AnalyzingtheIndustryEnvironment.pptVIP

Industry Analysis: The Fundamentals The objectives of industry analysis From environmental analysis to industry analysis Porter’s Five Forces Framework Applying industry analysis Industry market boundaries Identifying Key Success Factors The Objectives of Industry Analysis To understand how industry structure drives competition, which determines the level of industry profitability. To assess industry attractiveness To use evidence on changes in industry structure to forecast future profitability To formulate strategies to change industry structure to improve industry profitability To identify Key Success Factors From Environmental Analysis to Industry Analysis The Determinants of Industry Profitability 3 key influences: The value of the product to customers The intensity of competition Relative bargaining power at different levels within the value chain. Structure-Conduct-Performance Paradigm Porter’s Five Forces of Competition Framework Threat of Substitutes Extent of competitive pressure from producers of substitutes depends upon: Buyers’ propensity to substitute The price-performance characteristics of substitutes. The Threat of Entry Entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are: Capital requirements Economies of scale Absolute cost advantage Switching costs Product differentiation Access to channels of distribution Legal and regulatory barriers Retaliation Bargaining Power of Buyers Rivalry Between Established Competitors The extent to which industry profitability is depressed by aggressive price competition depends upon: Concentration (number and size distribution of firms) Diversity of competitors (differences in goals, cost structure, etc.) Product differentiation Excess capacity and exit barriers Cost conditions Extent of scale economies Ratio of fixed to variable costs Profitability and Market Growth Applying Five - Forces Analysis Forecasting Industry