THE INDUSTRY

ENVIRONMENT
ANALYSIS
A. VISPERAS
The Industry Environment

◦The industry environment is the immediate

external environment of a company. It is the
environment where a company operates, which
has an immediate effect on its operation, and
where it interacts and faces its direct
competitors.
The different players in the industry
environment
1.Customers
2.Suppliers
3.Creditors
4.Employees
5.Government
6.Competitors
Customers

Customers are the buyers of goods or services

produced or rendered by a company.
Suppliers

Suppliers refer to persons or companies that

provide the required materials, parts or services to
a business.
Creditors

Creditors refer to banks, financial institutions, and

financial intermediaries, engaged in lending
money to a borrower, usually for a fee in the form
of interest.
Employees

The employees are the workers of a company

who are highly responsible for the production of
goods or delivery of services to the consumers.
Government

The government refer to the system or institution

that handles the affairs of a particular country.
Competitors

Competitors are forces existing in the industry

environment that produce, sell or render products
or services which are similar to those of a
company.
Conducting an Industry Environment
Analysis
An industry environment analysis is the scanning
of various forces that drive competition. It
involves knowing where a company is at present
and where it wants to be in the future.
An industry analysis involves the 3
strategic scanning of the following:
1.The industry itself
2.The competitors
3.The business itself
To conduct IEA, the following steps are
to be performed:
1. Define the industry and the boundaries of a company.
2. Gather information about the relevant economic
features of the industry.
3. Identify competitors and evaluate the competitive
forces.
4. Evaluate the pattern and impact of competition.
5. Position the entire company in the industry.
Define the industry and the boundaries
of a company
An industry is a group of companies offering
similar or closely related products or services that
satisfy the same needs of consumers
5 stages in the evolution of an industry:

1.Embryonic industry
2.Growth industry
3.Shakeout industry
4.Mature industry
5.Decline industry
Gather information about relevant
economic features of the industry
1. Market size and growth rate
2. Position in the industry life cycle
3. Number of rivals or competitors
4. Buyers’ needs and requirements
5. Production capacity
6. Pace of technological change
7. Product innovation
8. Scope of competitive rivalry
9. Economies of scale
Identify competitors and evaluate the
competitive forces
The competitive forces in the industry
environment can be evaluated using the forces
of competition model, otherwise known as the 5
forces of competition.
The 5 forces of competing within an
industry
1.Rivalry among competing companies
2.Threats of new entrants
3.Bargaining power of buyers
4.Threats of substitute products
5.Bargaining power of suppliers
Rivalry among competing companies

1.Number of competing companies

2.Rate of industry growth
3.Characteristics of the products or services
4.Amount of fixed cost
5.Increasing capacity
6.Diversity of rivals
Rivalry among competing companies is
considered strong when the following signs
are manifested:
1. The consumers demand are falling
2. Sellers have excess capacity or production
3. The switching costs to buyers are relatively low
4. Rivals located in different geographic markets have diverse
strategies
5. Competitors constantly improve their market performance
6. The number of competitors is increasing
Rivalry is considered weak under the
following situations:
1. The products of competing companies are greatly
differentiated
2. Competitors are not aggressive in taking the market shares of
other industry members
3. The switching costs to buyers are high
4. The consumers’ demand is rapidly increasing
5. There are few, but not more than five, competing sellers
Strategic moves to outperform rivals:
1. Offer lower or discounted prices
2. Provide different product features and performances
3. Improve product quality
4. Build a stronger brand name, appeal and image
5. Offer a low financing interest rate and easy credit access
6. Engage in more advertising and promotional schemes
7. Provide wider product models, styles and attributes
8. Create better dealer networks and distribution channels
Threats of New Entrants
New entrants refer to the new competitors joining an industry. The intensity of
the threats will be affected by the following barriers:
1. Strict government policy
2. Substantial capital requirements
3. Economies of scale
4. High cost of product differentiation
5. High switching cost
6. Difficulty in accessing distribution channels
Situations imply strong entry threats:
1. The demand of the consumers increases rapidly
2. The pool of new competitors is considerably large with
significant amounts of resources
3. The entry barriers can easily be overcome by new competitors
4. The existing members of an industry do not take measures to
deter the entry of new competitors
5. New competitors expect a high profit level and industry growth
Entry threats are weak under the
following situations:
1. The demand of consumers is decreasing
2. The pool of new competitors is small in terms of resources
3. The entry barriers for new competitors are high or costly to
overcome
4. The industry is shaking or declining
5. The existing members of an industry are taking various strategic
moves and objectives to improve their profitability level.
Bargaining Power of Buyers
A buyer has a strong and magnified bargaining power in an industry. The threat
of its bargaining power is strong if the following factors exist:
1. The buyer has the potential for backward integration
2. The cost of switching suppliers is minimal
3. The buyer purchases a large portion of a seller’s product or services
4. There are several suppliers available in the market
5. The product represents a high percentage of buyers’ cost
Threats of Substitute Products
1. The price of a substitute product is substantially lower
2. The preferences and tastes of customers easily change
3. The quality of substitute products dramatically
improves
4. The switching cost is low
5. Product differentiation is hardly noticeable
Bargaining power of suppliers
◦ The intensity of threat of the bargaining power of suppliers is
strong if the following factors hold true:
1. The product or service is unique
2. The switching cost is very high
3. The suppliers in an industry are few, but the sales volume is high
4. Substitute products are not readily available in the market
5. The supplier is capable of forward integration
Evaluate the Pattern and Impact of
Competition
1.Cutthroat rivalry
2.Fierce or strong rivalry
3.Moderate or normal rivalry
4.Weak rivalry
Position the Entire Company in the
industry
◦ It is the process of determining the place of a company in an industry.
◦ Issues:
1. Entering the international market
2. Merging with other companies
3. Selling the business partly or wholly
4. Buying other businesses whether related or not
5. Dropping or adding product lines
6. Closing other segments or units
References:
◦ Aduana, 2021, Strategic Management, C&E Publishing,
Inc. Quezon City Dess, McNamara, Eisner, 2017,
Strategic Management, Eight Edition, McGraw-Hill
Int.,Philippines
Disclaimer:

◦No copyright infringement intended for this

presentation, solely for educational purposes
only