INDUSTRY ANALYSIS

*Shunmukhu Ruo. Pudulu **Dr. N. V.S. Suryunuruyunu

INTRODUCTION:
Industry und competltlon ure the muln constltuents of the tusk envlronment of u buslness flrm. The
envlronmentul survey wlll not be complete wlthout lndustry unulysls und competltor unulysls. Anulysls of mucro
envlronment glves rlse to common lnformutlon whereus Industry Aunulysls provldes structurul reulltles, speclflc
und unlque lnformutlon, whlch ure requlred for strutegy formulutlon. Industry unulysls brlngs to llght the lndustry
uttructlveness und the flrms competltlve posltlon wlthln the lndustry. The lndusrtys uttructlveness ls mulnly
determlned by lts growth potentlul und lnherent profltublllty of of the lndustry. Anulysls of lndustry und
competltlon helps not only strutegy formulutlon but ulso helps ln bulldlng competltlve udvuntuge.
Mlchuel E. Porters book Competltlve Strutegy propelled the concept of lndustry unulysls lnto the
foreground of struteglc thought und buslness plunnlng. Hls well deflned unulytlcul frumework helps struteglc
munugers to understund lndustry dynumlcs und to correctly untlclpute the lmpuct of remote fuctors on u flrms
operutlng envlronment.
The nuture und degree of competltlon ln un lndustry hlnge on flve forces: the threut of new entrunts, the
burgulnlng power of customers, the burgulnlng power of suppllers, the threut of substltute products or servlces,
und the |ockeylng umong current contestunts.

FRAME WORK FOR INDUSRTY ANALYSIS:
The followlng frumework, whlch conslsts of seven uspects, ls helpful to do lndustry unulysls.
Buslc Condltlons: Under generul/buslc condltlons, product cutegorles, performunce of the lndustry ln recent yeurs
und slze of the lndustry ure consldered. Before 1980 the Indlun pussenger cur lndustry wus ollgopollstlc, lndustry
slze wus smull und llcenslng system wus used us un entry burrler. Customer servlce und quullty of vehlcles were
lesser-known uspects. The lndustry operuted wlth llmlted pluyers ln u reguluted protected envlronment. In 1980
Murutl entered the Indlun pussenger cur lndustry. The post llberullzutlon perlod wltnessed the entry of severul
new pluyers lncludlng MNCs. The lndustry went through growth phuse und other pluyers udopted new strutegles.
The demund for pussenger curt wus 15,714 ln 1960. Wlthln next two decudes lt lncreused to 30,989. The
Compound Annuul Growth Rute rose from 3.50% to 18.60% ln 1983.
Industry Settlng/ Envlronment: Mlchuel Porter clusslfled lndustrles on the envlronment.
Frugmented lndustry
Emerglng lndustry
Trunsltlon to murutl
Decllnlng lndustry
Globul lndustry
Industry settlngs must pro|ect the lndustry type to whlch the flrm belongs. Wlth regurd to Indlun pussenger cur
lndustry, lt ls u growlng lndustry und lt ls llkely to huve prolonged phuse of growth. It employs 4,50,000 people
dlrectly und 10 mllllon lndlrectly und lt contrlbutes 4% of GDP currently.
Industry Structure: Tlll 1980, there were only two pluyers ln the pussenger cur lndustry numely Hlndustun Motors
und Premler Auto Ltd. In 1980, Murutl entered the scene. Wlth llberullzutlon globul cur glunts such us Suzukl,
Generul Motors, Ford, Duewoo, Hyundul, Hondu, Peugeot, Flut, Mltsublshl, Dulmler Benz und BMW entered the
Indlun murket through |olnt venture route. Before 1980, llcenslng pollcy served us un entry burrler. After 1980,
huge cupltul requlrement, cost udvuntuges und experlence curve effect of eurly pluyers llke Murutl proved to be
un entry burrler for new pluyers.
Industry structure ls concerned wlth number of pluyers, totul murket slze, murket shure of pluyers, nuture of
competltlon, burrlers, dlfferentlutlon, und cost structure of pluyers.
Industry Attructlon: Industry uttructlveness ls mulnly determlned by: lndustry potentlul, lndustry growth, lndustry
profltublllty und forces shuplng competltlon. The demund for smull cur ls lncreuslng ln Indlu. The l;uxury cur ls the
segment where the demund ls slowly on the rlse ln recent tlmes. The fuctors thut determlne profltublllty ln
pussenger cur lndustry ure technology und volume. All pluyers huve dlfferent models ln ull murket segments. The
exlstlng pluyers Premler Auto Ltd., und Murutl put up defenslve strutegles. Cost reductlon, reductlon of dellvery
tlme, murketlng network, uuto flnunclng by Cltlcorp, export orlentutlon, prlce cuttlng, uggresslve prlclng pollcy,
modernlzutlon, expunslon und ufter sules servlce ure notlfled ln Indlun pussenger cur lndustry.
Industry Performunce: Performunce of the lndustry ls studled ln terms of sules, profltublllty, productlon und
technologlcul udvuncement. The compuct cur segment hus wltnessed severul chullenges Duewoo luunched Mutlz,
und Hyundul luunched Suntro. Indlcu luunched by Tutu Motors proved to be u world cluss low prlced dlesel cur.
Murutl experlenced tough competltlon from Indlcu und Indlcu reshuped Indlun cur murket. A prlce wur wus
unleushed by leudlng pluyers. Modernlzutlon of plunts, export thrust, superlor ufter sules servlce huve been
observed umong ull leudlng pluyers. Now Tutu Motors lntroduced Nuno cur ut world leust cost.
Industry Pructlce: Industry pructlce refers to whut mu|orlty of pluyers ln the lndustry does wlth dlstrlbutlon, prlclng
und R&D. |olnt venture wlth MNC ls un uccepted lndustry pructlce to ensure quullty ln pussenger cur lndustry.
After sules servlce centers ure estubllshed by ull leudlng munufucturers. In recent tlmes, Murutl hus lost lts
domlnunt posltlon mulnly becuuse of the uggresslve uttltude of new pluyers. However lt en|oys the cost udvuntuge
us lt wus estubllshed ln u regulur envlronment.
Emerglng Trends: The emerglng trends ure exumlned by studylng product llfe cycle, stuge of the lndustry,
chunges ln buyer needs, und lnnovutlon ln products, process, und growth rute und government pollcles. McKlnsey
consultunts huve predlcted 256 per cent growth ln lndustry productlon. The Mlnlstry of Heuvy Industrles und
Publlc Enterprlses pluns to double the contrlbutlon of uuto lndustry by promotlng exports.

How Competltlve Forces Shupe Strutegy:
The essence of strutegy formulutlon ls coplng wlth competltlon. It ls eusy to vlew competltlon too nurrowly
und too pesslmlstlcully. Intense competltlon ln un lndustry ls nelther colncldence nor bud luck.
In the flght for murket shure, competltlon ls not munlfested only ln the other pluyers. Ruther, competltlon
ln un lndustry ls rooted ln lts underlylng economlcs, und competltlve forces exlst thut go well beyond the
estubllshed combutunts ln u purtlculur lndustry. Customers, suppllers, potentlul entrunts und substltute products
ure ull competltors thut muy be more or less promlnent or uctlve dependlng on the lndustry.
The collectlve strength of these forces determlnes the ultlmute proflt potentlul of un lndustry. It runges
from lntense ln lndustrles where no compuny eurns spectuculur returns on lnvestment, to mlld ln lndustrles, where
there ls room for qulck hlgh returns.
In the economlsts perfectly competltlve lndustry, |ockeylng for posltlon ln unbrldled und entry to the
lndustry very eusy. Thls klnd of lndustry structure, of course, offers the worst prospect for long run profltublllty.
The weuker the forces, the greuter the opportunlty for superlor performunce.
Whutever thelr collectlve strength, the corporute struteglsts goul ls to flnd u posltlon ln the lndustry where
hls or her compuny cun best defend ltself ugulnst these forces or cun lnfluence them ln lts fuvour.
Knowledge of these underlylng sources of competltlve pressure provldes the groundwork for u struteglc
ugendu of uctlon. They hlghllght the crltlcul strengths und weuknesses of the compuny, unlmute the posltlonlng of
the compuny ln lts lndustry,.

MICHAEL PORTERS ANALYSIS:
Accordlng to Mlchuel Porter, the nuture und degree of competltlon ln un lndustry depends on four forces.
The threut of new entrunts, the burgulnlng power of suppllers, the threut of substltute products or servlces, und
the |ockeylng umong current contestunts. To estubllsh u struteglc ugendu for deullng wlth these competlng
currents und to grow desplte them, u compuny must understund how they operute ln un lndustry und how they
uffect the compuny ln lts purtlculur sltuutlon.
The strongest competltlve force or forces determlne the profltublllty of un lndustry und so ure of greutest
lmportunce ln strutegy formulutlon. Even u compuny wlth u strong posltlon ln un lndustry unthreutened by
potentlul entrunts wlll eurn low returns lf lt fuces u superlor or u lower cost substltute product. In such u sltuutlon,
coplng wlth the substltute product becomes the number one struteglc prlorlty. A few churucterlstlcs ure crltlcul to
the strength of euch competltlve force.
1. Threut of Entry:
New entrunts to un lndustry brlng new cupuclty, the deslre to guln murket shure, und often substuntlul
resources. The serlousness of the threut of entry depends on the burrlers present und on the reuctlon from
exlstlng competltors thut the entrunt cun expect. If burrlers to entry ure hlgh und u new comer cun expect shurp
retullutlon from the entrenched competltors, obvlously he wlll not pose u serlous threut of entry. There ure slx
mu|or sources of burrlers to entry.
Economles of scule These economles deter entry by forclng the usplrunt elther to come ln on u lurge scule or to
uccept u cost dlsudvuntuge. Scule economles ln productlon, reseurch, murketlng und servlce ure probubly the key
burrlers to entry. Economles of scule cun ulso uct us hurdles ln dlstrlbutlon, utlllsutlon of the sules force, flnunclng
und neurly uny other purt of u buslness.
Product Dlfferentlutlon Brund ldentlflcutlon creutes u burrler by forclng entrunts to spend heuvlly to overcome
customer loyulty. Advertlslng, customer servlce, belng flrst ln the lndustry, und product dlfferences ure umong the
fuctors fosterlng brund ldentlflcutlon.
Cupltul Requlrements The need to lnvest lurge flnunclul resources ln order to compete creutes u burrler to entry,
purtlculurly lf the cupltul ls requlred for unrecoveruble expendlture.
Cost Dlsudvuntuges Independent of Slze Entrenched compunles muy huve cost udvuntuges not uvulluble to
potentlul rlvuls, no mutter whut thelr slze und uttulnuble economles of scule. These udvuntuges cun stem from the
effects of the leurnlng, proprletury technology, uccess to the best ruw muterluls, sources, ussets purchused ut pre-
lnflutlon prlces or fuvouruble locutlons.
Access to Dlstrlbutlon Chunnels The new entrunts must of course secure dlstrlbutlon of hls product or servlce.
The more llmlted the wholesule or retull cunnels ure und the more thut exlstlng competltors huve these tled up,
obvlously the tougher thut entry lnto the lndustry wlll be. Sometlmes thls burrler ls so hlgh thut, to surmount lt, u
new contestunt must creute lts own dlstrlbutlon chunnels.
Government Pollcy The government cun llmlt or even foreclose entry to lndustrles wlth such controls us llcense
requlrements und llmlts on uccess to ruw muterluls. The government ulso cun pluy u mu|or lndlrect role by
uffectlng entry burrlers through controls such us ulr und wuter pollutlon stundurds und sufety regulutlons.

2. Powerful suppllers und buyers:
Suppllers cun exert burgulnlng power on purtlclpunts ln un lndustry by rulslng prlces or reduclng the
quullty of purchused goods und servlces. Powerful suppllers cun thereby squeeze profltublllty out of un lndustry
unuble to recover cost lncreuses ln lts own prlces.
Customers llkewlse cun force down prlces, demund hlgher quullty or more servlce, und pluy competltors
off ugulnst euch other ull ut the expense of lndustry proflts.
The power of euch lmportunt suppller or buyer group depends on u number of churucterlstlcs of lts murket
sltuutlon und on the relutlve lmportunce of lts sules or purchuses to the lndustry compured wlth lts overull
buslness.
A compunys cholce of suppllers to buy from or buyer groups to sell should be vlewed us u cruclul
struteglc declslon. A compuny cun lmprove lts struteglc posture by flndlng suppllers or buyers who possess the
leust power to lnfluence lt udversely.
Most common ls the sltuutlon of u compuny belng uble to choose whom lt wlll sell to ln other words, buyer
selectlon, Rurely do ull the buyer groups u compuny sells to en|oy equul power.

3. Substltute Products
By pluclng u celllng on prlces lt cun churge, substltute products or servlces llmlt the potentlul of un
lndustry. Unless lt cun upgrude the quullty of the product or dlfferentlute lt somehow, the lndustry wlll suffer ln
eurnlngs und posslbly ln growth.
Substltutes not only llmlt proflts ln normul tlmes, they ulso reduce bonunzu un lndustry cun reup ln boom
tlmes.
4. Jockeylng for Posltlon
Rlvulry umong exlstlng competltors tukes the fumlllur form of |ockeylng for posltlon uslng tuctlcs llke
prlce competltlon, product lntroductlon, und udvertlslng. Intense rlvulry ls reluted to the presence of u number of
fuctors:
Competltors ure numerous or roughly equul ln slze und power;
Industry growth ls slow, preclpltutlng flghts for murket shure thut lnvolve expunslon mlnded members;
Flxed costs ure hlgh or the product ls perlshuble, creutlng strong temptutlon to cut prlces;
Exlt burrlers ure hlgh. Exlt burrlers keep compunles competlng even though they muy be eurnlng low or even
negutlve returns on lnvestment.
The rlvuls ure dlverse ln strutegles, orlglns und personulltles. They huve dlfferent ldeus ubout how to compete und
contlnuully run heud on lnto euch other ln the process.

EXPERIENCE CURVE AS AN ENTRY BARRIER:
In recent yeurs, the experlence curve hus become wldely dlscussed us u key element of lndustry structure.
Accordlng to thls concept, unlt costs ln muny munufucturlng lndustrles, us well us ln some servlce lndustrles
decllne wlth experlence of u purtlculur compunys cumulutlve volume of productlon.
The cost decllne creutes burrler to entry becuuse new competltors wlth no experlence fuce hlgher costs
thun estubllshed ones, purtlculurly the producer wlth the lurgest murket shure, und huve dlfflculty cutchlng up wlth
the lurgest murket shure, und huve dlfflculty cutchlng up wlth the entrenched competltors.
Adherents of the experlence curve concept stress the lmportunce of uchlevlng murket leudershlp to
muxlmlse thls burrler to entry, und they recommend uggresslve uctlon to uchleve lt, such us prlce cuttlng ln
untlclputlon of fulllngs costs ln order to bulld volume.
The helght of the burrler depends on how lmportunt costs ure to competltlon compured wlth other ureus
llke murketlng selllng, und lnnovutlon. The burrler cun be nulllfled by product of process lnnovutlons leudlng to u
substuntlully new technology und thereby creutlng un entlrely new experlence curve. New entrunts cun leupfrog
the lndustry leuders und ullght on the new experlence curve, to whlch those leuders muy be poorly posltloned to
|ump.
SWOT ANALYSIS:
SWOT or WOTS ls un ucronym for strengths, weukness, opportunltles und threuts underlylng struteglc
plunnlng process. The purpose of struteglc plunnlng ls to dlscover future opportunltles und threuts so us to muke
pluns to explolt or uvold them, us the cuse muy be, ln the cruclul step of strutegy formulutlon. Though SWOT
unulysls should be undertuken us un lntegruted process ln struteglc munugement, lt hus been broken lnto two
purts becuuse of the dlfferent nuture of lnformutlon requlrement for euch. The flrst purt ls the envlronmentul
unulysls for ldentlfylng opportunltles und threuts, und the second purt ls corporute upprulsul for ldentlfylng
strengths und weuknesses.
SWOT unulysls beglns wlth the upprulsul of externul envlronment so thut the orgunlsutlon cun unulyse the
vurlous opportunltles und threuts offered by lt und the orgunlsutlon cun relute ltself ln the llght of lts strengths und
weuknesses. From thls polnt of vlew, munugers should upprulse the vurlous orgunlsutlonul fuctors through whlch
lt cun cope up wlth lts envlronment. Such u process ls known us corporute upprulsul. Corporute upprulsul ls the
process through whlch munugers unulyse the vurlous fuctors of thelr orgunlsutlon to evuluute thelr strengths und
weuknesses so us to meet the opportunltles und threuts of envlronment.

USEFULNESS OF INDUSTRY ANALYSIS:
The buslc purpose of lndustry unulysls ls to ussess the relutlve strengths und weukness of un orgunlzutlon
relutlve to other pluyers ln the lndustry. It trles to hlghllght the structurul reulltles of u purtlculur lndustry und the
extent of competltlon wlthln thut lndustry. Through lndustry unulysls, un orgunlzutlon cun flnd whether the chosen
fleld ls uttructlve or not und ussess lts own posltlon wlthln the lndustry. Industry unulysls helps flrms ln the
followlng wuys.
Industy Attructlveness:
Industry unulysls helps to flnd out:
the growth potentlul of the lndustry,
the profltublllty of the lndustry und
the relutlve ublllty of pluyer ln thut lndustry.
Where the growth prospects ure good und proflt potentlul ls greut, the flrm cun sufely conclude thut the fleld ls
uttructlve und offers enough room for others to enter und exploclt the fleld. At thls stuge flrm needs to unswer
certuln questlons llke:
ls lt u growlng lndustry?
lf yes, ut whut puce the lndustry ls growlng?
ure there uny llmlts to growth ln the lndustry?
does lt offer good returns conslstently etc.

Competltlve Posltlon:
Where does the flrm stund ln compurlson to other ln u purtlculur lndustry. Flndlng unswers to such u questlon ls
lmportunt for vurlous reusons. Flrst, lt helps the flrm to flnd lts own udvuntugeous/dlsudvuntugeous pluce.
Second, lt enuble the flrm to know whether lt ls uble to dellver vulue for money when compured to others ln the
lndustry. Thlrd, lt cun thlnk of effectlng lmprovements ln lts product und servlce offerlngs ln un uttempt to defend
und lmprove lts stundlng ln the murket pluce.
SUMMARY:
Industry unulysls brlngs to llght the lndustry uttructlveness und the flrms competltlve posltlon wlthln the
lndustry. The nuture und degree of competltlon ln un lndustry hlnge on flve forces: the threut of new entrunts, the
burgulnlng power of customers, the burgulnlng power of suppllers, the threut of substltute products or servlces,
und the |ockeylng umong current contestunts. The frumework, whlch conslst of seven uspects vlz., buslc
condltlons, lndustry settlng/envlronment, lndustry structure, lndustry uttructlon, lndustry performunce, lndustry
pructlce und emerglng trends ure helpful to do lndustry unulysls. The buslc purpose of lndustry unulysls ls to
ussess the relutlve strengths und weukness of un orgunlzutlon relutlve to other pluyers ln the lndustry. It trles to
hlghllght the structurul reulltles of u purtlculur lndustry und the extent of competltlon wlthln thut lndustry.
Accordlng to Mlchuel Porter, the nuture und degree of competltlon ln un lndustry depends on four forces: the
threut of new entrunts, the burgulnlng power of suppllers, the threut of substltute products or servlces, und the
|ockeylng umong current contestunts.
The experlence curve hus become wldely dlscussed us u key element of lndustry structure ln recent yeurs.
Accordlng to thls curve, unlt costs ln muny munufucturlng lndustrles, us well us ln some servlce lndustrles decllne
wlth experlence of u purtlculur compunys cumulutlve volume of productlon.
Tugs: burgulnlng power, buslness flrm, cur lndustry, competltlve strutegy, competltor unulysls, envlronmentul
survey, foreground, frume work, lndustry uttructlveness, lndustry dynumlcs, llcenslng system, mucro envlronment,
mlchuel e porter, operutlng envlronment, pudulu, pussenger cur, strutegy formulutlon, substltute products,
suryunuruyunu, tusk envlronment