The Importance of Industry & Competitor Analysis
An industrial analysis is used to examine the past trends in an industry, the current demand and supply mechanics, and the future outlook of the industry. It also acts as a guide to investors on the viability of investing in a company.
The analysis is useful in offering recommendations in case an unexpected development happened in the industry. An industrial analysis takes time and it is very complicated.
What is Industry?
Industry is the collective large-scale manufacturing of goods in well-organized plants with a high degree of automation and specialization. Although this is a common example of industry, it can also include other commercial activities that provide goods and services such as agriculture, transportation, hospitality, and many others.
What is Industry Analysis?
Industry analysis is a tool that facilitates a company’s understanding of its position relative to other companies that produce similar products or services. Understanding the forces at work in the overall industry is an important component of effective strategic planning. Industry analysis enables small business owners to identify the threats and opportunities facing their businesses, and to focus their resources on developing unique capabilities that could lead to a competitive advantage.
Is it important for a new firm to analyze the industry in which it may choose to compete? Why?
The importance of industry analysis is manifold. As an entrepreneur trying to find your way in the industry of your choice, you can use industry analysis to understand what your position is, relative to the position that other players in the industry have. You can use industry analysis to your advantage to identify opportunities and threats within your environment, as well as to plan for the future of your business, in the context of the future of your industry. The only way you can survive in any competitive industry is that you will need to understand how you measure up against your competitors, and then use that information to your fullest advantage.
What are the five forces that determine an industry’s profitability?
- Competition in the industry
- Potential of new entrants into the industry
- Power of suppliers
- Power of customers
- Threat of substitute products
What are the six major sources of barriers to entry that can restrict a firm’s entry into a market?
- Economies of scale.
- Product differentiation.
- Capital requirements.
- Switching costs.
- Access to channels of distribution.
- Government policy.
How does rivalry among existing firms have the potential to suppress an industry’s profitability?
Industry rivalry usually takes the form of jockeying for position using various tactics (for example, price competition, advertising battles, product introductions). This rivalry tends to increase in intensity when companies either feel competitive pressure or see an opportunity to improve their position.
What are the characteristics of an emerging industry?
- Market volatility
- Growth and investment potential
- High rates of economic growth
- Income per capita
What is the primary opportunity for new firms in an emerging industry?
Successful startups are difficult to achieve, so how do we improve the odds of getting traction and picking the right industry to launch a business in, one that won’t be overtaken by robots (unless the startup is about building robots) or one that won’t require a major pivot? The company analyzed a mixture of data from the Bureau of Labor Statistics and investment and market research firms to create a top 10 list of industries that will “likely be around a decade from now, growing fast, and generating strong profits.” Note that these aren’t the biggest industries, just the fastest growing, most lucrative ones. The list (which follows) includes industries with forecasted growth rates between 118 and 135 percent and a projected 10-year stock growth rate between 56 and 296 percent.
What are the characteristics of a fragmented industry?
- Low entry barriers
- Low level of product innovation
- High need for trust and local firms inspire more trust
- Lack of need for standardization
- No real economies of scale
What is the primary opportunity for new firms in fragmented industries?
The primary opportunity existing for start-ups in fragmented industries is to consolidate the industry and establish industry leadership as a result of doing so. C. Mature Industries- slow or no increase in demand, has numerous repeat customers, and has limited product innovation.
What are the characteristics of a mature industry?
The shares of mature industries are characterized by low price to earnings ratios and high dividend yields. A low P/E means an investor can expect to receive company earnings for a lower investment as the dividends paid for holding the shares climb.
What is the primary opportunity for new firms in a mature industry?
With a mature industry, revenue and earnings can continue to increase. Companies from such industries are not expected to grow at the same pace that may have characterized the earlier phases of development. This may be due to the industry already approaching the point of market saturation in terms of reaching available customers.
What is the primary opportunity for new firms in a declining industry?
Calori & Ardisson (1988) describe “stalemate industries” as industries where technological knowledge is widely spread and where competitive advantages are few and firms rely on price competition. They refer to declines in the paper, sugar and steel industries as examples of this type of industry decline.
Porter (1980) defines a declining industry as an industry in a decline that is not ascribed to the business cycle or short-term discontinuities, like material shortages or employee strikes. Rather, Porter talks about a “true situation” in which end-game strategies must be developed by the incumbent firms in order to survive. This notion is supported by Harrigan and Porter (1983) who suggest that remedies must have been exhausted in declining industries, and that the issue is to cope with the decline itself.
What are the examples of declining industry? And why?
An example of a declining industry is the railroad industry, which has experienced decreased demand — largely due to newer and faster means of transporting goods (primarily air transport and trucking) — and has failed to remain competitive in pricing, at least in relation to the benefits of faster and more efficient transport provided by airlines and trucking services.
What is a global industry?
The term global industry specifically means an industry where a firm’s competitive position in one country is affected by its position in other countries and the reverse is also true. The industries exhibiting global pattern in today’s world include automobiles, television sets, commercial aircrafts and boats, sporting equipment, watches, clothing, semiconductors, copiers and also the transfer of funds.
What are the two most common strategies pursued by firms in global industries?
Porter called the generic strategies “Cost Leadership” (no frills), “Differentiation” (creating uniquely desirable products and services) and “Focus” (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: “Cost Focus” and “Differentiation Focus.”
What is the purpose of competitor analysis?
The competitive analysis is a statement of the business strategy and how it relates to the competition. The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle.
What are the differences among direct competitors, indirect competitors, and future competitors?
- Direct Competition: When multiple businesses offer similar services or products, they are said to be direct competitors. An example of this is Apple’s iPhone and Samsung’s Galaxy. To beat direct competition, businesses often use competitive differentiation strategies to set their brands apart from the competition. Competitive differentiation is meant to convince customers that your product is not only different from the rest in the category but also superior.
- Indirect Competition: Indirect competitors do not compete on the basis of similar products; rather, they offer slightly different products that target similar customers as your business. This means that they can potentially take away your customers since the product, although different, meets a similar need. What makes indirect competition harder to deal with is the fact that the power does not belong to the company; the power belongs to the customer.
- Future Competition: To run a successful business, you must plan, protect, and position yourself strategically to deal with future competition. Anytime you’re entering a market with existing competitors, it’s only fair to imagine that there will be new competition in the future to deal with. Coming up with reaction strategies in preparation for future competition may man focusing on market and distribution rather than just innovation.
Why is it important for firms to collect intelligence about their competitors?
Competitive intelligence is important because it helps businesses understand their competitive environment and the opportunities and challenges it presents. Businesses analyze the information to create effective and efficient business practices.
What are three sources of competitive intelligence that entrepreneurial firms should feel comfortable using to better understand their competitors?
- Stay Nimble and React Quickly
- Learn from the Mistakes of Other Companies
- Stay Ahead of Your Closest Rivals
- Differentiate Yourself from the Pack
- Avoid Pitfalls and Innovate Successfully
- Identify Areas of Opportunity
What is the purpose of completing a competitive analysis grid?
A competitive analysis grid is a tool for organizing the information a firm collects about its competitors to see how it stacks up against its competitors provides ideas for markets to pursue, and, perhaps most importantly, identifies its primary sources of competitive advantage.
My Opinion:
Competitor analysis is the process where you identify your greatest competitors and evaluate their strategies to find out what their strengths and weaknesses are and how they relate to your product or service. This analysisremoves you from your comfort zone but also places you on the path to success if you do it well.
Sources:
https://www.cleverism.com/industrial-analysis-and-competitor-analysis/
