Industry and competitive analysis

Thinking strategically
. Thinking strategically about a
About industry and competitive position
company’s own situation
The key questions
1. What are the industry’s economic strategic options does the The key questions
Whatfeatures
1. How well is the company’s
2. What is competition like and company
how strongrealistically
is each of thehave?
present strategy working
completive forces? • Is it locked into improving the
2. What are the company’s
3. What is causing the industry’s competitive
presentstructure
strategyand
or is there strengths and weaknesses?
business environment too change? room to make major strategy
3. Are the companies prices and
4. Which companies are in the strongest / weakest
changes? costs competitive
position?
4. How strong is the company’s
5. What strategic moves are rivals likely to make next?
competitive position.
6. What are the key factors for competitive success?
5. What strategic issues does the
7. Is the industry attractive and what are the prospects for
company face?
above average profitability?

What is the best strategy?

• Does it have good fit with the
company’s situation?
• Will it help build a competitive
advantage?
• Will it improve company’s
performance

Question 1in detail.

The factors to consider is profiling an industry’s economic features are as below

• Market size.
• Scope of competitive rivalry (local, regional, national, international, or global).
• Market growth rate and position in the business life (early development, rapid growth, and
takeoff, early maturity, maturity, saturation and stagnation, decline).
• Number of rivals and their relative sizes---is the industry fragmented into many small
companies or concentrated and dominated by a few large companies?
• The number of buyers and their relative sizes.
• Whether and to what extent industry rivals have integrated backward and/or forward.
• The type of distribution channels used to access the customers
• The pace of technological change in both production process innovation and new product
introduction.
• Whether the products and services of rival firms are highly differentiated, weakly
differentiated, or essentially identical.
• Whether companies can realize economies of scale in purchasing, manufacturing,
transportation, marketing, or advertising.
• Whether key industry participants are clustered in a particular location.
• Whether certain industry activities are characterized by strong learning and experience
efforts (“learning by doing”) such that unit costs decline as cumulative output grows.
• Whether high rates of capacity utilization are crucial to achieving low cost production
efficiency.
• Capital requirements and the ease of entry and exit.
• Whether industry profitability is above/below par.

An industry’s economic features help frame the window of strategic approaches a company
can pursue.

Economic feature Strategic importance

Market share Small markets don’t intend to attract big/new competitors; large markets
often draw the interest of companies looking to acquire competitions
with established positions in established industries.
Market growth Fast growth breeds new entry; growth slowdowns spawn increased
rate rivalry and a shake out of weak competitors.
Capacity Surpluses push prices and profit margins down; shortages push them
surpluses or up.
shortages
Industry High profit industries attract new entrants; depressed conditions
profitability encourage exit.
Entry/exit barriers High barriers protect positions and profits of existing firms; low barriers
make existing firms vulnerable to entry.
Cost and More buyers will shop for lowest price on big ticket items than on less
importance of important or expensive items
product.
Standardized Buyers have more power because it is easier to switch from seller to
products seller.
Rapid Raises risk factor; equipment and facilities may become obsolete before
technological they wear out.
change
Capital Big requirements make investment decisions critical and create a barrier
requirements to entry and exit, timing becomes important
Vertical integration Raises capital requirements; often creates competitive differences and
cost differences among fully versus partially versus non-integrated firms.
Economies of Increases volume and market share needed to be cost competitive.
scale
Rapid production Shortens product life cycle; increases risk because of opportunities for
innovation rivals to bring out next generation products quicker and leapfrog current
market leader.
 cost pe r unit
100

80

60 10%
20%
40
30%
20

0
1 m io 2m io 4 m io 8 m io
cumulativ e production v olume
Question 2 in detail

Second step allows the managers to analyze