Industry Analysis

Industry analysis identifies the threats that lie within the industry. It helps companies
to make useful strategies to counter the threats they may face in the future.

Why is Industry Analysis Important?

Do you remember back in the early 2000s how Nokia was dominating the mobile
phone industry? But what went wrong? Why today, in 2022, no one remembers
Nokia?

Nokia was once ruling the mobile industry, but it went downhill due to its wrong
management decisions, which resulted from its incorrect assessment of the industry.

Today, if companies want to avoid the mistakes Nokia made, they have to closely
monitor and proactively adjust accordingly to the industry trends, by using industry
analysis.

Using Industry analysis provides companies a competitive advantage and helps

them stay relevant in the industry.

Getting Started: Things to Consider Before We

Begin the Analysis
Before we start off with Industry analysis, there are a few things that are to be done.
First, to carry out an Industry analysis, it is essential to conduct detailed market
research and competitive analysis so that the outcomes of industry analysis are
helpful.

Having Access to the Right Reports

To carry out the industry analysis accurately, it is necessary to gather relevant
reports, statistics, and data about the industry.

The collection of data will provide information about the past trends of the industry,
and it will help in forecasting the future of the industry.

Forecasting, be it financial or strategic, will help the company to make strategies

timely which will help the company to earn a competitive advantage over its
competitors.

Moreover, past reports can be used to reflect the strengths and weaknesses of the
company as they will provide insight into the company. Other than that, past reports
will also give an overview of the competitors that could give a tough time to the
company in the future.
Approaching the Correct Industry
Selecting the right industry is not enough to carry out the industrial analysis. Every
industry has sub-parts. To get accurate and helpful results from the industry
analysis, it is essential to choose the right industry and the right sub-industry.

For example, a company that manufactures jackets wants to conduct an industrial

analysis of its company.

To do that, identifying that the jacket manufacturing company is a part of

the manufacturing industry would be vague since the manufacturing industry has a
lot of sub-industries. So the jacket manufacturing company has to identify that it’s a
part of the apparel industry, a sub-industry of the manufacturing industry.

How to Write Industry Analysis: What to Include?

here are three major components that are to be included while writing an industry
analysis.

1- Industry Life cycle

Every industry has a life over a specific period. An industry life cycle describes a
business’s stages within its specific industry.

It is divided into five stages. Each stage represents a different period in which

businesses grow and develop or shrink and fall out of existence.

● Startup Stage

The very first stage of the industry life cycle is the startup stage. This stage is the
first stage of the industry life cycle.

At this stage, firms are busy creating awareness about the product or service and
educating consumers since they are unfamiliar with it. Since competition is usually
low at this point, innovation and investment in distribution channels and marketing
are high.

● Growth Stage

The second and critical stage of the Industry life cycle is the growth stage. At this
stage, the market share and growth rate accelerate. The quality of the products or
services offered by the firms is ensured by regulatory authorities.

While the actual innovation process is looking for ways to improve the existing
product, innovation now focuses on optimizing market share by creating a better
manufacturing process, better delivery method, and more.
In the growth phase, the demand for the products/services continue to increase. This
helps firms to enjoy profits and maximize their market share.

● Shakeout Stage

The third stage of this cycle is called the shakeout stage. As its name suggests,
things start to get a bit tense for the firms at this stage as the industry starts to get
saturated.

The shakeout stage of the industry life cycle is a time of intense competition. As a
result, firms have few choices other than to lower costs, increase prices and make
investments in marketing to survive in this competitive environment.

In general, firms that are weak in their marketing, innovation, support, customer, and
product quality lose market share and eventually are forced out of the industry.

Moreover, strong firms gain more market share as weaker competitors leave the
marketplace.

● Maturity Stage

After that, the industry enters the fourth stage of its life cycle, which is the maturity
stage. At this stage, the industry is at its peak.

At this stage, the market has reached its maximum size, where growth is unlikely to
be positive or negative.

Companies at the stage of maturity experience maximum profits, revenue, and cash
flows because the demand for products/services is at its maximum. Products
continue to become more popular among the general public, and the prices are
pretty down compared to new products competing in the industry.

Companies with strong policies and sales numbers survive and dominate the
marketplace. As a result, the market situation becomes an oligopoly with only a few
large firms existing.

● Decline Stage

Right after the Industry experiences a peak, that’s when it is hit by a decline. The
intensity of competition in an industry that is declining depends on several factors:
the emergence of a new product, changes in the rules and regulations, supply chain
issues, etc.

To deal with the decline, companies try to maximize their profit by focusing on their
most profitable product line to stay in the industry.
To gain dominance in the industry, larger companies try to acquire smaller countries
during the decline phase to somehow increase their market share. However,
companies that face huge losses decide to quit the industry at this stage.

2- Assessing the Competition

To write an industry analysis, it is essential to assess the competition in the industry.
There are many ways to do that, but one of the most efficient ways to determine
competition is by using Porter’s five forces model.

Porter’s five forces model helps analyze competition and analyze whether new
products/services will succeed in the market. It highlights five factors that affect
business competition.

● Competitive Rivalry

The competitive rivalry factor tells how many rivals there are and who they are. It
also looks at the quality of competitors’ products and services.

In intense competition, companies frequently cut prices and launch high-impact

marketing campaigns. This makes it easy for buyers to go elsewhere if they don’t
feel like getting a good deal from a particular company.

Moreover, when a business does not face much competitive rivalry, it can make vast
profits.

● Supplier Power

Supplier power refers to how easily suppliers can increase their prices.

If your industry has few possible suppliers, you are at a severe disadvantage and
have little to negotiate. However, if there is plenty of competition, supplier power will
be low, and you can use that to your advantage.

If you have multiple choices of suppliers, you can switch to a supplier who might
provide a better deal. However, this creates pressure for your primary supplier to
compete with those competing for your business.

A single or limited number of suppliers could leave you vulnerable if they decide to
increase prices due to limited supply.

● Buyer Power

Buyer power is when a buyer has the ability to influence prices. For example, if there
are fewer buyers than there are suppliers, the buyers have good bargaining power
and can drive down prices.
Imagine, if a couple of savvy customers control your business, you will have to listen
to them. However, suppose you have many customers and little competition. In that
case, you can choose whom you want as customers and how much they pay for
your products or services.

● Threat of Substitution

The threat of substitution refers to the likelihood of your customers finding

alternatives for your products or services.

An example of substitution could be the conveyor belt in the factories. It is a

substitute for the workers needed to transport the products from one part of the
factory to the other.

Buyers would substitute for cheaper and better quality products.

● Threats of New Entry

A company’s position in a market can be seriously weakened if new companies enter

the market. Suppose it takes little money and effort to enter a market. In that case,
rivals can quickly enter the market and weaken the position of already existing
companies.

However, if there are durable barriers to entry, it is almost impossible for a new
company to enter the market.

For example, there are high barriers to entry in the pharmaceutical industry since
drugs produced are protected by a legal patent. No one can replicate it; as a result, it
is difficult for new companies to enter the pharmaceutical industry.

3- Environmental Analysis
The third and last factor that needs to be included in the industry analysis is
environmental analysis. You guys must be thinking, what’s that, but don’t worry. In
this section, we will discuss what environmental analysis is.

The environmental analysis highlights the factors responsible for affecting a

business’s environment. In addition, it highlights the factors that affect the
performance of a business.

Both internal and external environments affect business operations and monitor that
different tools are used.

One of the tools used to highlight external factors that affect the operations of a
business is PEST analysis or otherwise known as the Broad factors Analysis. Pest
is an acronym for political, economic, social, and technological factors that affect an
organization.

Pest analysis starts off by highlighting the political factors affecting an organization.
Under the section on political factors, factors such as government policies and
political stability are discussed since it affects an organization’s operations.

Then economic factors are discussed. Factors such as inflation, interest rate, and
exchange rate are discussed since they play a significant role in affecting an
organization’s performance.

Moreover, other external factors, such as social and technological factors, are
highlighted in the Pest analysis. Under the section on social factors, demography,
culture, and social norms that affect a business are discussed.

Similarly, technological factors such as innovation and change in technology are

discussed since they play a significant role in influencing a company’s operations.

Other than PEST analysis, SWOT analysis is also used to highlight both internal
and external factors affecting the performance of an organization. 

Swot analysis highlights strengths, weaknesses, opportunities, and threats an

organization faces. The strengths and weaknesses are the internal factors that affect
the operations of an organization, while opportunities and threats account for
external factors.

While conducting a SWOT, initially, an organization’s strengths are highlighted.

These are the internal factors of an organization that provide a competitive edge and
make up for the strengths of an organization.

After analyzing the strengths, weaknesses of an organization are discussed in a

SWOT analysis. Weaknesses are the internal factors that hold back an organization
from achieving growth.

After highlighting the internal factors that affect the business, SWOT analysis
highlights opportunities and threats an organization faces. These are the external
factors that influence the operations of a business.

To have a better understanding of SWOT analysis and how it is applied to an

industry as a whole, then have a look at the Swot analysis of the fashion industry.

To see what factors affect the environment of a business, it is necessary to conduct

an environmental analysis.
PEST analysis and SWOT analysis are essential components of environmental
analysis. Both are vital to determining what role internal and external factors affect
an organization’s operations.

Industry Analysis: Final Word

As we have reached the end of this article, let’s summarise what we have learned.
We started off by explaining what industry analysis is and why it is essential to
conduct an industry analysis.

After that, we discussed that it is crucial to collect the correct reports and data of the
relevant industry to conduct an accurate industry analysis.

Then we proceeded further and learned how to write the industry analysis. While

writing an industry analysis industry life cycle, we learned that assessing the
competition and carrying out environmental analysis is necessary. In the end, we
assume that now you guys know the significance of industry analysis, and reading
this article has enabled you to conduct one for your own company.