MODULE 2

By: Engr. Charo G. Almonte

 MODULE 2 LESSON 1
INDUSTRY DEFINITION– INDUSTRY
ANALYSIS
INDUSTRY ANALYSIS
 a tool that facilitates a company's
understanding of its position relative to
other companies that produce similar
products or services
 Three major elements of Industry
Analysis
1. the underlying forces at work in the
industry;
2. the overall attractiveness of the
industry;
3. the critical factors that determine a
company's success within the industry
WAYS IN WHICH TO COMPARE A PARTICULAR BUSINESS
WITH THE AVERAGE OF ALL PARTICIPANTS IN THE
INDUSTRY

 use of ratio analysis and comparisons

 Ratios are calculated by dividing one
measurable business factor by another,
total sales divided by number of employees
 comparing a particular ratio for one
company with that of the industry as a
whole, a business owner can learn much
about where her business stands in
comparison with the industry average
Note: comparative analysis is one important way
in which to assess how one's business compares
with all others involved in the same line of work
PORTER'S MODEL
 shows that rivalry among firms in
industry depends upon five forces:
1) the potential for new competitors to enter the
market;
2) the bargaining power of buyers;
3) the bargaining power of suppliers;
4) the availability of substitute goods; and
5) the competitors and nature of competition.
INDUSTRY FORCES
 The first step in performing an industry analysis is to
assess the impact of Porter's five forces.
 "The collective strength of these forces determines the
ultimate profit potential in the industry, where profit
potential is measured in terms of long-term return on
invested capital,"
 Porter stated. "The goal of competitive strategy for a
business unit in an industry is to find a position in the
industry where the company can best defend itself
against these competitive forces or can influence them in
its favor."
 Understanding the underlying forces determining the
structure of the industry can highlight the strengths and
weaknesses of a small business, show where strategic
changes can make the greatest difference, and illuminate
areas where industry trends may turn into opportunities
or threats
1. EASE OF ENTRY
 refers to how easy or difficult it is for a
new firm to begin competing in the
industry
 In industries that are easy to enter,
sources of competitive advantage tend
to wane quickly. On the other hand, in
industries that are difficult to enter,
sources of competitive advantage last
longer, and firms also tend to benefit
from having a constant set of
competitors.
TWO FACTORS OF EASE OF ENTRY
 the reaction of existing competitors to
new entrants; and
 the barriers to market entry that prevail
in the industry

MAJOR BARRIERS TO MARKET ENTRY

 economies of scale,
 high capital requirements,
 switching costs for the customer,
 limited access to the channels of distribution,
 a high degree of product differentiation, and
 restrictive government policies.
2. POWER OF SUPPLIERS
 Suppliers can gain bargaining power within an
industry through a number of different situations
 suppliers gain power when:
 an industry relies on just a few suppliers,
 there are no substitutes available for the
suppliers' product,
 there are switching costs associated with
changing suppliers,
 each purchaser accounts for just a small
portion of the suppliers' business, and
 suppliers have the resources to move forward
in the chain of distribution and take on the
role of their customers
3. POWER OF BUYERS
 The power of buyers tends to increase when
 single customers account for large
volumes of the business's product,
 a substitute are available for the
product,
 the costs associated with switching
suppliers are low, and
 buyers possess the resources to move
backward in the chain of distribution
 Powerful buyers can exert pressure on small
businesses by demanding lower prices,
higher quality, or additional services, or by
playing competitors off one another
4. AVAILABILITY OF
SUBSTITUTES
 Substitutes limit the potential returns of
an industry by placing a ceiling on the
prices firms in the industry can
profitably charge
 Product substitution occurs when a
small business's customer comes to
believe that a similar product can
perform the same function at a better
price
5. COMPETITORS
 according to Cook "The battle you wage
against competitors is one of the
strongest industry forces with which you
contend,“
 Forms of Competitive battles
price wars,
advertising campaigns,
new product introductions, or
expanded service offerings
FACTORS THAT INCREASES THE
INTENSITY OF COMPETITION
 an industry is characterized by a
number of well-balanced competitors, a
slow rate of industry growth, high fixed
costs, or a lack of differentiation
between products
 high exit barriers—including specialized
assets, emotional ties, government or
social restrictions, strategic
interrelationships with other business
units, labor agreements, or other fixed
costs
THE IMPORTANCE OF
INDUSTRY ANALYSIS
 help the small business owner to
formulate an effective strategy,
position the company for
success, and make the most
efficient use of the limited
resources of the small business
PURPOSE OF INDUSTRY
ANALYSIS
 help business owners gain an
intimate understanding of
the environment within
which you’re operating
TYPES OF INDUSTRY
ANALYSES
 The Competitive Forces Model, also
known as Porter’s Five (5) Forces

 2. The Broad Factors Analysis, also

known as PEST Analysis

 3. SWOT Analysis