INDUSTRIAL AND

COMPETITIVE ANALYSIS
 The
The Objectives
Objectives of
of Industry
Industry
Analysis
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

Components of the General Environment
Economic

Demographic
Sociocultural
Industry
Environment

Competitive
Environment
Political/
Legal Global

Technological
 The
The Determinants
Determinants of
of Industry
Industry
Profitability
Profitability

 The value of the product to customers

 The intensity of competition

 Relative bargaining power at different levels

within the value chain.
 Perfect
Oligopoly Duopoly Monopoly
Competition

Concentration Many firms A few firms Two firms One firm

Entry and Exit No barriers Significant barriers High barriers

Barriers

Product Homogeneous
Differentiation Potential for product differentiation
Product

Perfect
Information Imperfect availability of information
Information flow
 SWOT Analysis

 Strengths
 Weaknesses
 Opportunities
 Threats
 The Purpose of SWOT Analysis

 Overview of a company’s strategic

situation
– It forms a basis for matching your
company’s strategy to its situation
 Opportunities

 chance for firm growth or progress

 Possible Opportunities:
– Emerging customer needs
– Quality Improvements
– Expanding global markets
– Vertical Integration
 Threats

 poses a danger to its well-being

 Possible Threats:
– New entry by competitors
– Changing demographics/shifting demand
– Emergence of cheaper technologies
– Regulatory requirements
 Porter’s
Porter’s Five
Five Forces
Forces of
of
Competition
Competition Framework
Framework

SUPPLIERS
Bargaining power of suppliers

INDUSTRY
COMPETITORS

POTENTIAL Threat of Threat of

SUBSTITUTES
ENTRANTS
new Rivalry among substitutes
entrants existing firms

Bargaining power of buyers

BUYERS
 Threat of New Entrants
Economies of Scale

Barriers to Product Differentiation

Entry Capital Requirements
Switching Costs
Access to Distribution Channels

Cost Disadvantages Independent

of Scale
Government Policy
 Bargaining Power of Suppliers
Suppliers are likely to be powerful if:

Supplier industry is dominated by a

Suppliers exert power
in the industry by:
* Threatening to raise
prices or to reduce quality
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
few firms
Suppliers’ products have few substitutes
Buyer is not an important customer to
supplier
Suppliers’ product is an important
input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high
switching costs
Supplier poses credible threat of
forward integration
 Bargaining Power of Buyers

Buyers are concentrated or purchases

are large relative to seller’s sales Buyers compete
Purchase accounts for a significant with the supplying
fraction of supplier’s sales industry by:

Products are undifferentiated * Bargaining down prices

Buyers face few switching costs * Forcing higher quality

* Playing firms off of
Buyers’ industry earns low profits
each other
Buyer presents a credible threat of
backward integration
Product unimportant to quality
Buyer has full information
 Threat of Substitute Products

Keys to evaluate substitute products:

Products Products with improving

with similar price/performance tradeoffs
function relative to present industry
limit the products
prices firms
can charge Example:
Electronic security systems in
place of security guards
Fax machines in place of
overnight mail delivery
 Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but
may be costly to smaller competitors
 Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when:

Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
 Applying
Applying Five
Five -- Forces
Forces Analysis
Analysis

Forecasting Industry Profitability

• Past profitability a poor indicator of future
profitability.
• If we can forecast changes in industry structure
we can predict likely impact on competition and
profitability.

Strategies to Improve Industry Profitability

• What structural variables are depressing
profitability
• Which can be changed by individual or
collective strategies?
 Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firm’s Competitors

Industry
Environment

Competitive
Environment
 Competitor Analysis
Assumptions
What assumptions do our
competitors hold about the future Response
of industry and themselves?
What will our
Current Strategy competitors do in the
Does our current strategy support future?
changes in the competitive Where do we have a
environment? competitive
Future Objectives advantage?
How do our goals compare to our How will this change
competitors’ goals? our relationship with
our competition?
Capabilities
How do our capabilities compare
to our competitors?
 RESPONSE:
# What will are
competitor do in near future
# Where do we have a
competitive advantage?
Current Strategy:
Future Objectives: # How are we
# How do our goals currently competing?
compare to our # Does this strategy
competitors’ goals? support changes in the
# Where will emphasis competition structure?
be placed in the future?
# What is the attitude
toward risk?
Assumptions: Capabilities:
# Do we assume # What are my
the future will be competitors’ strengths
volatile? and weaknesses?
# What assumptions do our #How do our
competitors hold capabilities compare
about the industry and to our competitors?
themselves?