2 sapm industry analysis

8/22/2019 2 SAPM Industry Analysis

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INDUSTRY ANALYSIS

Industry classification

By product.

Major products contribution to sales.

Diversified.


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n ustry c ass cat on accor ng to

business cycle

Growth industries Expectation of high rates ofexpansion in the top line and bottom line / favorable

economic conditions a boost.

Cyclical industries Those industries that are likely

to benefit from a period of economic prosperity andmost likely to suffer from a period of economic

recession.

Defensive industries Probably counter cyclical

food processing, consumer non durables,

services items necessary for existence swings in

economic factors do not affect these much.


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Industry analysis

Process Identify major players.

Analyse past sales and earnings.

Growth rate, cost structure.

Performance Related to products and

technology.

Attitude of government towards the specific

industry group present government policies allowing foreign players.


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Industry analysis contd..

Labour conditions labour intensive

industries wage agreements.

Competitive scenario in the industry

Porters five point model

Distinctiveness

Product differentiation.

Cost advantages. Economies of scale.


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Industry analysis contd..

Industry life cycle

Pioneering stage.

Expansion stage.

Stabilization stage.

Decline stage

Composition of industrys population

Distribution of wealth among them. Consumer buying habits.


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ISSUES THAT AFFECT AN

INDUSTRY

What is the nature of industry?

How much is it regulated?

Role of labour in the industrys growth?

How critical is technological developments?

Influence of interest rates, exports, imports

on the industry.

How important is financial and operating

considerations access to capital etc..


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Evaluating competitive position of one

industry in relation to other industries

Growth potential.

New opportunities.

Drivers of demand / growth.


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PORTERS 5 FORCES MODEL


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RIVALRY AMONG EXISTING

FIRMS

Large number of firms in the market increases

rivalry.

Slow market growth fight for market share intense.

(High storage cost) / (highly perishable product)rivalry intense.

Low switching cost i.e. customers can shift from one

product to another easily market rivalry will be

more to capture the customers. Low level of product differentiation higher level of

rivalry.


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RIVALRY AMONG EXISTING

FIRMS contd..

When firms are losing market share or

potential for gaining market share is very high

intense rivalry.

High exit barriers i.e. technology or businessassets like plant and machinery cannot be

deployed to produce some other

product/service all firms will try to grabdecent market share to continue to be in

business.


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BARGAINING POWER OF

SUPPLIERS

Bargaining leverage / supplier concentration.

Volumes.

Differentiation of inputs.

Presence of substitute products.

Switching cost of firms in the industry.


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BARGAINING POWER OF

BUYERS

Buyers are powerful when

Buyers are concentrated few buyers takesignificant part of production.

Can threaten to buy products from rivals.

Buyers have a credible backward integration

plan.


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BARGAINING POWER OF BUYERS

contd..

Buyers are weak when

Product differentiation significant.

Producers threaten forward integration; can

have their own distribution channels and

retailing.

Buyers are fragmented.

Significant switching costs.

Producers supply critical for buyers input.(INTELs relationship with PC manufacturers)


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ENTRY BARRIERS

Government policy. Economies of scale.

Capital requirements.

Switching costs. Expected retaliation from present players.

Special access to distribution.

Patent requirements. Large investments in technology / plant and

machinery not capable of alternate uses.


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ENTRY BARRIERS contd..

Easy to enter if there is

Common technology.

Low product differentiation.

Easy access to distribution.

Low scale threshold.


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ENTRY BARRIERS contd..

Difficult to enter if..

Patented.

High product differentiation.

Restricted access to distribution channels.

High scale threshold.


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EXIT BARRIERS

Easy to exit if.

Exit cost is low.Assets are easily saleable.

Independent business.


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EXITBARRIERS contd..

Difficult to exit if

High exit costs. Speciality assets not easily saleable or

redeployable.

Inter linked business.


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THREAT OF SUBSTITUTES

Substitute product comes from another

industry.

Packaging industry aluminium foil Vs glass

bottles, steel can, plastic can, tetra pack.

Automobile tyre retreading.

Buyer inclination to substitutes is more

pronounced where Product differentiation is low.

Trade off with substitutes is easy.


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OTHER ECONOMIC

MEASURES AND WHAT IT

INDICATES

Personal income Consumer buyer

habits Employment Business production

Construction of houses Easy availability of

loans at Reasonable / affordable

cost

2 sapm industry analysis

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