 2.3 furnishings (1.9) 3.4 Food processing 2.5 8.5 Telephone equipment &
Drugs & research 0.7 7.6 services (2.1) 7.0 Beverages 0.2 5.6 Plastics & products (2.6) 5.3 Textiles (0.1) 7.4 Computers & peripherals (3.1) 3.1 Fashion retailing (0.4) 9.3 Electrical products (3.3) 4.6 Building materials (0.6) 5.6 Aerospace & defense (3.3) 4.8 Metals (1.0) - Railroads (3.4) 3.8 Telecom services (1.2) 4.6 Airlines (4.1) 1.0 Discount retailing (1.2) 6.4 Steel (6.4) 2.3 Semiconductors Cable television (7.2) (3.3) & components (1.3) 6.0 Electronics (9.2) 3.5
Average (1.1) 5.6
(6)The Determinants of Industry Profitability
The Determinants of Industry Profitability
3 key influences:
• The value of the product to customers
• The intensity of competition
(7)The Spectrum of Industry Structures The Spectrum of Industry Structures
Concentration Entry and Exit
Barriers Product Differentiation
Information
Perfect
Competition Oligopoly Duopoly Monopoly
Many firms A few firms Two firms One firm
No barriers Significant barriers High barriers
Homogeneous
Product Potential for product differentiation
Perfect
(8)Porter’s Five Forces of Competition Framework
Porter’s Five Forces of Competition Framework
SUPPLIERS
POTENTIAL
ENTRANTS SUBSTITUTES
BUYERS
INDUSTRY COMPETITORS
Rivalry among existing firms
Bargaining power of suppliers
Bargaining power of buyers Threat of
new entrants
(9)THREAT OF ENTRY
•Capital requirements
•Economies of scale
•Absolute cost advantage
•Product differentiation
•Access to distribution channels
•Legal/ regulatory barriers
•Retaliation
SUBSTITUTE COMPETITION
• Buyers’ propensity to substitute
• Relative prices & performance of substitutes
BUYER POWER
• Buyers’ price sensitivity • Relative bargaining
power
INDUSTRY RIVALRY
•Concentration
•Diversity of competitors
•Product differentiation
•Excess capacity & exit barriers
•Cost conditions BUYER POWER
• Buyers’ price sensitivity • Relative bargaining
power
(10)Threat of Substitutes
Threat of Substitutes
Extent of competitive pressure from producers of
substitutes depends upon:
• Buyers’ propensity to substitute