Chapter 5

Industry
and
competitors analysis
 …..
 Potentials of an industry
 Competitive environment

Understanding Forecasting
Evaluating
( Current/ ground ( Scenario Planning/
(Past / Feedback)
reality) Prediction)
 …….
 Group of firms producing similar P/S
 Feasibility analysis of proposed or new venture
in that industry
 Target market in that industry & competitors
 Accessible and best point to hit the target
market
 Industry Analysis: Attractiveness
Answer the following questions
Is it accessible? Realistic or not to entry ?
 Does the industry contain markets?
 Are there any possibilities for taking position
to avoid negative attributes of the industry as a
whole?
Think about the position
 At company level : relatively to its competitors
 P/S level: relatively to its competitors……..
 ………
To be attractive, industry ;
 Should be large and growing
 Should not be in maturity of its cycle
 Should have significant margin
 Should not be in throat cut price competition
 Should not be over crowded
 Techniques to assess
Industry Attractiveness
Analyzing Industry Trends:
Environmental Trends
 Business Trends
 Analysis Five forces model
Substitutes
 New entrants
 Existing Rivals
 Powers of suppliers
Powers of buyers
 2. Observing Industry Trends
Environmental Trends Business Trends

- Political- legal - Ability to outsource Low

cost foreign labor
- Economic- markets
Environmental - Alternative ways to
procure and to supply at
- Socio-Cultural lower cost i.e. cost saving
- Some industries are in
- Technological favor over others
Political Government stability/Taxation policy/Foreign
trade and regulations/Social welfare policies

Economic Business cycle / GNP trends / Interest rates /

Money supply / Inflation/ Unemployment /
Disposal income
Socio-cultural Population demographics / Income distribution /
Social mobility / Lifestyle changes / Attitudes to
work and leisure / Consumerism/Level of
education
Technological Government spending on research/Government &
industry focus on technological efforts/New
development and discoveries/ Technology transfer
Environmental Environmental protection laws/Wastes disposal
system and laws/Energy consumption
Legal Competition laws/Employment law/Health
  
and safety/Product safety
Information of Industry trends
Information can be obtained;
By participating in industry trade
associations
Trade shows/ trade fair/ expose
Trade journals
 Economic publications and surveys
Government issues and reviews
 Sources……
 Government statistics: These may include all or some of the
following:
– Population censuses
– Social surveys, family expenditure surveys
– Import/export statistics
– Production statistics
– Agricultural statistics.
 Trade associations : a trade directory and, perhaps, a yearbook.
 Commercial services: Published market research reports and other
publications
 Published market research reports and other publications National
and international institutions
- Bank economic reviews, university research reports, journals and articles are
all useful sources to contact by World Bank, IMF, IFAD, UNDP, ITC, FAO and
ILO
 Porter's five forces analysis
 Michael E. Porter(in 1979)
 to derive five forces
 competitive intensity
 attractiveness of a market and industry
 attractiveness : overall industry profitability.
 “unattractive" industry
- five forces acts to drive down overall profitability.
A very unattractive industry
- pure competition: Normal profit.
 1. New Entrants
 Profitable markets
 high returns
 due to new entry decrease profitability of existing.
Barrier
 Economies of product differences,
 Distribution channels and networking,
 Brand/Customer loyalty
 Switching costs or sunk cost/Capital requirements,
 Access to distribution,
 Government policy
 2. Substitute P/S
• Product to product substitute
• Substitution of needs
• Generic substitution; due to the level of the income
of the investor.
• Buyer propensity to substitute
• Relative price performance of substitute
• Buyer Switching costs
• Perceived level of Product differentiation
• Number of substitute products available in the
market
• Ease of substitution like as online product
 3. Power of customers /buyers
• Customer's sensitivity to price changes.
• Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of
distribution
• Bargaining leverage, particularly in industries with
high fixed cost
• Buyer volume
• Buyer information availability
• Availability of existing substitute products
• Differential advantage (uniqueness)
 4. Power of suppliers
• Supplier switching costs relative to firm switching
costs
• Degree of differentiation of inputs
• Impact of inputs on cost or differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
• Supplier competition
 5. Existing competition among rivals

• Intensity of competitive rivalry

• Major determinant :competitiveness of
industry.
• Sustainable competitive advantage through
innovation
• Competition between online and offline
companies
• Level of advertising expense
• Powerful competitive strategy
 The Value of the Five Forces Model

• Equally important for both existing and proposed

• To understand the attractiveness and competitors
• To assess, decide and predict
• Careful thinking about future position it will
occupy
• To formulate the strategies
• To minimize the uncertainties and possible threats
on profitability
 Attractiveness of an industry using FFM

Competitive Threats on Ind. Profitability

Forces
Low Medium High
Substitutes

New entrants

Rivals

Suppliers’ Powers

Buyers’ Power
 Five forces model to find potential success new venture
…..

Is the Are there areas in

industry a which we can avoid or
A positive Response to
realistic for Yes diminish the factors Yes any of those questions
the new that suppress industry
increases the
venture ? Profitability
likelihood of the new
Is there a unique venture’s success.
position in the
industry that avoids
NO or diminishes the
factors that suppress A positive Response
industry Profitability NO to all three questions
indicates
Is there a superior reconsidering the
Business model that new venture’s
Reconsider industry incumbent
New venture success
would find hard to
duplicate
 Questions to identify the Ind. attractiveness

• Is the industry a realistic place for our new venture

to enter ?
• If we do enter in the industry, can we do better
than industry as a whole in avoiding or diminishing
the impact of the forces that suppress industry
profitability ?
• Is there a unique position in the industry that
avoids or diminishes the forces that suppress
industry profitability ?
• Is there a superior business model that can be put
in place that would be hard for industry
incumbents to duplicate?
 Industry types and the opportunities

• Emerging industries:
• Fragmented Industries :
• Mature industries
• Declining
Types Characteristics Opportunities
….

Emerging New, recent changes in First mover advantage/

demand/technology, new potential leader/ pioneer/
customers/ still there is new process introducer/ low barriers to
and procedure can be entry/ no established
developed/Uncertainties/short lived rivals
Fragmented Large no of firms of approximately Consolidation &
equal size i.e. no single enterprise has geographic- roll up
large enough share of the market to be strategy
able to influence the industry's direction
/no clear leader/Difficult to predict 
Market trend
Mature Slow increase in demand/ numerous
repeat customers/ limited possibility of
Process/ after sales service
innovation/ Protection
innovation/ High profit/ hard to spend
long time/ no investment/ strong rivals

Declining Consistent reduction in demand Niche/ harvest/

divestment: low cost,
focused,
Global International demand and sales/ Global and Multi-domestic
like food company strategy/ vast
diversification
Types Characteristics Opportunities
….

Emerging New, recent changes in First mover advantage/

demand/technology, new potential leader/ pioneer/
customers/ still there is new process introducer/ low barriers to
and procedure can be entry/ no established
developed/Uncertainties/short lived rivals
Fragmented Large no of firms of approximately Consolidation &
equal size geographic- roll up
strategy
Mature Slow increase in demand/ numerous
repeat customers/ limited possibility of
Process/ after sales service
innovation/ Protection
innovation/ High profit/ hard to spend
long time/ no investment/ strong rivals

Declining Consistent reduction in demand Niche/ harvest/

divestment: low cost,
focused,
Global International demand and sales/ Global and Multi-domestic
like food company/ giant strategy/ vast
competitions/ value add through the diversification
netwroking
Fragmented Large no of firms of approximately Consolidation/
….

equal size i.e. no single enterprise Acquisition/

has large enough share of the market geographic-
to be able to influence roll up
the industry's direction strategy/
/no clear leader/Difficult to predict  innovation/
Market trend/ Low entry barriers/ saving of cost
lack of innovation/ strong
competition/ no economize of scale/
high product customization/ various
market needs/ low margin/risk high/
no advantage from suppliers and
buyers/ expensive logistics
 Competitors Analysis
( Who and how and for what)
• Identifying competitors / behaviors & strategies
• Competitors position with opportunities
available
• Possible competitive advantage
• Time spent in reconnaissance seldom wasted
• Identifying competitors and strategies to fight
a) Direct competitors : By similar product with
similar way
b) Indirect competitors: By close substitute by
different way
c) Future competitors: Expected but not identified
 Sources of Competitive Intelligence
• Identifying competitors, collecting
information about them and analyzing the
competitiveness or competitive position is
competitive intelligence
• Various sources are used/ can be used to
gather the information of competitors
• Like; Progress reports, Description of firms’
business activities
• Sometimes it is very hard to collect the
secret information of the private companies
 Sources

• Attend conferences and trade shows

• Purchase competitors’ products
• Competitors web sites
• Set up Google and email alerts
• Read industry related materials
• Talk to customers about competitors products
 Completing a Competitive Analysis Grid
• A tool for gathering, organizing and arranging the
collected information to analyze the competitive
positions
• SW of competitors
• Possible barriers can be set to prevent
competition
• Critical part of company’s marketing plan
• Insights to get competitive advantages
 Example
Name Company A Company B Company C Company D

Nutritional
Value

Taste

Price

Freshness

Delivery

Packaging
 Chapter 6

Legal and Ethical Dimensions of

Entrepreneurship
 Contents………
• Establishing a strong ethical culture,
• business licenses and business permits,
• sole proprietorship and partnership,
• Provisions of establishing entrepreneurs’ business
in Nepal,
• legal and ethical issues facing entrepreneurs’
business in Nepal.
 Establishing a strong ethical culture,
• .
 Business licenses and business permits,
• .
 Sole proprietorship and partnership,
• .
 Provisions of establishing entrepreneurs’ business in Nepal,

• .
 legal and ethical issues facing entrepreneurs’ business in Nepal.

• .
 Chapter 7

Start-up New Business Venture,

Marketing Issues & Growth
 Contents……..
• Recruiting and selecting key employees,
• lenders and investors,
• funding requirements,
• sources of personal financing, venture capital,
commercial banks,
• sources of debt financing; selecting a market and
establishing a position, key market issues for new
ventures, the 4 Ps of marketing for new ventures;
Nature of business growth, planning for growth,
reasons for growth and managing growth, knowing
and managing the stages of growth, managing
capacity, day-to-day challenges of growing a firm.