Chapter 5. Industry and Competitor Analysis
·
Industry Analysis
Industry
Analysis is useful for a new venture to think about its position at both the
company level and the product or service level. At the company level, a firm’s
position determines how the company is situated relative to its competitors.
1.
Studying Industry Trends:
a)
Environmental Trends
b)
Business Trends
·
The Five Forces Model
The five forces model is a framework
entrepreneurs use to understand an industry’s structure.
1.
Threat of Substitutes
Industries
are more attractive when the threat of substitutes is low. The extent to which
substitutes suppress the profitability of an industry depends on the propensity
for buyers to substitute alternatives.
2.
Threat of New Entrants
a)
Economies of scale
Industries
that are characterized by large economies of scale are difficult for new firms
to enter, unless they are willing to accept a cost disadvantage.
b)
Product differentiation
Industries
such as the soft-drink industry that are characterized by firms with
strong
brands are difficult to break into without spending heavily on advertising.
c)
Capital requirements
The
need to invest large amounts of money to gain entrance to an industry is
another barrier to entry.
d)
Cost advantages independent of size
Entrenched
competitors may have cost advantages not related to size that are not available
to new entrants.
e)
Access to distribution channels
Distribution
channels are often hard to crack.
f)
Government and legal barriers
3.
Rivalry Among Existing Firms
a)
Number and balance of competitors
b)
Degree of difference between products
c)
Growth rate of an industry
d)
Level of fixed costs
4.
Bargaining power of suppliers
Industries
are more attractive when the bargaining power of suppliers is low. These
factors have an impact on the ability of suppliers to exert pressure on buters
and suppress the profitability of the industries they serve:
a)
Supplier concentration
b)
Switching costs
c)
Attractiveness of substitutes
d)
Threat of forward integration
1)
Bargaining Power of Buyers
Industries
are more attractive when the bargaining power of buyers is low.
Several
factors affect buyers’ ability to exert pressure on suppliers and suppress the
profitability of the industries from which they buy, these include the
following:
a)
Buyer group concentration
b)
Buyer’s costs
c)
Degree of standardization of supplier’s
products
d)
Threat of backward integration
·
The Value of the Five Forces Model
The five forces model can be used in two ways:
to help a firm determine whether it should enter a particular industry and
whether it can carveout an attractive position in that industry.
a)
Question 1 : is the industry a realistic place
for our new venture to enter?
b)
Question 2 : if we do enter the industry, can
our firm do a better job than the industry as a whole in avoiding or
diminishing the impact of the forces that suppress industry profitability?
c)
Question 3: is there a unique position in the
industry that avoids or diminishes the forces that suppress industry
profitability?
d)
Question 4: is there a superior business model
that can be put in place that woruld be hard for industry incumbents to
duplicate?
·
Industry Types and the Opportunities they
offer
There are unique opportunites associated with
each type of industry.
|
Industry Type
|
Industry Characteristics
|
Opportunities
|
|
Emerging
industries
|
Recent changes
in demand or technology; new industry standard operating procedures have yet to
be developed
|
First-mover
advantage
|
|
Fragmented
industries
|
Large number of
firms of approximately equal size
|
Consolidation
|
|
Mature
industries
|
Slow increases
in demand, numerous repeat customers, and limited product innovation
|
Process and
after-sale service innovation
|
|
Declining
industries
|
Consistent
reduction in industry demand
|
Leaders, niche,
harvest, and divest
|
|
Global
industries
|
Significant
international sales
|
Multinational
and global
|
·
Competitor Analysis
1.
Identifying Competitors
The
first step in a competitive analysis is to determine who the competition is.
These are challenges associated with each of these groups of competitors:
a)
Direct competitors
Business
offering identical or similar products
b)
Indirect competitors
Businesses
offering close substitute products
c)
Future Competitors
Businesses
that are not yet direct or indirect competitors but could be at any time.
2.
Source of competitive intelligence
The
information that is gathered by a firm to learn about its competitors is called
competitive intelligence.
3.
Completing a Competitive Analysis Grid
A
competitive analysis grid is a toll for organizing the information a firm
collects about its competitors.
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