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Industry Analysis
Studying Industry Trends Environmental Trends
Examples: Aging population Rising income Higher (shipping) costs Recession
Business Trends Examples: Outsourcing Move business online Wireless opportunities
Buyer group concentration
Buyer’s costs
Degree of standardization of supplier’s products
Threat of backward integration
Threat of Substitutes
Ease of substitution
Sources of Competitive Intelligence
Competitive Analysis Grid
• Is there a superior business model that can be put in place that would be hard for the industry incumbents to replicate?
Industry Types and the Opportunities They Offer
The Value of the Five Forces Model
The model answers questions such as:
• Is the industry a realistic place for the new venture to enter?
• If we enter the industry, can our firm do a better job than the industry as a whole in avoiding or diminishing the impact of forces that suppress industry profitability? • Is there a unique position in the industry that avoids (or diminishes) the forces that suppress industry profitability?
The Value of the Five Forces Model
• Assesses the attractiveness of an industry or a specific position within the industry by determining the level of threat to profitability. • More in-depth analysis that the one conducted in the feasibility study.
Threat of forward integration
Threat of New Entrants
Economies of scale
Capital requirements
Government and legal barriers
Access to distribution channels
Number and balance of competitors (price-cutting)
Degree of difference between the products
Growth rate of the industry
Level of fixed costs
Bargaining Power of Buyers
Position
The importance of knowing the competitive landscape Position at the company level – how the company is situated relative to its competitors. Well positioned a company can do well in an unattractive industry Find an attractive market niche and nicely position in the market The importance of knowing the competitive landscape Sun-tzu (4th Century B.C.) – Chinese philosopher We are not fit to lead an army on the march unless we are familiar with the face of the country – its pitfalls and precipices, its marshes and swamps. (The Art of War)
Global Industry
• Significant international sales. • Two common strategies:
– Start-up directly in the global market – Multi-domestic vs. global strategy
Indirect Competitors
Offer close substitutes to the firm completing the analysis Cover the same basic needs
Future Competitors
Companies that are not yet direct or indirect competitors but could move into one of these roles at any time. Ex: Barnes and Noble vs.
Industry and Competitor Analysis
Industry Analysis
Business research that focuses on the potential of an industry. Industry = group of firms that produce a similar product or service
Emergiபைடு நூலகம்g Industry
Fragmented Industry
Mature Industry
Declining Industry
Global Industry
Emerging Industry
• New industry in which standard operating procedures have yet to be developed. • The firm that takes leadership (pioneer) often captures a first-mover advantage (at times insurmountable) • Because of high level of uncertainty an opportunity that is captured might be short-lived • Many firms enter emerging industries because barriers to entry are usually low and there is no established pattern of rivalry
Fragmented Industry
• Large number of firms of approximately equal size.
• Opportunity consolidate the industry and establish leadership
• Geographic roll-up strategy (ex: Blockbuster vs. Netflix– video rental)
Ex: Restaurant industry High Threats Substitute products New entrants Rivalry among existing firms Panera Bread = FAST CASUAL Filled a GAP between fine dining and fast food Clients Suppliers Moderate Threats
Questions:
Is the industry accessible? Does the industry contain markets that are ripe for innovation or are underserved? Are there positions in the industry that will avoid some of the negative attributes of the industry as a whole?
Mature Industry
• Slow or no increase in demand. • Has numerous repeat customers (and not new customers). • Limited (if any) product innovation.
• Innovation might surprise the rivalry!!!
Declining Industry
• Experiences reduction in demand (retail photo finishing) • Entrepreneurs shy away from DI (no opportunity) • Surprise by taking doing the opposite of what conventional wisdom would suggest (ex: Cirque du Soleil) • Niche strategy