INDUSTRY ANALYSIS

Industry analysis can be done by analysing the following factors of any industry;
a. Industry setting
b. Industry structure
c. Industry attractiveness
d. Industry performance
e. Industry practices
A. Industry setting
Industry setting means studying the stage of life cycle of an industry. Porter classified these stages into
five categories:1. fragmented industry 2. emerging industry 3. industry undergoing transition to maturity
4. declining industry 5. global industry.
Fragmented industry means most of the firms in this type of industry is distributed at different places.
This type of industries have number of problems like organisation, technology, competitive advantages
etc. Examples: pottery, jute bags, loose salt production etc.
Emerging industry means the industry is still under development stage. There is a lot of potential in this
industry as it is still developing.
Maturing industry is an industry in which products already have demand in the market. More
competitors enter in the industry which results into maturity of any industry. Competitors then start
differentiating their products in order to maintain its market share.
Declining industry is one which has passed the maturity stage and now sales does not increase. This
happens because the needs of the society changes or some other substitute product enter the market.
Global industry is one in which the competitors have entered various markets of the world. Here the
companies become multinational companies.
All the above stages of industry development creates different types of opportunities and threats to
organizations.
B. Industry structure
Following is a chart showing types of industry based on two factors namely, number of competitors and
type of products;
One seller

Few sellers

Many sellers

Undifferentiated
Product

Pure
Monopoly

Pure
Oligopoly

Pure
Competition

Differntiated product

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Differentiated
Oligopoly

Monopolistic
Competition

Pure Monopoly: It means there is only one seller in the market. Single seller does not require to
differentiate its products. For example, Gujarat Electricity Board, Railways etc
Pure Oligopoly: There are few sellers in this market and the product is undifferentiated. As the product
cannot be differentiated, price is the only factor on which the competitors compete with each other. If
one company reduces the price, all the other companies start following the same. Examples: heavy
commercial vehicle industry in India which includes TELCO and Ashok Leyland.
Differentiated Oligopoly: This type of industry has only few sellers but their products are differentiated.
Hence the competitors in this industry compete on features, quality, style, design, delivery, after sales
service etc. Examples include refrigerator manufacturing companies.

Pure competition: Here there are many sellers but the product is undifferentiated type. As the product
cannot be differentiated, price is the only factor on which the competitors compete with each other.
Examples include, tea, sugar, steel etc
Monopolistic competition: Monopolistic Competition exists when there are many sellers and each seller
can differentiate their products from other competitors. Hence the basis of competition in this type of
industry is on the differentiating factors like features, quality, style, design, delivery, after sales service
etc.
C. Industry Attractiveness
Industry attractiveness is determined on the basis of the following factors;
1. Nature of Demand: Industry can be attractive if the demand increases because of the increase in
population, consumer tastes and preferences etc.
2. Industry Potential: Industry potential means there is a scope of future demand.
3. Profit Potential: If there is a chance of profit in any industry, then that industry is an attractive.
Example: IT industry
4. Entry and Exit barriers: Those industries that have many entry barriers is not attractive. Entry
barriers in an industry includes capital requirement, economies of scale, government licensing,
cost disadvantage etc. Similarly if it is difficult for a company to exit from the existing business
then that industry has exit barriers.
D. Industry Performance
An industry is said to be a performing industry if it has the following factors;
1. Profitability
2. Operational efficiency
3. Innovation
4. Technological advancement
E. Industry Practices
When any industry is analysed, following factors must be analysed in order to get understanding related
to opportunities and threats;
1.
Pricing: Different industry follow different style of pricing. Some industry offer more
discounts on their products throughout the year like cosmetic products. In some industry price
discounts are offered on special occasion like TV, Refrigerators, Washing machines etc
2. Distribution: Different products categories follow a different type of channel in distributing the
products to the market. Example: Agricultural products are distributed through different channels
as compared to consumer products.
3. Promotion: Personal selling, advertising, sales promotion activities, publicity etc. are used in
different ways by different industries.
4. R&D: R&D activities are used to produce a new product or improving the existing products.
Pharmaceutical industry makes high expenditure on R&D activities in order to develop new
drugs. These types of industry have high potential of threats.