ZAMBOANGA PENINSULA POLYTECHNIC STATE UNIVERSITY

School of Business Administration (SBA)

BS – ENTREPRENEURSHIP
STRATEGIC MANAGEMENT (BMC 312)
First Semester, SY 2024-2025

INDUSTRY ANALYSIS
What is Industry?

An industry is a group of companies that are related based on their primary

business activities. A group of productive enterprises or organizations that produce or
supply goods, services, or sources of income.
Defining the industry is an important part of the strategic process. Defining the industry too
broadly obscures differences among products, customers, or geographic regions that are
important to competition, strategic positioning, and profitability.
The boundaries of an industry consist of two primary dimensions:
• Scope of products
• Geographic scope

Product scope refers to the number of different items your company offers for sale. Your
business goals usually determine the scope of products you carry. You may run a
successful business based on a single product strategy or offer a much deeper line of
products to serve a wider range of customers. Your product scope determines your future
marketing strategies, profit goals and territory saturation.

Geographic Scope is the set of places with which a Web resource is associated.

What is Industry Analysis?

Industry Analysis is a market assessment tool designed to provide a business with an idea
of the complexity of a particular industry. Industry analysis involves reviewing the economic,
political and market factors that influence the way the industry develops. Major factors can
include the power wielded by suppliers and buyers, the condition of competitors, and
the likelihood of new market entrants.

Read more: http://www.businessdictionary.com/definition/industry-analysis.html

Industry analysis is conducted by the business entity or specifically an entrepreneur to

identify the factors which are influencing the sector that they have already or thinking
about investing in.

Sector vs. Industry vs. Segment

• A Sector is one of a few general segments in the economy within which a large
group of companies can be categorized. For example: “tourism” would be a
sector.
• An Industry is a subset of a sector. It is a group of firms producing a close if
not identical product, in terms of composition and function that compete for
buyers seeking to satisfy specific needs and or desires. For example: “Hotels”
is an industry.
• A segment is a subset of an industry. For example, Luxury Hotels is a
 segment within the hotel industry. (Segment is interchangeable with the term
strategic groups)

Degrees of Industry Competition

• Perfect competition. Characterized by many buyers and sellers, many

products that are similar in nature and, as a result, many substitutes. It means
there are few, if any, barriers to entry for new companies, and prices are
determined by supply and demand. Thus, producers in a perfectly competitive
market are subject to the prices determined by the market and do not have any
leverage.
• Monopolistic competition. A type of competition within an industry where all
firms produce similar yet not perfectly substitutable products. However, all firms
are profit maximizers, and all firms have some market power which means
none are price takers.
• An Oligopoly. Occurs when there are only few firms that make up an industry.
This select group of firms has control over the price and has high barriers to
entry. The products that the firms produce are often nearly identical and,
therefore, the companies, which are competing for market share, are
interdependent as a result of market forces. For example, Philip Morris
International, British American Tobacco companies.
• A monopoly. Is a market structure in which there is only one producer/seller for
a product. In other words, the single business is the industry. Entry into such a
market is restricted due to high costs or other impediments, which may be
economic, social or political.
Degrees of Industry Concentration

• Concentration within an industry refers to the degree to which a smaller

number of firms provide a major portion of the industry’s total production. A low
concentration ratio indicates greater competition among the firms in that
industry than one with a ratio nearing 100%, which would be evident in an
industry characterized by a true monopoly.

• The most common measure of concentration is the four-firm concentration

ratio, which is defined as the percentage of the industry’s output sold by the
four largest firms. An industry with a four-firm concentration ratio less than
forty percent is generally considered to be competitive.
Concentrated Industries
• Medical Imaging Equipment (World)) Whole body cylindrical
scanners.
Examples: Siemens, Philips, Toshiba manufacturing company

• Lighting & Bulb Manufacturing (USA). Top four market share. To mention with:
➢ General Electrical Company
➢ Philips Electronics
➢ Siemens
➢ Toshiba

• Search Engines (USA). Example: Google, Yahoo, Microsoft (these are

USA market

• Mobile Providers (Philippines). Example: Globe Telecom, SMART,

 DITO Telecom

Fragmented Industries
An industry where the majority of the output is produced by many firms. There is no clear
leader whose actions impact the rest of the industry. Examples: advertising agencies,
auto repair shop, hotels, clothes and food retail, restaurants and airlines.

Porter Five Forces Model

Five competitive forces determine how the economic value is created by the industry
and divided among the companies that compose the industry versus value that needs to
be bargained away by customers and suppliers, or constrained by potential new
entrants (or substitute products).
Therefore, the 5f model helps to determine the industry’s attractiveness (potential profit).
The right industry makes a huge difference in a firm’s chances for success. Also helps to
identify what factors can vary for the industry’s attractiveness to change as well.

Managerial Implications
• Which industries should enter or leave?
• Help to determine degree of investment
• What influence can we exert?
• How are competitors differently affected?

Figure 1 – Porter's Five Force

Competitive Rivalry. This looks at the number and strength of your competitors. How
many rivals do you have? Who are they, and how does the quality of their products and
services compare with yours? Where rivalry is intense, companies can attract customers
with aggressive price cuts and high-impact marketing campaigns. Also, in markets with lots
of rivals, your suppliers and buyers can go elsewhere if they feel that they're not getting a good
deal from you. On the other hand, where competitive rivalry is minimal, and no one else is
doing what you do, then you'll likely have tremendous strength and healthy profits.
Supplier Power. This is determined by how easy it is for your suppliers to increase their
prices. How many potential suppliers do you have? How unique is the product or service
that they provide, and how expensive would it be to switch from one supplier to another?
The more you have to choose from, the easier it will be to switch to a cheaper alternative.
But the fewer suppliers there are, and the more you need their help, the stronger their
position and their ability to charge you more. That can impact your profit. Firms that supply
the organization with the necessities to produce its product or service, including raw
materials, labor and finance.
Buyer Power. Here, you ask yourself how easy it is for buyers to drive your prices down.
How many buyers are there, and how big are their orders? How much would it cost them
to switch from your products and services to those of a rival? Are your buyers strong enough
to dictate terms to you?

When you deal with only a few savvy customers, they have more power, but your power
increases if you have many customers. The organizations immediate buyers, not
necessarily the end consumer.
Threat of Substitution. This refers to the likelihood of your customers finding a different
way of doing what you do. For example, if you supply a unique software product that
automates an important process, people may substitute it by doing the process manually
or by outsourcing it. A substitution that is easy and cheap to make can weaken your position
and threaten your profitability. So, this is simply offering similar product or services with
similar benefits to an industry’s product or services, but by a different process.
Threat of New Entry. Your position can be affected by people's ability to enter your market.
So, think about how easily this could be done. How easy is it to get a foothold in your
industry or market? How much would it cost, and how tightly is your sector regulated? If it
takes little money and effort to enter your market and compete effectively, or if you have
little protection for your key technologies, then rivals can quickly enter your market and
weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favourable position and take fair advantage of it.
Rivalry among Existing Firms

• The nature and intensity of competition among firms. The more intensity, the
more industry profits are driven down.
• Rivalry will be affected by:
➢ Competitors balance – when rivals are similar in size, intense
competition can result as each striven to gain dominance
➢ Industry growth rate – when one rival grows more than the industry it
may come at expense of another firm
➢ Degree of Differentiation - firms with low differentiation compete on cost
➢ Competitive – are certain firms being aggressive in pursuing market share
Strategic Lock-in When suppliers “locks in” customers by creating high barriers to
switching to a competitor. Likely dependent on: market dominance, first mover advantage,
self-reinforcing commitment, ability, determination, and wherewithal to preserve the lock- in
position
Typical Steps in Industry Analysis
1. Define the relevant industry
➢ What products are in it? Omit the ones which are part of another
distinct industry?
➢ What is geographic scope of competition?

2. Identify the participants and segment them into groups, if appropriate

➢ Who are the buyers and buyer
➢ The suppliers and suppliers’ groups
➢ The competitors
➢ The substitute
➢ The potential entrants

3. Assess the underlying drivers of each competitive force to determine

which forces are strong and which are weak and why
Determine overall industry structure, and test the analysis for consistency
➢ Why is the level of profitability what it is?
➢ Which are the controlling forces for profitability
➢ Is the industry analysis consistent with actual long-run profitability?
➢ Are more-profitable players better positioned in relation to the five forces?
➢ Analyse likely future changes in each force, both positive and negative.