LM 6: Industry & Competitive Analysis Flashcards
What is competitive analysis?
Evaluate strategy of firm and determine competitive advantage
What are 3 widely used classification systems & how do they classify companies? GIT
- global industry classification standard (GICS): classify by primary business activity in developed & developing economies
- industry classification benchmark (ICB): classify company based on source of majority of revenues
- the refinitiv business classification (TRBC): based on sectors down to activities, includes public, private, and government companies unlike ICB & GICS
What are 3 alternatives methods of grouping companies? GBS
- geography
- business cycle sensitivity
- statistical similarities
How does global industry classification standard (GICS) classify from broadest to narrowest?
- sectors
- industry groups
- industries
- sub-industries
How does industry classification benchmark (ICB) classify from broadest to narrowest?
- industries
- super sectors
- sectors
- subsectors
How does the refinitiv business classification (TRBC) classify from broadest to narrowest? EBIIA
- economic sectors
- business sectors
- industry groups
- industries
- activities
What are the 5 life cycle stages? EGSMD
- Embryonic
- Growth
- Shakeout
- Mature
- Decline
What is the difference between embryonic and growth?
Embryonic: industries are characterized by slow growth, high prices & risk, and significant investment.
Growth: Demand increases rapidly, profitability improves as new customers enter the market, falling prices, low competition.
What is the difference for life cycle changes of shakeout vs mature?
- Shakeout: Growth & profits decrease as competition intensifies in a saturated market.
- Mature: Mature industries have little or no growth, industry consolidation, and high entry barriers.
What is decline?
negative growth, excess capacity, high competition
What is cyclical, non cyclical?
Cyclical: companies have profits that are strongly correlated with overall economic activity.
Non-cyclical companies enjoy relatively stable demand for their products and/or services throughout the business cycle
What is market share?
percentage of an industry’s sales that a particular company owns.
What is Industry Capacity?
the maximum amount of goods or services that companies can supply in a period
What is industry concentration?
wether market share concentrated among a small number of large firms or fragmented among many small firms
high concentration: Small number of large firms
low concentration: Large number of small firms
What is one way to measure the concentration within an industry?
Herfindahl-Hirschman Index (HHI)
What is the formula for the Herfindahl-Hirschman Index (HHI)?
sum of squared market shares for each firm
HHI = ((market share % * 100)^2)
What does a high and low Herfindahl-Hirschman Index (HHI) indicate?
higher HHI score indicates greater concentration.
lower HHI score indicates lower concentration.
What are Michael Porter’s five force framework? TBBTR
- threat of net entrants
- bargaining power of suppliers
- bargaining power of customers
- threat of substitutes
- rivalry among existing competitors (intra-industry)
What are 6 external influences on an industry growth? PESTLE
- political influences
- economic influences
- social influences
- technological influences
- legal influences
- environmental influences
What are political influences and economic influences?
Political Influences: decisions that governments make with respect to taxes, spending, and regulations.
Economic Influences: economic activity impacts the demand for products and services. (interest rate, inflation, etc)
What are social influences and technological influences?
social influences: Changes in society occur regarding how people work and spend their leisure time
technology influences: technological advances
What is legal influences and enviromental influences?
legal influences: the regulations and laws businesses have to abide by or face the consequence of various penalties.
environmental influences: impact of environmental issues, such as climate change and the depletion of natural resources
What are 2 ways to characterize technological influences?
- sustaining innovations
- disruptive innovations
Whats the difference between sustaining innovations and disruptive innovations?
Sustaining innovations: improve products or service without fundamentally changing their functionality. (eg. camera from 1960 has better quality now)
disruptive innovations: fundamentally alter a market (eg. cameras to digital photos on phone)
What are 3 corporate strategies that have been used to achieve above average performance? CDF
- cost leader (operating more efficiently, while offering comparable products) (flight)
- differentiate (offering unique products sold a premium prices) (luxury watches)
- focus on specific segments within an industry (mobile phones for older people)
What is ROIC and formula?
return on invested capital
NOPAT (net operating profit after tax) / total invested capital
