Prepare Report on company’s and concerned industry’s competitive analysis

using corporate strategy analysis, Porter’s Generic strategies (Competitive

advantages) and Porter’s Five Forces Model (Industry Analysis).

Report should include following Sections:

1. Introduction:

Description: This is to be a general introduction to the particular nature of the

industry. A brief history, key players, and general information are required to set the
stage.

Segments: Identify the segments of the industry, and specifically state the focus
of the paper. Almost every industry has segments some have too many, such as the
healthcare industry.

Socio-Economic Factors: Determine the power of various stakeholder groups

likely to have an impact on future competitive moves of firms within this industry. Most
texts cover in detail the many factors that can be relevant to any industry. Here the
students must research their industry to find specific factors likely to impact firms within
their industry. The orientation is toward the future. It is assumed that firms in the
industry have adapted to past events. This material is available in magazine articles,
and industry surveys, among other sources.

A. Relevant governmental or environmental factors an example would be the

periodic efforts of the government to regulate auto gas mileage and emissions.

B. Economic indicators relevant for this industry an example would be

disposable income for firms in industries selling discretionary goods or services.

Critical Success Factor: Identify the critical success factor of the industry.

Motivation: Explain briefly about the motivation for selecting the particular
company or industry for analysis.

Caveats: State limitations encountered in the study that prevent a complete

analysis.

2. Literature Review:

This section should include the description of previous studies performed in this
context. It should be both international and Indian. Here you should include
Research Gap.
 3. Industry Analysis using Porter’s five force model:

Determine the relative strengths of each of the five forces.

A. Threat of New Entrants

Those industries with high entry barriers will have fewer firms entering. With fewer firms,
there is less environmental complexity, and it is easier for one firm to begin to dominate
the industry. Economic rents are usually higher in such an environment. This makes the
industry attractive. For industries with low barriers to entry, such as the restaurant
industry, new firms come and go with great rapidity. This prevents dominance by any
one, or a few, firms. Economic rents are usually low. This makes the industry
unattractive. The following elements will help determine the level of threat from new
entrants.

1. Economies of scale: If economies of scale exist, it represents a high barrier to entry.

Firms within the industry will have achieved these economies, and if we enter, we will
have to match their scale size, but without the benefits of the associated learning curve.
Since economies of scale do not exist in any tangible way, you must prove their
existence or non-existence. Provide two measures related to the basic premise that
increases in capital investment should lead to lower unit costs. Reach a conclusion:
based on your analysis, do economies exist? What does this do to the threat of new
entrants? Does this make the industry attractive or unattractive? Provide similar
conclusions for each of the following sub-sections.

2. Working capital requirements: How much money will we have to tie up to keep the
doors open? This is money that cannot be invested in any other way. It will never earn
an income. This is also a barrier to entry in that if firms must tie up large amounts of
capital for daily operations; this will deter smaller firms from entering. Working capital
requirements are usually provided in the cash flow financial statements.

3. Proprietary product differences: Do you see that some firms have a secret process or
secret formula? An example would be Coca-Cola. They have a secret formula for their
cola soft drink that acts as a high barrier to entry. Very few firms try and compete head-
to-head with Coke in the cola segment of the industry.

4. Absolute cost advantages: Do you see the presence of patents or copyrights? These
are legal constraints to entry created by the government. By definition, they constitute a
high barrier to entry. Examples include patents on pharmaceuticals and copyrights on
software.
5. Brand identity: Is brand identity important in this industry? Do buyers make conscious
choices based on brand identity? If so, this would be a high barrier to entry. Examples
include Viagra, Coke, and Intel Pentium processors. You must prove that brand identity
is or is not important. One way is through an interview with a buyer. Another is to
examine marketing expenses for the industry as a percentage of sales across five
years. If the trend is upward, then brand identity could be important.

6. Access to distribution: How do firms get their product or service to market? Would we
need to duplicate the distribution channels, or could we tap into existing channels? This
is not an obvious question, and it requires first determining who the buyers are. Kia auto
discovered that lack of a distribution system in the form of dealerships limited its access
to markets in this country. This was a very high barrier to entry for them.

7. Expected retaliation: Do you see indications of retaliation against prior newcomers?

This will require research through many historical articles about the industry. An
example would be the airline industry. Midway Airlines, a small regional carrier,
competed head-to-head with American and USAir, and went bankrupt. Southwest has
survived nicely by avoiding the markets dominated by larger airlines such as American
and United. This is one of the high barriers to entry for the major segment of the airline
industry.

From your analysis, you will find that some of these points are not relevant to
your industry. You should also appreciate that some points are more important than
others. Lastly, you should find that some elements will say that the industry is attractive,
while other elements say that the industry is unattractive. Provide a decision matrix to
justify your final answer as to the barriers to entrants, the threat of new entrants, and the
attractiveness of the industry.

B. Suppliers

While we were concerned about threats in the "entrants" section, here we are
concerned with power. Do suppliers have power over firms in this industry? If so, this
would make the industry unattractive. The first step is to determine what this industry
purchases. Not in detail, but as a generalization. Then, identify items that are
recognized as being commodities. These can be dismissed from further consideration.
Focus on suppliers of key items that firms in this industry must have. For example, in
the micro brewing industry, all inputs are commodity items except hops. Since hops are
the key ingredient for specialty beer production, supplier analysis would focus only on
hops suppliers. Another example would be the PC industry. While this industry changes
regularly, at the time of writing, only the central processing unit (CPU) is a key input. All
other items are commodity in nature and would not be discussed. Evaluate the following
elements only for the key item or items in the industry.

1. Suppler concentration
 Are there more or fewer suppliers than firms in this industry? If suppliers are
concentrated (fewer of them) this could give them power over buyers in this industry.
For example, Intel is one of only a few providers of CPUs for the PC industry. This gives
them power over the PC industry.

2. Presence of substitute inputs

The presence of substitute inputs lowers the power of suppliers. For example, in
the auto industry, aluminum can substitute for steel. This lowers the power of the steel
industry. A lack of substitutes, such as no substitutes for the CPU gives the suppliers’
power.

3. Differentiation of inputs

Are suppliers able to differentiate their products/services in some way? Whether

legitimate or not, Intel has differentiated its CPU such that many consumers (not
buyers) prefer computers with Intel inside. This ability to differentiate gives suppliers’
power.

4. Importance of volume to supplier

Do we, as an industry, buy a significant percentage of the total production of the

suppliers output? For example, the PC industry buys virtually all of the CPUs that Intel
produces. This gives the PC industry power over the suppliers. Without the PC industry
there would be no CPU manufacturers.

5. Impact of inputs on our cost or ability to differentiate

If suppliers have a significant impact on an industry’s cost structure, or value

chain, this gives them power. The same is true if they impact firms’ ability to differentiate
their product or service. Again, the PC industry is a good example. Intel’s ability to
impact PC manufacturers’ final product gives them power.

6. Threat of forward or backward integration

Is there any indication that vertical integration is occurring? If suppliers are

coming forward to gain access to distribution channels, this gives them power. If there
are indications of firms backward integrating to capture margins, this gives firms in the
industry power over suppliers.

7. Access to capital

Assuming that we enter this industry, at some point in the future we will want
access to capital for expansion or other business reasons. You need to determine
whether we would likely have access to capital on acceptable terms. Since we can’t
know the future, we have to use the past as an indication. Determine the average
profitability for the industry over the last five years. Net income as a percentage of sales
works. Plot a graph comparing industry profitability against inflation. In your opinion,
does the return on investment represent a reasonable income? If so, we can expect that
we would have access to debt financing on reasonable terms. If not, access to debt
financing is likely to be expensive.

8. Access to labor

If we enter, would we have access to labor on favorable terms? Does this

industry have unions? If so, they limit access to labor and usually increase costs. Do
firms in this industry require highly skilled knowledge workers? How is the present labor
market for this industry?

As with the threat of new entrants section, provide conclusions for each
subsection as to the power of suppliers. Then provide an overall conclusion for this
section using a decision matrix. Do suppliers have power and is the industry attractive?

C. Buyers

First, determine who the buyers are. This is not a marketing paper, so don’t think
ultimate consumer. What are the channels of distribution for the industry? Your analysis
should focus on the primary buyer, not on the consumer unless there are no
intermediaries. Here again, we are concerned with power. Do buyers have power over
firms in this industry? If so, the industry is unattractive.

1. Buyer concentration

Are there more or fewer buyers than firms in the industry? If buyers are
concentrated, this gives them power. An example would be the airframe industry. There
is only one U.S. based buyer for commercial aircraft parts, Boeing. Therefore, the
buyers for the commercial aircraft parts industry are concentrated, giving the buyers
power, making the commercial aircraft parts industry unattractive.

2. Buyer switching costs

Do buyers have switching costs that would limit their willingness to switch
suppliers? If the industry has been able to create switching costs, that gives the industry
power over the buyer and makes the industry attractive. An example would be the
software industry. The switching costs are the time required to learn a new program.
This makes it less likely that a buyer would switch readily from, say, Excel to Lotus. This
buyer switching costs gives power to the software industry.

3. Buyer Information

Do buyers understand what is happening in this industry? If so, it is less likely

that the industry can make competitive moves to increase profit margins. An example
would be the auto tire industry. Buyers (auto manufacturers) know what it takes to make
a tire. Therefore, they have power over the tire industry. This is demonstrated by the
relatively low margins in the tire industry.

4. Threat of backward integration

Backward integration is the process of firms acquiring their suppliers, or

beginning the process of providing for themselves the means to produce the input. This
can occur for several reasons, among them: to guarantee a dependable source of the
input or to capture the margins normally paid to the suppliers. Are there indications that
buyers are backward integrating? If so, this gives them power, making the industry
unattractive.

5. Pull through

Have firms in this industry been able to create pull through? This requires that
intermediaries exist. If brand identity is important in this industry then pull through most
likely exists. Quantitative analysis of advertising expense as a percentage of sales over
time for the industry is one way of demonstrating that pull through could exist. The
easiest way to answer the question is through an interview. If pull through exists, this
gives the industry power over the buyer. An example would be the cereal industry,
which has established pull through such that major grocery chains have to carry major
brands. This pull through gives the cereal industry power over the buyers, making the
industry attractive.

6. Brand identity of buyers

Does the industry impact the brand identity of its buyers? If so, this would give
the industry power over the buyer. For example, while high performance tires with a
brand name seen on racing cars would favorably impact the brand identity of a very
expensive sports car, a brand of tire that automobile assembly plants put on compact
cars would negatively impact the brand identity of this car.

7. Price sensitivity

Are buyers price sensitive? This deals with elasticity of demand. Is the industry
able to pass cost increases on to the buyer, or must they absorb them? If buyers are not
price sensitive, this gives the industry power and makes it attractive.

8. Price to total purchases

Do the buyers’ purchases of this industry’s product/service represent a

significant percentage of their total purchases? If so, this would give the industry power
over the buyers. They would be dependent on a constant supply of goods or services
for their survival.

As with the supplier section, provide conclusions for each subsection as to the
power of buyers. Then provide an overall conclusion for this section using a decision
matrix.

D. Substitute Products

An industry will be attractive if there is no threat from substitute products. A

substitute is any product or service that will fulfill the same need while using a different
technology. An example would be substituting plastic for paper for food carry out. The
electric car is a substitute for the internal combustion engine; therefore the auto as we
know it, even though the auto industry is the primary developer. The relevance is that
substitutes can render obsolete the present capital investment of the industry.

1. Relative price/performance relationship of substitutes

The electric car has not caught on, in part, because it does not have the same
performance characteristics as the traditional auto. Another example: few business
people put cheap pens in their shirt pockets. They prefer a very expensive pen. The
prestige factor is much higher for the higher-priced pen. The need being satisfied is not
the ability to write, but the image being portrayed.

2. Buyer propensity to substitute

Despite the benefits offered by the substitute product or service, do people really
want it? The ultra-sonic clothes washer was a flop. It got clothes as clean as the
conventional washer, using cold water and no soap. But people preferred the hot water
and soap despite the additional costs. Another example: special interest groups forced
McDonald’s to switch from styrofoam containers to paper containers for carry out food.

This section does not require a decision matrix. Based on your study of the
industry, what do you conclude about the attractiveness of the industry?

E. Rivalry

An industry characterized by high rivalry is unattractive because it limits the

ability to achieve above normal economic rents. At the other extreme, industries with no
rivalry are usually dominated by a few major firms which could limit strategic flexibility.

1. Degree of concentration and balance among competitors

As the business cycle, or life cycle, progresses, there is a tendency for

consolidation to occur within industries. At the beginning of the 20th century, the US had
around 300 firms in the auto industry. We now have two. As a rule of thumb, an industry
is concentrated if five or fewer firms control 60% or more of market share.
Concentration tends to increase rivalry, but must be considered along with balance.

If concentration does not exist, then balance is not an issue. The industry is, by
definition, fragmented. This reduces rivalry and makes the industry attractive. Assuming
that the industry is concentrated, then look for balance. If the two largest firms have
market shares within 10% of each other, then the industry is balanced. This increases
rivalry, making the industry unattractive. If one firm is dominant in market share, this
means that the larger firm is setting the competitive rules for the industry. This reduces
rivalry and makes the industry attractive.

2. Diversity among competitors

Are firms following different strategies? If so, they have found market niches and
this reduces rivalry. If they are all following the same strategy, they are fighting for the
same markets and this increases rivalry, making the industry unattractive.

3. Industry growth rate (past and projected)

If there is a positive trend to industry growth rate, and it is greater than the
inflation rate, then firms are able to grow without taking market share from other firms in
the industry. This reduces rivalry and makes the industry attractive. Quantitative
analysis is required with a graph of the five year growth rate trend.

4. Fixed costs to value added

It is necessary to demonstrate whether fixed costs and value added are high or
low. If fixed costs are high, this usually means that economies of scale are possible in
the industry. If fixed costs are high, and value added is low, the industry is at or near
maturity, and the product/service is most likely a commodity. This increases rivalry and
makes the industry unattractive.

5. Intermittent overcapacity

If the industry is running between 80% and 85% capacity utilization, this is a
normal range. Lower utilization means that the industry is susceptible to intermittent
overcapacity. This increases rivalry as firms attempt to maintain revenues. If the
industry is over the normal range, this indicates that they may lack the capital
investments necessary to meet unexpected demand. This reduces rivalry and makes
the industry attractive.

6. Product differentiation

Are firms able to differentiate their product or service? If so, this reduces rivalry
as each firm is able to find a market niche. If not, it increases rivalry and makes the
industry unattractive. For example, BIC and Mont Blanc differentiate their pens on the
basis of quality, image and cost, which reduces rivalry between these firms. In the
airline industry each firm offers basically the same service. The lack of differentiation
makes the industry unattractive.

7. Growth of foreign competition

To what extend are foreign firms able to penetrate the US market? If there is a
growth in foreign firm’s penetration, this increases rivalry making the industry
unattractive. It also shows that US firms are not being globally competitive.

8. Corporate stakes

While most firms have revenue from a variety of industries, the question here
deals with the degree of dependence on one industry segment. To what extent are firms
dependent on this one industry segment for revenue? If the percentage of revenue is
high, then the stakes are high, and this would increase rivalry, making the industry
unattractive. This requires judgment on the part of the student, and quantitative support
for the argument.

9. Exit barriers

If we enter this industry, will we be able to get out again? A firm can exit by
converting operations to another product/service, or by selling out, merger. If exit
barriers are low, this reduces rivalry and makes the industry attractive.

As with the other sections, in this one provides conclusions for each subsection
as to the degree of rivalry. Then provide an overall conclusion for this section using a
decision matrix.

4. Company’s Analysis Using Porter’s Generic Strategies and Corporate

Strategies

A. Porter’s Generic Strategy

Here students has to perform the competitive analysis of a company (having high
market share) of the concerned industry using Cost Leadership, Differentiation and
Hybrid Strategies.

B. Corporate Strategy

Here students analyses the concerned company’s corporate strategies.

 5. Conclusion

What is your assessment of this industry as an investment prospect? Is future

growth possible? Will competitive forces contribute to consolidation? These are just
suggestions. Your analysis should lead you to reasonable conclusion.

References:

I would prefer to see not only the references that you cite, but also a listing of the
material that contributed to your body of knowledge. Where did you look for answers? If
it helped you, please include a reference.

How to write the references:

Tripathi, J.,G. (2011). “Study of India’s Paper Industry-Potential and Growth in 21st
Century”, Indian Journal of Applier Research, 4(5):112-115.

How to cite the paper in text:

According to Tripathi (2011), ………..

If more than one author is there then

According to Charles et al.(2011),…….

Appendices

Here you can put anything that you think is important to an understanding of this
industry. At a minimum you need a set of industry ratios covering the most recent five
year period.

Submission Guidelines:

Each group of 7 or 8 members required to submit two reports consist of different

Industry Analysis. Submission deadlines will be on or before 1st October 2018