Analysis of Pakistan IndustriesSpring 2010

FRAMEWORKS AND MODELS

MODELS & FRAMEWORKS USED IN THIS COURSE

• SWOT• PEST (STEP)• Porter’s Five Forces• Porter’s Diamond

S = StrengthsS = StrengthsW = WeaknessesW = WeaknessesO = OpportunitiesO = OpportunitiesT = ThreatsT = Threats

INTERNAL

EXTERNAL

STRENGTHS•Capabilities? •Competitive advantages? •USP's (unique selling points)? •Resources, Assets, People? •Experience, knowledge, data? •Financial reserves, likely returns? •Marketing - reach, distribution, awareness? •Innovative aspects? •Location and geographical? •Price, value, quality? •Accreditations, qualifications, certifications? •Processes, systems, IT, communications? •Cultural, attitudinal, behavioural? •Management cover, succession?

WEAKNESSES•Gaps in capabilities? •Lack of competitive strength? •Reputation, presence and reach? •Financials? •Own known vulnerabilities? •Timescales, deadlines and pressures? •Cashflow, start-up cash-drain? •Continuity, supply chain robustness? •Effects on core activities, distraction? •Reliability of data, plan predictability? •Morale, commitment, leadership? •Accreditations, etc? •Processes and systems, etc? •Management cover, succession?

OPPORTUNITIES•Competitors' vulnerabilities? •Industry or lifestyle trends? •Technology development and innovation? •Global influences? •New markets, vertical, horizontal? •Niche target markets? •Geographical, export, import? •New USP's? •Tactics - surprise, major contracts, etc? •Business and product development? •Information and research? •Partnerships, agencies, distribution? •Volumes, production, economies? •Seasonal, weather, fashion influences?

THREATS•Legislative effects? •Environmental effects? •IT developments? •Competitor intentions - various? •Market demand? •New technologies, services, ideas? •Vital contracts and partners? •Sustaining internal capabilities? •Obstacles faced? •Insurmountable weaknesses? •Loss of key staff? •Sustainable financial backing? •Economy - home, abroad? •Seasonality, weather effects?

PEST ANALYSIS

P = POLITICAL FACTORSE = ECONOMIC FACTORSS = SOCIOCULTURAL FACTORST = TECHNOLOGICAL FACTORS

PEST ANALYSIS• A PEST analysis is an analysis of the external

macro-environment that affects all firms. • External factors usually are beyond the firm's

control and sometimes present themselves as threats.

• However, changes in the external environment also create new opportunities.

Political Factors• This is the most important influence on the

regulation of any business.– How stable is the political environment? – Influence the Government Policy / Law on

your business– Government’s position on Marketing Ethics– Government’s policy on the economy– Government’s view on culture under religion

Political Factors - Contd.– Political System is responsible for Law

Making.– Immediate laws which affect any business in

general are Central Excise, Sales Tax/ VAT, Corporate Income Tax, Personal Income Tax & Service Tax

– Environmental Protection Law– Controls if any on Marketing Strategies

• Like Marketing / Advertising of Cigarettes, Tobacco, Alcohol etc.

Political Factors - Contd..• Control on Pricing

– like sugar, drugs etc.• Government Policies on the

Economy – Role of Public Sector – Role of Private Sector– Role of Joint Sector

Economic Factors• Government outlook towards

– Bank Financing – Interest Rates– Exchange Rate Mechanism– Incentives for Exports– Restrictions for Imports– Inflation – Labour Policies

Economic Factors - Contd.• Level of Government Spending• Avenues for Capital Creation

– Size of the Capital Market– Role of the Regulator– Type of the Instruments– Nature of the Investors

• Business Cycles• Monsoon • Energy Availability• Cost and availability of Energy

Socio-Cultural Factors• Demographics• Distribution of Income• Social Mobility• Life Style Changes• Consumerism• Educational Levels

Socio-Cultural Factors - Contd.• Demographics & Distribution of

Income – Division of population - Male / Female– Age Group of the Population– Disposable Family Income

• Disposable Income in the hands of the different Age Groups

• Education Level of the Age Groups

• Life Style Changes & Consumerism– Attitude to living

• Different Age Groups• In tune with available disposable income• Thrust on taking care of present needs by

spending than saving for the future.• Joint living and nuclear families• Availability of various media tools• Reach of the media to the population

Socio-Cultural Factors - Contd.

• Advantage of Technology– In terms of Economies of Scale

• New Discoveries & Innovations• Speed & Cost of Technology

Transfer • Rate of Obsolescence

Technological Factors

PORTER’S Five ForcesPORTER’S Five Forces

Bargaining Power of Suppliers The term 'suppliers' comprises all sources for inputs

that are needed in order to provide goods or services. Supplier bargaining power is likely to be high when:

The market is dominated by a few large suppliers There are no substitutes for the particular input,The suppliers customers are fragmented & their bargaining

power is lowThe switching costs from one supplier to another are high,There is the possibility of the supplier integrating forwards in

order to obtain higher prices and margins. Forward integration provides economies of scale for the supplier

Bargaining Power of CustomersSimilarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when: They buy large volumes, there is a concentration of buyers The supplying industry comprises a large number of small

operators The supplying industry operates with high fixed costs, The product is undifferentiated and can be replaces by

substitutes, Switching to an alternative product is relatively simple and is

not related to high costs Customers have low margins and are price-sensitive, Customers could produce the product themselves, The product is not of strategical importance for the customer, The customer knows about the production costs of the product

Threat of New EntrantsThe competition in an industry will be the higher,

the easier it is for other companies to enter this industry. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically

Economies of scale (minimum size requirements for profitable operations),

High initial investments and fixed costs,Cost advantages of existing players due to experience

curve effects of operation with fully depreciated assets,Brand loyalty of customersProtected intellectual property like patents, licenses etc,Scarcity of important resources, e.g. qualified expert staffAccess to raw materials is controlled by existing players,Distribution channels are controlled by existing players,Existing players have close customer relations, e.g. from

long- term service contracts,High switching costs for customersLegislation and government action

Threat of SubstitutesA threat from substitutes exists if there are

alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. Threat of substitutes is determined by factors like

Brand loyalty of customers,Close customer relationships,Switching costs for customers,The relative price for performance of substitutes,Current trends.

Competitive Rivalry between Existing

Players This force describes the intensity of competition

between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing players is likely to be high when

There are many players of about the same size,Players have similar strategiesThere is not much differentiation between players and their

products, hence, there is much price competitionLow market growth rates (growth of a particular company is possible only at the expense of a competitor),Barriers for exit are high (e.g. expensive and highly

specialized equipment). 

Porter’s DiamondCompetitive AdvantageAdvantage for Countries

Source: The Competitive Advantage of Nations, by Michael E. Porter.

• FACTOR CONDITIONS– Capital– Land– Labour– Technology– Machinery– Raw Material– Infrastructure– Knowledge

Porter’s Diamond

Porter’s Diamond• DEMAND CONDITIONS

– Local Demand• Factors driving local demand

– Growing population– Educated population– Sophisticated and informed population

– International Demand• Countries having advantage due to

availability of a natural resource or human resource

Porter’s Diamond• FIRM STRATEGY, STRUCTURE AND RIVALRY

– Firm Strategy• Goal setting• Processes to achieve goals

– Industry Structure• Organised vs. unorganised• Public vs. private companies

– Competition• Monopoly, Oligopoly, Imperfect Competition,

Perfect Competition

Porter’s Diamond• RELATED OR SUPPORTING INDUSTRIES

– Cluster formation– Vertical integration can create value – Growth in supporting industries can effect a

certain industry.

• GOVERNMENT– Regulations for the industry– Taxes– Incentives– Effect on supply of raw material– Affect on competition

Porter’s Diamond