Industry Analysis

Question 1

What is the guiding question for industry analysis?

Answer 1

Why do some companies outperform others in a given industry?

Question 2

What is an industry?

Answer 2

A group of firms that face the same suppliers and buyers

Question 3

What does an industry analysis allow?

Answer 3

Identify the industry’s profit potential

Question 4

What is a strategic position?

Answer 4

The firm’s ability to create value for customers while containing costs

Question 5

What is the Industry Value Chain?

Answer 5

a chain of activities/steps that link raw materials through to the final product

Question 6

What does each activity in the industry value chain have?

Answer 6

each activity has revenues, costs, profits, and each stage represents an industry on its own

Question 7

What is the objective for each step of the value chain?

Answer 7

To incrementally add value

Question 8

What are the 4 aspects that represent opportunities for growth in an industry?

Answer 8

• Growth -> historical and projected
• Worth -> actual or estimated $ value of the industry
• Structure -> relative market share and structure
• Number of firms -> total (or approx.) number of active firms

Question 9

What are the 5 competitive forces industry members are facing?

Answer 9

• Rival sellers
• Potential new entrants
• Substitute products
• Supplier bargaining power
• Customer bargaining power

Question 10

What defines an attractive industry?

Answer 10

High profit potential and weak competitive forces

Question 11

What is rivalry?

Answer 11

Competition that exists among firms in the industry for market share

Question 12

When is there high rivalry? (5)

Answer 12

• Buyerdemand is growing or slowly declining
• Low cost to switch brands
• Industry products are less differentiated
• Number of competitors is increasing (size + strength)
• High exit barriers

Question 13

What are new entrants?

Answer 13

new firms outside the industry that enter and can decrease industry profitability

Question 14

When is there a high threat of new entrants?

Answer 14

When there are low barriers to entry

Question 15

Name new entrant barriers to entry

Answer 15

• Economies of scale
• Experience and learning curve effects
• Unique cost advantages of industry incumbents
• Strong brand preferences + loyalty
• High capital requirements
• Network of distributors
• Govt policies

Question 16

What are substitute products?

Answer 16

Products from outside the industry that can provide similar benefits or perform the same function

Question 17

When is there high substitution power?

Answer 17

• Ready availability of substitutes
• Pricing, quality, and performance is comparable or better
• Switching costs that buyers incur

Question 18

Signs that substitute competition is strong (3)

Answer 18

• Growth in sales
• Adding output capacity
• Increased profitability

Question 19

When is there high supplier power?

Answer 19

• No ready availability of supplier products
• Supplier products are differentiated
• Criticality of supplier products as industry inputs
• Little chance for backward integration
• Buyers’ costs of switching among suppliers

Question 19

When is there high buyer power?

Answer 19

• Low buyer costs for switching to competing sellers
• Degree to which industry products are commoditized
• # of buyers relative to sellers
• Backward integration of buyers into sellers’ industry

Question 20

What is a strategic group?

Answer 20

Cluster of industry rivals that have similar competitive approaches and market positions

Question 21

What is a strategic group map

Answer 21

Used to assess the market positions of key competitors

Question 22

Political factors

Answer 22

Political describes the influence government bodies can have on firms

Question 23

Economic factors

Answer 23

Economic growth rates, interest rates, employment levels, price stability, currency rates

Question 24

Social factors

Answer 24

Sociocultural factors capture a society’s cultures, norms, and values

Question 25

Technological factors

Answer 25

Technological factors capture the application of knowledge to create new processes/products

Question 26

Ecological factors

Answer 26

Ecological factors concern a firm’s regard for environmental issues: natural environment, global warming, and sustainable economic growth

Question 27

Legal factors

Answer 27

Legal factors capture the official outcomes of the political processes that manifest themselves in law, mandates, regulations, and court decisions