INDUSTRY ANALYSIS

  1. Industry setting
  2. Industry structure
  3. Industry attractiveness
  4. Industry performance

Industry setting

  • Industry setting can be defined as pattern of industries in terms of their stages of evaluation maturity attain and geographical dimensions

Industry structure

  • It means the underlying economic and technical forces operating in an industry.
  • It also consists of the nature of competitions and their roles and product differentiation.
  • Based on the number of sellers and type of product differentiation there are 5 types of Industry structure.
  1. Pure monopoly – here there is only one seller in the market. The deciding power rests with the organization. To continue the monopoly, the entry of the competitor must be prevented. Monopolistic competition does not require product differentiation. Example- Railway, state electricity board.
  2. Pure oligopoly – oligopoly means a few sellers and there is no product differentiation. As there is no product differentiation, any price change by ne seller affects the other sellers as the demand is price elastic. Pure oligopoly exists in heavy commercial vehicle like TATA motors and ASHOK LEYLAND
  3. Pure competition – it is also called perfect competition and is characterized by the existence of a large number of sellers offering the same product. There is no product differentiation and product price plays a significant role in the industry. As pricing cannot be controlled, operational efficiency is the tool to yield higher profit. Consumables like sugar, tea, steel fall in this category.
  4. Differentiated oligopoly – it consist of a number of sellers but the product is well differentiated. Differentiation is on the basis of additional products, features, styling, quality, delivery, after sales service price, etc. Example is the passenger car industry where each car has its own unique selling proportion, although they fall in the same price band and have same functionality.
  5. Monopolistic competition – it is characterized by a large number of sellers where each seller has a well differentiated product. It is a combination of both monopoly and pure competition. It can be termed as monopolistic because of well differentiated product and high consumer loyalty. It has elements of pure competition as there are number of sellers which operate in the same product group. Here product differentiation determines the profitability of the company. Consumer industries with branded products fall in this category.

 

Industry attractiveness

  • It consists of factors which prevail in the industries which affect the profitability of an organization.
  • Industry attractiveness is determined by the factors:
  1. Nature of demand – analysis of demand in terms of total market size gives the scope of its present and future business. Industry demand increases because of factors like increase in population, increase in incomes, change in taste, etc. Increase in demand makes the industry attractive
  2. Industry potential – Industry potential deals with the scope that the business offers at present and the future. It depends upon the total industry sale potential. A high volume industry has much more potential than a low volume industry because the former can accommodate large number of players. Examples – in the oral care industry toothpaste can be considered as a high volume industry which is not the case with toothpowder segment.
  3. Profit potential – profit potential is possibility of earning target volume of profit. Profit volume is related with the sales volume. Usually the knowledge based industry like consultancy, information technology, etc. Offer high profitability.
  4. Entry and Exit barrier – There are some entry barriers to new entrants and exit barrier to the existing players. Entry barrier like economies of scale, investment requirement, degree of product differentiation, cost disadvantages, government policies, etc. These factors act as entry barriers in differentiated forms. Exit barriers like the cost constraints of putting operation facilities to alternative uses. If the feasibility is low, cost of exit is high.

 

Industry performance

  • It deals with the factors which deal with the performance of an industry vis-a-versa other industries.
  1. Profitability – profitability is related with sales or investment. For example a high capital intensive industry may show high profitability in relation to sales as compared to a low capital intensive industry. This may change if profitability is related to total investment.
  2. Operational efficiency – it describes the input output relationship. Operational efficiency depends upon the man machine ratio, manpower productivity, level of technology, infrastructure required for the industry, raw material quality and availability, etc. It is higher in automated technology as compared to semi automated technology.
  3. Innovation – innovation is the new idea which spreads from its source of invention to its ultimate users or adopters. Rate of innovation can be any form like adding features to the product or introduction of different market channel. Industries having innovation provide opportunities for differentiation.
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