Analysing industry


Basic Facts of the Industry:

Under basic facts of the industry, factors such as current size / turnover of the industry, product categories / sub-categories, their relative volumes, factors affecting demand, performance of the industry in recent years, etc., are covered.

Industry Environment:

Industries environment do differ. And as part of industry analysis, one must highlight the industry environment of the industry under scrutiny. Industries can be meaningfully classified based on their settings / environment. Each category represents a particular industry environment/ settings.

Industry Structure:

Industry structure means the underlying fundamental economic and technical forces of an industry. Each industry will have its key structural features such as number of players, total market size, relative market shares of players, total installed capacities , relative capacity shares of players , nature of competition, differentiation practiced by the various players, their relative strengths and weakness, their cost structures, barriers operating in the industry, etc.

It can be seen easily that the features listed above are the ones that determine the strength of the competitive forces operating in the industry and hence industry profitability.

Industry structure thus influences the competitive game. It also determines the alternative strategies available to the firm.

The points below lists the elements of industry structure that need to be looked into as a part of industry analysis.

* Number of players.

* Nature of competition: Monopoly, oligopoly, perfect competition or a mixture.

* Total market size and relative market shares of the players.

* Installed production capacity and relative shares of the players.

* Significant change, if any, in industry structure in recent times.

* Demand supply scenario.

* Demand drivers in the industry.

* Barriers in the industry.

* Differentiation practiced by the various players.

* Forces shaping competition in the industry.

* Attractiveness of the Industry.

Barriers in the Industry:

Firms have to naturally be concerned with the barriers in their industry. A firm has to either build such barriers or break them, depending on whether it is already a player in the industry, trying to prevent the entry of others, or is a new entrant seeking entry to the industry. If it is trying to enter the industry the question is: Can it counter the barriers? If it already a player, the question is: Can it create / enlarge the barriers and use them for blocking the entry of others into the industry?

The ability to build barrier helps the firm to create a defendable position for itself in the industry against the competitive forces. In other words, by assessing industry barriers, the firm moves closer to its basic strategic task.

The four types of barriers in any industry are:

1. Entry Barriers

2. Mobility Barriers

3. Shrinkage Barriers.

4. Exit Barriers.

Entry barriers are the most important. A firm aspiring to enter a given industry must analyze the entry barriers in the industry, emanating from all these sources and take the ‘Go-No Go’ decision. And, if its decision is to enter, it must workout appropriate strategies for breaking the entry barriers and making the entry smooth and profitable. Thus, analysis of entry barriers helps develop competitive strategy.