The meaning and significance of industry attractiveness:
Industry attractiveness actually forms part of industry structure. The elements of industry structure which constitute industry attractiveness are:
* Industry potential
* Industry growth
* Industry profitability
* Likely future pattern of the industry.
* Industry barriers.
* Forces shaping competition in the industry.
Sources of Entry Barriers:
(a) Economies of scale (size barrier); they may relate to production, marketing, R&D, etc.
(b) Differentiation practiced by the various players (product differentiation / brand dominance in particular)
(c) Capital requirement / investment.
(f) Absolute cost advantage, independent of size.
(g) Access to distribution channels.
(h) Cost structures of the players.
(i) Vertical integration.
(j) Global reach.
(k) Experience curve of the players.
(l) Government policy.
Potential, Growth and Profitability:
The firm has to find out specifically:
The potential of industry and it is growing or stagnant. If it is a growing industry, at what pace it is growing. The growth is faster, or is it showing tendencies of saturation and any limits inhibiting the growth and profitability of the industry.
Nature of Competition in the Industry:
Besides potential, growth, and profitability, the nature of competition in the industry also determines industry attractiveness. So the firm has to assess the nature of competition I the industry as well. Nature of competition, any way, is of great significance in strategy formulation. The firm must have a god grasp of the nature of competition. It should know:
We also must understand the competitiveness of the industry like fiercely competitive, moderately competitive or less competitive.
Finally, industry barriers too influence industry attractiveness. The firm should know the barriers operating in the industry.
Forces shaping competition and industry barriers are the two main issues here. We have already dealt with industry barrier.
Industry performance entails looking at the industryâ€™s production, sales, profitability and technological endeavors in recent years.
Industry practices refer to what a majority of the players in the industry do with respect to essential aspects of the business such as distribution, pricing, promotion, methods of selling, service / field support, R&D and legal tactics. In any industry, practices get established over time in these aspects For example, in the matter of distribution , in fast moving consumer goods (FMCG), using carrying and forwarding (C&F) agents is an established industry practice while in textiles the practice is to go through wholesalers, semi-wholesalers and retailers.
The emerging trends / likely future patterns of an industry can be discerned by analyzing issues such as the PLC stage of the industry, rate of growth, changes in buyer needs, innovations in products / processes, how easily and speedily innovations can be initiated in the industry, entry and exit of firms and emerging changes in the regulatory environment governing the industry.