Industry And Competitive Analysis

Industry and competitive analysis Thinking strategically . Thinking strategically about a About industry and competitive position company’s own situation The key questions 1. What are the industry’s economic Whatfeatures strategic options does the The key questions 1. How well is the company’s 2. What is competition like and company how strongrealistically is each of the have? present strategy working completive forces? • Is it locked into improving the 2. What are the company’s 3. What is causing the industry’s competitive structure present strategyand or is there strengths and weaknesses? business environment too change? room to make major strategy 3. Are the companies prices and 4. Which companies are in the strongest / weakest changes? costs competitive position? 4. How strong is the company’s 5. What strategic moves are rivals likely to make next? competitive position. 6. What are the key factors for competitive success? 5. What strategic issues does the 7. Is the industry attractive and what are the prospects for company face? above average profitability?

What is the best strategy? • Does it have good fit with the company’s situation? • Will it help build a competitive advantage? • Will it improve company’s performance

Question 1in detail. The factors to consider is profiling an industry’s economic features are as below • • • • • • • • • • • •

Market size. Scope of competitive rivalry (local, regional, national, international, or global). Market growth rate and position in the business life (early development, rapid growth, and takeoff, early maturity, maturity, saturation and stagnation, decline). Number of rivals and their relative sizes---is the industry fragmented into many small companies or concentrated and dominated by a few large companies? The number of buyers and their relative sizes. Whether and to what extent industry rivals have integrated backward and/or forward. The type of distribution channels used to access the customers The pace of technological change in both production process innovation and new product introduction. Whether the products and services of rival firms are highly differentiated, weakly differentiated, or essentially identical. Whether companies can realize economies of scale in purchasing, manufacturing, transportation, marketing, or advertising. Whether key industry participants are clustered in a particular location. Whether certain industry activities are characterized by strong learning and experience efforts (“learning by doing”) such that unit costs decline as cumulative output grows.

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Whether high rates of capacity utilization are crucial to achieving low cost production efficiency. Capital requirements and the ease of entry and exit. Whether industry profitability is above/below par.

An industry’s economic features help frame the window of strategic approaches a company can pursue.

Economic feature Market share Market growth rate Capacity surpluses or shortages Industry profitability Entry/exit barriers Cost and importance of product. Standardized products Rapid technological change Capital requirements Vertical integration Economies of scale Rapid production innovation

Strategic importance Small markets don’t intend to attract big/new competitors; large markets often draw the interest of companies looking to acquire competitions with established positions in established industries. Fast growth breeds new entry; growth slowdowns spawn increased rivalry and a shake out of weak competitors. Surpluses push prices and profit margins down; shortages push them up. High profit industries attract new entrants; depressed conditions encourage exit. High barriers protect positions and profits of existing firms; low barriers make existing firms vulnerable to entry. More buyers will shop for lowest price on big ticket items than on less important or expensive items Buyers have more power because it is easier to switch from seller to seller. Raises risk factor; equipment and facilities may become obsolete before they wear out. Big requirements make investment decisions critical and create a barrier to entry and exit, timing becomes important Raises capital requirements; often creates competitive differences and cost differences among fully versus partially versus non-integrated firms. Increases volume and market share needed to be cost competitive. Shortens product life cycle; increases risk because of opportunities for rivals to bring out next generation products quicker and leapfrog current market leader.

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Question 2 in detail Second step allows the managers to analyze

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cumulativ e production v olume

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