A Template for Structural Analysis of an Industry

You can use the following template for analyzing the structure of an industry. It requires you to rate
the attractiveness of an industry on a 5-point scale for several factors relating to each of the five forces in
Porter’s (1980) model. (A 7-point or a 10-point scale would perhaps be even better in that it would allow
finer discrimination between two businesses with different levels of attractiveness. But the 5-point scale is
relatively much easier to use.) To help you in the ratings, the template provides the anchors at the two ends
of the scale for each factor with examples of industries corresponding to the anchors.

You will note that we have included separate sections in the template for exit barriers and
government. The former contributes to rivalry among competitors (and is, therefore, not a sixth force). The
latter, according to some, should be treated as the sixth force, although Porter says the effect of government
on an industry is felt through one or more of the five forces.

If you want, you can attach different weights to different forces and also to different factors within
each force. If an industry has different segments that are structurally different, you can separately analyze
the attractiveness of each segment. You can also analyze the changes in industry structure by using the
template at two different points of time (for instance, today and five years from now) to obtain greater
insight into likely opportunities and threats that you can expect from the industry environment. To reduce
the element of subjectivity, you can get the attractiveness evaluated by several colleagues and arrive at
average scores. Even the weights of different factors and forces could be based on the opinion of your
colleagues and you could attach greater weight to the opinion of colleagues with greater expertise. Use your
creativity to benefit from this tool.

You can use the remarks column to annotate your ratings. For instance, consider the first factor in
Table 1 (number of competitors). As a rule of thumb, industries in which the combined market share of the
largest four firms (called 4-firm concentration ratio) exceeds 70% are very profitable. Concentration ratios
between 60%-70% are associated with average and those below 60% with low profitability. The 4-firm
concentration ratio in the wide-bodied jetliner industry is 100% and in the grocery store business almost
zero. Thus, you can support the evaluation of your industry by giving the 4-firm concentration ratio.
Table 1: Rivalry among competitors

Attractiveness Remarks

Low High

1 2 3 4 5
The NO. Of competitors in Tyre
No. of Large Grocery Wide Smal industry is high (both Foreign &
competitors store bodied l Indian players), so there is a heavy
jetliner competition.

Industry Slow Vinyl Internet Fast The Tyre industry would exhibit a
growth record browser growth rate (CAGR) of 3% during
(2024-32).

Fixed cost High Steel Real Low The fixed cost attractiveness in the
estate Tyre industry is moderate.
agency

Differentiati Low Sugar Beer High The Tyre industry have lots of
on product differentiation in terms of
their functionality, features &
price,

Switching Low Diskette Software High The switching cost from one brand
cost to another brand, their cost
difference is considerable,
example M, R. F Dio Tyre cost R.S
1500, whereas Ceat Tyre cost RS
1200.

Openness Secret Used car Stocks Ope The sales in the Tyre industry are
of terms of n reported in company reports alone.
sales

Excess Large Residentia Office Smal The Tyre Industry have excess
capacity l property space in l capacity, usually in B2B business
in South where the automotive industry are
Bangalore Mumbai their customers, who place large
orders in terms of volume.

Tyre industry have stake in

Strategic High Internet Low achieving success, they invest their
stakes browser Part-time profitability to expansion because
coaching of market potential.

Table 2: Barriers to exit

Attractiveness Remark

Low High

1 2 3 4 5

Asset High Steel Automot Small This rating reflects the significant
specializa ive gears investments in specialized equipment,
tion technology, distribution networks, and
brand reputation, making it costly and
challenging for companies to exit the
industry because all are huge investments.

Cost of High Steel Tea stall Small Exiting the industry would entail significant
exit costs related to asset write-offs, contractual
obligations, employee severance, and
potential brand devaluation.

2
 Governm High Public Grocery
ent bus store
restriction service

Table 3: Barriers to entry

Attractiveness Remark

Low High

1 2 3 4 5
Established companies benefit from
Economies Small Tea stall Oil Large economies of scale, which allow them to
of scale refinery produce tires at lower average costs as
they increase their output.

Product Low Sugar Beer High While established companies may invest
differentiat in developing unique tire designs,
ion technologies, and brand identities to
differentiate their products, these barriers
are not insurmountable for new entrants.

Brand Low Sugar Cigarette High This brand equity acts as a barrier to
identity entry for new competitors who would
need to invest substantial resources in
marketing, advertising, and brand
building to establish themselves in the
market.

Switching Low Diskette Software High the tire industry is characterized by a

cost high degree of price transparency and
competition, which can mitigate
switching costs by empowering
consumers to compare and switch
between brands more easily.

Access to Easy Newspa Petrol Ltd Established companies in the industry

channels of per have well-developed distribution
distribution networks, including relationships with
wholesalers, retailers, and auto
manufacturers. These distribution
channels are crucial for reaching
customers effectively and efficiently.

Capital Small Tea stall Oil Large Huge capital required, For new entrants,
requiremen refinery securing the necessary capital to
t compete effectively in the market can be
challenging, especially given the high
upfront costs and the need to achieve
economies of scale to remain
competitive

Access to Easy Generic AIDS Restric Huge R&D is involved in this kind of
technology drugs medicine ted technology. Access to these technologies
may be restricted or costly for new
entrants, making it challenging to
compete on innovation and product
quality.

Access to Easy Distilled Ivory Restric securing a stable and cost-effective

raw water ted supply of raw materials, such as rubber,
material chemicals, and metals, can be a
challenge, especially given fluctuations
in prices and availability in global
markets.

Governme None Tea stall Public Substa new entrants may face less government
nt bus in ntial protection compared to other sectors,
protection UK making it easier for them to enter the

3
 market and compete with established
companies.

Table 4: Threat from substitutes

Attractiveness Remark

Low High

1 2 3 4 5

Availability High Fountain AIDS Low High availability

of close pen medicine substitutes like fountain
substitutes pens and AIDS
medicine indicate a
significant threat to the
tire industry,
potentially reducing its
market share.

Switching Low Diskette Customi High Low switching costs

cost zed associated with
Software diskettes and
customized software
make them more easily
replaceable, posing a
higher threat to the tire
industry.

Substitute’s Better Vinyl Suburba Worse Worse price-value

price-value record n trains substitutes like Trans-
in Atlantic flights pose a
Mumbai lower threat due to
their higher costs
relative to the benefits
they provide.

Profitability High Vinyl Trans- Low Low profitability

of the record Atlantic substitutes such as
producers of flight suburban trains in
substitutes Mumbai may have
fewer resources for
innovation, but still
pose a moderate threat
due to their market
presence.

Table 5: Bargaining power of buyers

Attractiveness Remark

Low High

1 2 3 4 5
YES Large number of buyers
Number of Small Air bags Toothpas Large (individuals, vehicle operators,
buyers for cars te automobile manufacturers)
implies increased buyer power
and influence by them.

Buyer has some or limited

Availability Many Fountain YES AIDS Few options as substitutes, providing
of pen medicine the existing companies with a
substitutes competitive edge.

4
 Switching Low Diskette Software High Buyers have some flexibility
cost but may face some hurdles in
changing suppliers in terms of
trust, relationship, cost,
compatibility, quality. So
bargaining power is moderately
low
The chances of backward
Buyer’s High Air bags Cars Low integration is very low as it may
threat of for cars involve a complex production
backward process, huge investment. So
integration bargaining power is less and
attractiveness for the existing
companies is high.

Industry’s Low Air bags Oil High Chances for forward integration
threat of for cars refinery is less as it involves having
forward strong industrial relationships;
integration hence bargaining power is low
and attractiveness is high.

Contribution Low Low end Semi- High Higher contribution to quality

to quality packagin conducto decreases the bargaining power
g r chips as buyers are less inclined to
switch to other tire brands.

Contribution High Housing Paper Low Buyers’ contribution to cost is

to cost clips very low in this industry, so the
bargaining power is less and so
attractiveness for existing
companies is moderately high.

Buyer’s Low Public Luxury High Buyers profitability is high, so

profitability bus cars bargaining power is high as
service having financial strength makes
them seek lower prices and the
industry’s profitability
decreases.

Table 6: Bargaining power of suppliers

Attractiveness Remark

Low High

1 2 3 4 5
There are Few players in
Number of Small PC Tea stall Large the Tyres Industry
suppliers (Namely MRF, CEAT
Etc.,) So that Bargaining
power of the supplier is
moderate in the Tyre
Industry segment. So that
we ranked Attractiveness
as 3

Availability of substitute
Availability Few PC Tea stall Many is less, there is no
of substitutes alternative for Tyre so
that Bargaining power of
supplier is high. So that it
looks Attractive. (4)

Switching Cost is high, in

Switching High PC Garment Low the Tyre industry. For
cost example, MRF Tyre is
priced 20-25% higher
compared to CEAT Tyres.
So, switching cost is high
it makes the industry

5
 attractive -(4)

Supplier’s High PC Wide Low Threat of Forward

threat of bodied integration is low,
forward jetliner because mostly Tyre
integration industry work on the
model of franchise so that
threat of forward
integration is low, so that
it makes less Attractive –
(2)
The threat of backward
Industry’s Low Petrol Garment High integration is low,
threat of pumps retailers because manufacturing
backward Tyre is difficult. So that
integration buyer can't produce
inhouse, so that
attractiveness is high -(4)

Generally, Quality of the

Contribution High PC Low end Low Tyre produced by the
to quality packaging MRF And the CEAT is
good. So that the industry
attractiveness is high -(4)

Low Talcum High Contribution to cost is

Contribution powder Oil refining high in the case of the
to cost Tyre industry, because
heavy fixed cost is
required for production.
So, there is moderately
attractive. -(3)

For their products the

Industry’s Low Vinyl Cars High price is reasonable, so that
importance record the attractiveness is
to supplier moderate.

Table 7: Government actions

Attractiveness Remark

Low High

1 2 3 4 5

Industry protection Low Tea stall Public bus High The overall
in UK Industry
protection
of Tyre
industry is
moderate
keeping in
considerati
on of the
risk &
safety
involved.

Industry regulation High Chemicals Software Low There are

(pollution, etc.) lots of
industry
regulations,
especially
by the

6
 pollution
control
board for
environmen
tal
sustainabilit
y.

Customs and tariff High Garment Software Low There are

restrictions abroad lots of
customs
and tariffs
levied for
Tyre export
& import

Table 8: Overall assessment

Attractiveness Average score

Low High

1 2 3 4 5

Barriers to entry 3.375

Rivalry among competitors 3.44

Barriers to exit 4.66

Power of buyers 3.875

Power of suppliers 3.125

Threat of substitutes 3.5

Government action 3.66

Overall attractiveness 3.662

Reference:
Porter, Michael E. (1980) Competitive Strategy, New York: The Free Press.