INDUSTRY ANALYSIS

IV

Toolkit

Determinants of industry attractiveness

#1. Scope of Competition

#2. Economic Traits

#3. Competitive Forces

#4. Key Success Factors

#5. Likely Moves by Rivals

#1. Scope of Competition

• Market Size

• Scope of Competition- Local Regional- National Global

• Industry Growth Cycle - Early Takeoff- Mature Stagnant- Decline

Scope

• Prevalence of Backward and Forward Linkage

• Pace of Technological Change

• Learning Curve Effect

• Capital Requirement

• Profitability (above/below par)

#2. Dominant Economic Traits

• Market Size• Scope of Competition (Local, Regional, National, Global)• Industry Growth Cycle (Early, Takeoff, Mature, Stagnant,

Decline)• Number of Rivals and their relative sizes• Number of Buyers and their relative sizes• Prevalence of Backward and Forward Linkage• Ease of Entry and Exit• Pace of Technological Change• Learning Curve Effect• Capital Requirement• Profitability (above/below par)

#3. Porter’s Five Forces

Substitute Products(of firms in

other industries)

Suppliers of Key Inputs

Buyers

PotentialNew

Entrants

RivalryAmong

CompetingSellers

Bargaining Power of Buyers

- Many small companies and few buyers, Large buyers

- Buyers can switch orders between suppliers enabling them to play one supplier against another

- Vertical integration is a feasible option

Suppliers

- Product has few substitutes and are important to the buyers

- Products are differentiated to the extent that buyers cannot easily switch

- Threat of vertical integration

- Buying companies cannot threaten with backward integration

Rivalry

- Demand conditions : growing/declining

- Exit barriers : high/low

- Competitive structure : fragmented, consolidated

Substitutes

- Products serving similar consumer needs

sugar vs artificial sweetener

taxi vs bus

private vs public university

Threat of Entry

- Brand loyalty

- Economies of scale

- Entry barriers

- Govt. regulation

#4. Key Success Factors

• Technology:Product Innovation Capability

Production Process Innovation Capability

Expertise in given technology

• Manufacturing:

Scale economy

Experience curve effect

High Labour Productivity

Flexibility to manufacture a range of products

KSF

• Distribution:

Low distribution cost

Company-owned retail outlets

Fast delivery

• Marketing:

Well-trained sales force

Dependable service and technical assistance

Attractive styling/packaging

KSF

• Skills:Quality control know howDesign expertiseExpertise in particular technology

• Organization:Superior Information SystemManagerial know-howAbility for quicker response to market

KSF

• Others:Convenient Location

Courteous Employees

Patent Protection

#5. Likely Strategic Moves by Rivals

• Strategic Intent:

Be dominant leader

Move into top 5

Maintain position• Market Objective:

Getting stronger, on the move

Well-entrenched, able to maintain position

All things to everybody

Moves by Rivals

• Strategic Posture:

Mostly offensive

Mostly defensive

Aggressive risk taker• Competitive Strategy:

Striving for low cost leadership

Mostly focusing on market niche

Pursuing differentiation