7.5 Industry analysis

Question 1

Why is industry analysis useful to a company?

Answer 1

It facilitates a company’s understanding of its position relative to others that are in a similar sector.

Question 2

According to Julius Grodinsky’s industry life cycle theory, what are the life cycle stages of an industry?

Answer 2

1 Pioneer stage - products and technology are newly introduced and have not yet been perfected
2 Expansion - those that survived the pioneer stage expend and become attractive for investment for investment
3 Stagnation - growth stabilises and sales grow at a slower rate than competitors/the economy in general
4 Decay - the industry becomes obselete and ceases to exist as it is overtaken by new products/technologies

Question 3

What are the three main aspects that a company should consider when conducting industry analysis?

Answer 3

1 Underlying forces driving the industry (as per “Porters 5 forces”)
2 Attractiveness of the industry - how attractive the industry is based on Porters 5 forces)
3 Success factors required for survival - factors that determine whether a company is successful - what is the company’s “edge”?

Question 4

What are Porters 4 forces?

Answer 4

1 Barriers to entry for new players to enter the market
2 Bargaining power of customers
3 Bargaining power of suppliers
4 Availability of substitute goods
5 Competitors and nature of competition