Industry Analysis

Question 1

What is an Industry?

Answer 1

A group of firms producing products and services that are essentially the same.

Question 2

What is a Market?

Answer 2

A group of customers for specific products or services that are essentially the same.

Question 3

What is a Sector?

Answer 3

A broad industry group or group of markets, especially in the public sector.

Question 4

What does Porter’s Five Forces Framework do?

Answer 4

Identifies the attractiveness of an industry.

Question 5

What are Porter’s Five Forces?

Answer 5

• The threat of entry
• The threat of substitutes
• The bargaining power of buyers
• The bargaining power of suppliers
• The extent of rivalry between competitors

Question 6

What do the Five Forces focus on?

Answer 6

The way that these forces are operating and how they can be used for competitive advantage.

Question 7

In the two-stage view of PFF, what is the Horizontal View?

Answer 7

Bargaining power and Scarcity -> Intensity of rivalry -> Bargaining power of customers

Question 8

In the two-stage view of PFF, what is the Vertical View?

Answer 8

Threat of entrants <-> Intensity of rivalry <-> Threat of substitutes

Question 9

True or False: The focus of PFF is at the Corporate Level.

Answer 9

False - The focus here is at the SBU Level.

Question 10

What does the degree of rivalry depend upon?

Answer 10

• Competitor concentration and balance
• Industry growth rate
• High fixed costs
• High exit barriers
• Low differentiation

Question 11

What are Barriers to Entry?

Answer 11

The factors that need to be overcome by new entrants if they are to compete successfully.

Question 12

What are the main barriers to entry?

Answer 12

• Economies of scale / experience / network affects
• Access to supply and distribution channels
• Capital requirements
• Differentiation and market penetration costs
• Legislation or government action
• Expected retaliation from competitors
• Incumbency advantages

Question 13

What is the Threat of Substitutes?

Answer 13

Products or services that offer a similar benefit, but have a different nature.

Question 14

When will customers switch to substitutes?

Answer 14

• The price/performance ratio of the substitute is superior
• The substitute benefits from an innovation that improves customer satisfaction
• Substitutes come from outside the incumbent’s industry

Question 15

What are Buyers to a business?

Answer 15

Buyers are immediate customers of an organisation, not necessarily the ultimate consumers.

Question 16

When is Buyer Power likely to be high?

Answer 16

• Buyers are concentrated
• Buyers have low switching costs
• Buyers can supply their own inputs

Question 17

What are Suppliers to a business?

Answer 17

Those who provide an organisation with what they need to produce their products / services.

Question 18

When is Supplier power likely to be high?

Answer 18

• Suppliers are concentrated or limited
• Suppliers provide a specialist or rare input
• Switching costs are high
• Suppliers can integrate forwards

Question 19

What is the first step of Industry Analysis?

Answer 19

Define the industry clearly.

Question 20

What is the second step of Industry Analysis?

Answer 20

Identify the actors of each of the five forces and define groups within them.

Question 21

What is the third step of Industry Analysis?

Answer 21

Determine the underlying factors of and total strength of each force.

Question 22

What is the fourth step of Industry Analysis?

Answer 22

Assess the overall industry structure and attractiveness.

Question 23

What is the fifth step of Industry Analysis?

Answer 23

Assess recent and expected changes for each force.

Question 24

What is the final step of Industry Analysis?

Answer 24

Determine how to position the business in relation to the five forces.