Industry and Competitive Analysis

Questions to Answer:

What are the dominant economic traits?What are the competitive forces at work?What are the drivers of change?Which companies are the strongest and the weakest?Who will make the next competitive move?What are the key factors of success?How attractive is the industry for profitability?

Industry’s Dominant Economic Traits

Market sizeGeographic scope of competitive rivalryMarket growth rate & growth cycleNumber & size of rivalsNumber & size of buyers

Pace of product innovationEase of entry and exitPace of change of technologyDegree of differentiationCapacity & demand

Industry’s Dominant Economic Traits

Economies of scale offer companies lower costs & competitive advantageAvailable economies of scale:

ManufacturingResearch & DevelopmentPurchasingTransportationAdvertising

Industry’s Dominant Economic Traits

Need for high capacity utilizationWhether there exists a strong learning and experience curvePrevalence of vertical integrationCapital requirementsIndustry profitability: above or below average?

Porter’s 5 Competitive Forces

Rivalry among competing sellersFirms with substitute productsPotential entry of new competitorsLeverage of suppliersLeverage of buyers

Competitive Forces at Work: Competitive Rivalry Increases when…

Increase in the number of competitorsCompetitor size becomes more equalSlow growth in demandHigh proportion of cost is fixedProduct is costly to hold in inventory

Customer cost to switch is lowCompetitor(s) dissatisfied with market positionSize of the payoff for strategic moveIncrease in exit costsDiversity of competitorsTakeovers of weaker firms

Competitive Forces at Work: Substitute Products…

Place ceiling on prices and profitsCustomers compare:

PriceQualityServicePerformance featuresOther costs

Competitive Forces at Work: Substitute Products…

Cost of switching productsRetrainingAdditional equipmentTechnical helpTesting quality and reliabilitySevering old relationshipsEstablishing new relationships

Competitive Forces at Work: Threat of New Entrants Determined by…

Economies of scaleAccess to technologyLearning curveBrand preference & customer loyaltyCapital requirements

Cost disadvantage or access to suppliersAccess to distribution channelsRegulatory, licensing & permit policiesTariffs & restrictions

Competitive Forces at Work: Power of Suppliers Determined by…

Size of the customerNumber of suppliersDemand for productsAvailability of substitutesStandardization of commodityEconomies of scale: make or buyQuality

Competitive Forces at Work: Power of Buyers Determined by…

Size of the customerNumber of buyersDemand for productsCost of switchingBuyer bargaining power is not equalThreat of vertical integration by buyerDiscretion over when to purchase

Drivers of Change

InternetGlobalizationLong-term industry growth rateWho buys the product and how it is usedProduct innovationTechnological changeMarketing innovation

Drivers of Change

Entry or exit of major firmsDiffusion of technologyChanges in cost and efficiencyEmerging buyer preferencesRegulatory, social and political influencesReduction in uncertainty and risk“Flattening” of the world

Key Success Factors

TechnologyManufacturingDistributionMarketingSkillsOrganizational capabilityMiscellaneous

Strongest & Weakest CompaniesStrategic Group Mapping

Identify competitive characteristicsPlot firms on a 2-variable mapAssign firms to strategic groupsCircle groups proportional to size

VariablesNot correlatedExpose differences in rival strategiesNeed not be quantitative or continuousMultiple pairing may provide several maps

Who Will Make the Next Move?

Identify competitor strategiesWhich are strong & which are weakEvaluate who will be the major playersPredict competitors’ next moves

Strategic changesMoves into new marketsAcquisition- targets or movers

Competitor Strategies:Competitive Scope

LocalRegionalNationalMulti-countryGlobal

Competitor Strategies:Strategic Intent

Dominant leaderOvertake the leaderAmong the top 5Among the top 10Move up a notch, or twoOvertake a rivalMaintain positionJust survive

Competitor Strategies: Market Share Objective

Aggressive expansion via:Internal growthAcquisition

Expansion via internal growthExpansion via acquisitionHold on to present shareGive up share if necessary

Competitor Strategies:Competitive Position

Getting strongerWell entrenchedStuck in the middle of the packSeeking different market positionStruggling, or losing groundRetrenching

Competitor Strategies:Strategic Posture

Mostly offensiveMostly defensiveCombination of offense and defenseAggressive risk-takerConservative follower

Competitor Strategies:Generic Competitive Strategies

Low-cost leadershipMarket niche

High endLow endGeographicSpecial needs buyersOther

Differentiation based on:

QualityServiceTechnological superiorityBreadth of product lineImage and reputationValueOther attributes

Attractiveness of Industry

Growth potentialImpact of prevailing driving forcesPotential entry or exit of major firmsStability of demand

Trend of competitive forcesSeverity of problems confronting industryFuture risk or uncertaintyPotential for impact on profitability trend