Industry & Competitive

Analysis

Session 2
2 Industry Dynamics and Change

Understanding how to
grow requires an in-depth
understanding and clarification
of the external environment in
which the organization exists
3 Firm’s external environment
4 Information is Important

Information about the following is important:

 Industry

 Market

 Industry structure

 Competitors

 Buyers/consumers

 Technology
 Industry and Competitive Analysis

1. What are the boundaries of the

industry?

Questions 2. What is the structure of the

involved industry?

3. Which firms are our

competitors?

4. What are the major

determinants of competition?
6 Defining industry boundaries

Why is it important

 Helps executives determine arena in which their firm competes

 Focuses attention on firm’s competitors

 Helps executives determine key factors for success

 Gives executives another basis on which to evaluate their firm’s goals

 Sources of Difficulty in Defining
Industry Boundaries

Evolution of industries
over time creates new
opportunities and threats

Industry evolution creates Industries are becoming

industries within global in scope
industries
8 Issues in Defining an Industry

 What part of the industry corresponds to our firm’s goals?

 What are the key ingredients of success in that part of the industry?
 Does our firm have the skills needed to compete in that part of the
industry?
 Will the skills enable us to seize emerging opportunities and deal with
future threats?
 Is our definition of the industry flexible enough to allow necessary
adjustments to our business concept as the industry grows?
Characteristics of Industry Structure

 Structural attributes – Enduring characteristics

giving an industry its distinctive character
 Variations among industries involves examining
 Concentration – Extent to which industry sales are
dominated by only a few firms
 Economies of Scale – Savings firms within an industry
achieve due to increased volume
 Product Differentiation – Extent to which customers
perceive products of firms in industry as different
 Barriers to Entry – Obstacles a firm must overcome to
enter an industry
 Industry structure continuum-
Seller perspective
10
 Industry structure continuum-
11 Buyer perspective
12 Driving Forces
Driving forces are variables that have the capacity to change not only
demand, but also the very nature of an industry.

Changes in driving forces could result Examples of driving forces

in
 Demographics
 Buyer behaviour modification
 Technology
 Structural change
 Innovations, inventions
 Competitive reaction
 Social and cultural changes
 Product portfolios
 New products/services
 Disruptions
 Changes in buyer attitudes

 Government regulations, policy,

changes in law
13 Tools for external analysis…1
 Tools for analysis …2 : Five
14
(5)competitive forces
15 Importance of this tool

 Identify key aspects or elements of each competitive force that impact the
firm.

 Evaluate how strong and important each element is for the firm.

 Decide whether the collective strength of the elements is worth the firm
entering or staying in the industry.
 Rivalry among competing firms

TABLE 3-7 Conditions That Cause High Rivalry Among

Competing Firms
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
• Most powerful of ▬▬▬▬▬▬▬▬▬▬▬▬▬

the five forces 1. High number of competing firms

• Focus on 2. Similar size of firms competing
competitive 3. Similar capability of firms competing
4. Falling demand for the industry’s products
advantage of 5. Falling product or service prices in the industry
strategies over 6. When consumers can switch brands easily
other firms 7. When barriers to leaving the market are high
8. When barriers to entering the market are low
9. When fixed costs are high among firms competing
10. When the product is perishable
11. When rivals have excess capacity
12. When consumer demand is falling
13. When rivals have excess inventory
14. When rivals sell similar products/services
15. When mergers are common in the industry
 Power of Suppliers – HIGH IF:
3–17

Suppliers
Suppliersexert
exertpower
power
in
inthe
theindustry
industryby:
by:
 Dominated by a few companies threatening
threateningtotoraise
raise
 No substitutes for supplier prices
pricesor
orto
toreduce
reduce
products quality.
quality.
 Suppliers products are
differentiated Powerful
Powerfulsuppliers
supplierscan
can
squeeze
squeezeindustry
industry
 Incumbents face high profitability.
profitability.
switching costs
 Product is important input to
buyer
 Forward Integration is a
credible threat
 Power of Buyers – HIGH IF:

 A few large buyers Buyers

Buyerscompete
competewith
withthe
the
(potential collusion) supplying
supplyingindustry
industryby:
by:
 Large buyers relative to a seller Bargaining
Bargainingdown
downprices
prices
(e.g., HMO power buying
pharmaceuticals) Forcing
Forcinghigher
higherquality
quality

 Products are standardized and Playing

Playingfirms
firmsoff
offof
ofeach
each
undifferentiated other
other

 Buyers face few switching costs

 High switching costs for sellers

 Backward Integration is credible

(buyer has full information)
 Threat of Substitutes – HIGH IF:

 Substitute is good price-

Products
Products with
with
performance trade-off similar
similar
functions
functions limit
limit
the
the prices
prices
firms
firms can
can
 Buyers switching costs to charge
charge
substitute is low
20 Threat of new entrants

 Potential Entry of New Competitors

 Barriers to entry are important

 Quality, pricing, and marketing can overcome barriers

Barriers to Entry
 Need to gain economies
of scale quickly
 Need to gain technology
and specialized know-how
 Lack of experience
 Strong customer loyalty
 Strong brand preferences
 Large capital
requirements
 Lack of adequate
distribution channels
 Government regulatory
policies
 Tariffs
 Lack of access to raw
materials
 Possession of patents
 Undesirable locations
 Counterattack by
entrenched firms
 Potential saturation of the
market
22 Classroom exercise
The market for online education - Place the following eight points onto the
five forces model:
 Start up costs are very low.
 Students have access to books, videos, and paper-based distance learning
packs.
 The more innovative learning sites give lesson for free just for the love of
it.
 More people with access to the web every second.
 Companies, governments, and self funding students invest huge amounts
in their education.
 There are very few high quality web sites available.
 Traditional colleges and universities are adapting their products for on-
line learning.
 Government legislation in the US and Europe encourages on-line
learning.
Strategy in Action (GS) 01/06/2021
  Answers
 Start up costs are very low (threat of entry – low barriers to entry).
23  Students have access to books, videos, and paper-based distance learning
packs (product-for-product substitution).
 Companies, governments, and self-funding students invest huge amounts
in education. (High bargaining power of suppliers).
 There are very few high quality web sites available (high bargaining power
of suppliers).
 Traditional colleges and universities are adapting their products for on-line
learning (threat of new entrants – learning curve effects).
 Government legislation in the US and Europe encourages on-line learning
(threat of entry reduced – by legislation).
 The more innovative learning sites give lesson for free just for the love of
it (threat of entry – differentiation).
 More people with access to the web every second (bargaining power of
buyers)
24

 https://corporatefinanceinstitute.com/resources/knowledge/economics/indust
ry/

 The 9 Industries Most Likely To Make You A Millionaire -

https://www.youtube.com/watch?v=cGoC5PdaYrU

 What Is Industry 4.0? - https://www.youtube.com/watch?v=yKPrJJSv94M

 The 9 Pillars of Industry 4.0 -

https://www.youtube.com/watch?v=iW9M7YywOLA

 INDUSTRY 5.0 | SOCIETY 5.0 -

https://www.youtube.com/watch?v=KpY9fePrGK0
Strategy in Action (GS) 01/06/2021
25
End of session
Any questions