Page 67 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 4: External Assessment

4.3.2 Industry Analysis Notes

1. Industry Features: Industries differ significantly. So, analyzing a company’s industry
begins with identifying the industry’s dominant economic features and forming a picture
of the industry landscape. An industry’s dominant economic features include such
factors as:

(a) Overall size
(b) Market growth rate
(c) Geographic boundaries of the market
(d) Number and sizes of competitors
(e) Pace of technological change

(f) Product innovations etc.
Getting a handle on an industry features promotes understanding of the kinds of strategic
moves that managers should employ. For example, in industries characterized by one
product advance after another, a strategy of continuous product innovation becomes a
condition for survival.

Example: Video games, computers and pharmaceuticals.

2. Industry Boundaries: All the firms in the industry are not similar to one another. Firms
within the same industry could differ across various parameters, such as:
(a) Breadth of market

(b) Product/service quality
(c) Geographic distribution
(d) Level of vertical integration
(e) Profit motives

3. Industry Environment: Based on their environment, industries are basically of two types:
(a) Fragmented Industries: A fragmented industry consists of a large number of small or
medium-sized companies, none of which is in a position to determine industry
price. Many fragmented industries are characterized by low entry barriers and
commodity type products that are hard to differentiate.

(b) Consolidated Industries: A consolidated industry is dominated by a small number of
large companies (an oligopoly) or in extreme cases, by just one company (a
monopoly). These companies are in a position to determine industry prices. In
consolidated industries, one company’s competitive actions or moves directly affect
the market share of its rivals, and thus their profitability. When one company cuts
prices, the competitors also cut prices. Rivalry increases as companies attempt to
undercut each other’s prices or offer customers more value in their products, pushing
industry profits down in the process. The consequence is a dangerous competitive
spiral.
According to Michael Porter, industries can be categorized into:
Emerging industries: Are those in the introductory and growth phases of their life
cycle.

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