INT 601 Final Project: Industry Analysis Section

Final Project: Industry Analysis Section

A. Industry Overview: This section is a general overview of the industry group or segment to be examined. For this reason, you must include the SIC, NAICS, or SITC codes for the industry group under review. This will allow you to narrow your focus and it will assist in completed future sections of the industry analysis. This should be no more than one page in length.

B. The Five Forces that Shape Strategy: This section will cover the five forces discussed in Porter’s five forces model.

1. Threat of new entrants: Discuss barriers that will make it difficult to enter an industry and the retaliation expected from current participants. Entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage, even when they are able to enter. Barriers to entry can include economies of scale, product differentiation, capital requirements, switching costs, access to distribution, cost disadvantage not due to scale, and government policy. New entrants may try to find market niches that incumbents are not servicing.

2. Bargaining power of suppliers: Increasing prices and reducing the quality of products are potential means suppliers use to exert power over firms competing within an industry. If a firm is unable to recover cost increases by its suppliers through its own pricing structure, its profitability is reduced by its suppliers actions. A supplier group is powerful when:

· It is dominated by a few large companies and is more concentrated than the industry that it serves

· Satisfactory substitute products are not available to industry firms

· Industry firms are not a significant customer for the supplier group

· Suppliers’ goods are critical to buyers’ marketplace success

· The effectiveness of suppliers’ products has created high-switching costs for industry firms

· It poses a credible threat to integrate forward into the buyers’ industry. Credibility is enhanced when suppliers have substantial resources and provide a highly differentiated product.

3. Bargaining power of buyers: Buyers want to buy products at the lowest possible prices, the point at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers bargain for:

· Higher quality

· Greater levels of service

· Lower prices

Customers (buyer groups) are powerful when:

· They purchase a large portion of an industry’s total output

· The sales of the product being purchased account for a significant portion of the seller’s annual revenues

· They could switch to another product for little, if any, cost

· The industry’s products are undifferentiated or standardized, and the buyers pose a credible threat if they were to integrate backward into the seller’s industry

4. Threat of substitute products: Substitute products are goods and services from outside a given industry that perform similar or the same functions as a product that the industry produces.

· For example, NutraSweet, and other sugar substitutes, places an upper limit on sugar manufacturers’ prices. NutraSweet and other substitutes perform the same function, though with different characteristics.

· Product substitutes present a strong threat to a firm when customers face few, if any, switching costs and when the substitute product’s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product.

· Differentiating a product along the dimensions that customers’ value (quality, service after the sale, and location) reduces a substitute’s attractiveness.

5. Current rivalry of competitors: First, in order to make sure that you have relevant competitors, you need to use the SIC, NAICS, or SITC codes to search for competitors in the industry segment under review. Because an industry’s firms are mutually dependent, actions taken by one company usually invite competitive responses. Competitive rivalry intensifies when a firm is challenged by a competitor’s actions or when a company recognizes an opportunity to improve its market position. Firms within industries are rarely homogenous; they differ in resources and capabilities and seek to differentiate themselves from competitors. Common dimensions on which rivalry is based, include:

· Price

· Service after the sale

· Innovation

C. Summary: In the summary section of the industry analysis, you need to make an assessment as to whether this is an attractive industry segment to pursue as a new entrant into the segment. The way to begin to determine this is to assess the impact of each of the five factors on the industry. One way to do this is to rate the factors ashigh, medium,or low and then make a general determination of the industry. Effective industry analysis is a product of careful study and interpretation of data and information from multiple sources. A wealth of industry-specific data is available to be analyzed. Because of globalization, international markets and rivalries must be included in the firm’s analyses. In fact, research shows that in some industries, international variables are more important than domestic ones as determinants of strategic competitiveness.