External analysis & swot session

1. External Analysis: The Identification of Opportunities & Threats
Sept 27th
, 2016

2. Agenda
 Analyze competitive structure of Industry
Identify Industry Opportunities & Threats
Competitive Implications within Industry
 Evolution of Industry over Time and changes in Competitive Conditions
 Effect of Macro-environment on Industry
2 © Anik Saha

3. Defining An Industry
3
Offering products / services as
close substitutes
Serving similar customer needs
A group of Companies/
Organizations
Supply (Industry) and Demand (Customer)
Industry boundary: Market serving customer’s basic needs
Market Managers focus on Industry boundary expansion; Not miss the bus
© Anik Saha
http://jansonwholesale.com
http://brucemctague.com/tag/dove-mens-care-line-introduction
https://www.pinterest.com/pin/517280707171618314/

4. Sector & Market Segments
4
Sector: Closely related group of Industries
Market Segments: Differentiate customer set by specific attributes or demands
Maruti Alto Maruti Dzire Maruti Suzuki iV-4
BFSI Sector
Banking Automobile
Insurance
Asset
Management
Securities Micro-FinanceLife/ Health
Insurance
© Anik Sahahttp://www.marutisuzuki.com

5. 5
Expanding Industry Boundaries
Industry Analysis to Expansion: Porter’s 5 forces, Strategic Group Analysis, Life Cycle Analysis
Changing Industry Boundaries
© Anik Saha

6. 6
Porter’s 5 Forces
https://www.boundless.com/
Greater Impact of Each Force Limits Revenue & Profitability Growth
Strength of Forces change over Time, Industry, Location, etc.
Identify Forces to leverage Opportunities and counter Threats
Build Strategy to Alter Strength of Forces to Advantage © Anik Saha

7. 7
Threat of New Entrants
Economies of Scale Brand Loyalty Absolute Cost Advantage
Customer
Switching Costs
Government
Regulations
Potential Entrants: Not Current competitors but capable to enter
• Cost advantage with economies of
scale raises barrier
• Capital intensive
• Price war by incumbent
enterprises leads to bleeding
• End customer’s preference for
established brands
• Building brand through patents,
R&D investment, quality
perception consumes time
• Operational/ Technological
efficiency, lower cost structure
• Cross leverage of funds easy for
established enterprises
• Higher switching cost a deterrent
• Associated cost of changing
culture/ usage pattern
• Regulation restricts new
players to enter
• De-regulation eases new
players to leverage
technology and compete
Transition & entry of Music
devices to smart phone market
© Anik Saha

8. 8
Competitive Rivalry within Industry
Industry
Competitive
Structure
Demand
Conditions
Intense Rivalry Brings down Revenue & Profitability Potential
Cost Conditions
Exit Barrier
Height
• Consolidated Industry
drives market pricing
over Fragmented
• Easy entry barrier, low
differentiation, Price war
in Fragmented industry
• Manage cost structure
better, leverage
strategies to elevate to
consolidated industry
• Growing demand creates
more potential for
customer acquisition
• Growing Demand
reduces price cuts,
aggressive rivalry; drives
profitability
• Declining demand
initiates fight on market
share; reduced profits
• Higher Fixed Cost (FC)
leads to aggressive
strategies to increase
volume
• Intense rivalry to sustain
and be profitable
through volume sale
• In sluggish market
demand situations, high
FC industry ends up with
price cuts
• High Exit barriers
prevent market growth/
development
• On static or sluggish
demand situation,
players get locked to
unprofitable business
© Anik Saha
Source: Company logos taken from respective company’s official websites

9. 9
Bargaining Power of Customers
Buyers: Consumers or Distributors/wholesalers/Retailers
Powerful Customers
A few enterprise
customers; suppliers
composed of small
companies
Purchases in Bulk
Qty for better
price bargain
Supplier’s
Dependency on
Buyers for
Revenue
Lower switching
cost to different
suppliers
Too many suppliers
available as options
Capable of backward
Integration
With Changes in Industry demands, relative power shifts from supplier to customers
© Anik SahaSource: Company logos taken from respective company’s official websites

10. 10
Bargaining Power of Suppliers
Suppliers: Provides Input Resources, Materials etc.
Threats: Powerful Suppliers
Less Suppliers,
Critical Items
Supplier’s
Profitability least
affected
Unique
Products, high
switching cost
Forward
Integration
Low Chances of
Backward
Integration by
Customers
© Anik SahaSource: Company logos taken from respective company’s official websites

11. 11
Threat of Substitute Products
Products/ Services of Different Business Satisfying Similar Customer Needs
The Existence of #of
Close substitute
The Pricing Structure of
Close Substitutes
Impacts
Customer
base and
additional
Profitability
Existence of Substitute Results Cross Elasticity in Pricing
© Anik Saha

12. 12
Strategic Groups within Industries
Organizations Strategically Positioned differently within same Industry
Differentiation on Quality, Segment, RTM, Technology etc
Business Models adopted by Orgs in different groups vary
Impact of Competitive forces vary across strategic groups
Brand/performancereputation
http://slideplayer.com/slide/3923963/
http://www.slideshare.net/RichardGomez15/strategic-management-1-45847362
© Anik Saha

13. 13
Industry Life Cycle Analysis
Strength of Competitive forces change as Industry evolves
Analyze and Anticipate transformations of Industry; Develop New Strategies to Counter
Shifts driven by Progressive/ Disruptive Technological Innovations, Changing Demands of
customers
© Anik Saha
http://wikicase.wikia.com/wiki/Industry_Life_Cycle

14. 14
Industry Life Cycle Analysis
Introduction
Growth
Mature
Shakeout
Decline
Competition in
Industry
Entry Barrier
Bargaining Power
of Buyer
Bargaining Power
of Supplier
Threat of
Substitutes
• Rivalry high on
design, RTM
• Not on Price
• FMA, better design
• Tech know-how
crucial
• Less on Cost
economics, brand
• Focus more on
developing market
• Less profitable
• Purchased in
less volume;
less discount
from suppliers
• More competition
helps developing
market for industry
• Market Growing,
customers
becoming familiar
• Prices fall
• Tech know-how
barrier dissolves
• Customer
experiences
• Volume purchase
increases
• Depends on
criticality of
supply & # of
suppliers
• New entrants look
for growth
High Moderate Low
• High competition
• Price war to gain
market share
• Tech know-how
barrier dissolves
• Mature Market
• Volume sales
reduces price
• Too many options
• Depends on
criticality of
supply & # of
suppliers
• Potential
competitors like
PDA, smart phones
enter the market
• Price war to cut
loss
• Focus on CSAT,
loyalty, offers
• Too many large
established
players
• Mature Market
• Volume sales
reduces price
• Too many options
• Depends on
criticality of
supply & # of
suppliers
• competitors like
smart phones grow
business
• Enterprise players
left with excess
capacity
• Higher exit barrier
drives Price war
• NA • Available at low
price
• Market slowing
down
• competitors like
smart phones grow
business
The transition depends on Industry type, Availability of Critical Resources,
Technological Complexity, Example : Mobile phones (Non-smart)
© Anik Saha

15. 15
Macro Environment
Macro Economic Factors
Global Forces
GDP/ Economic
Growth
Interest Rates Currency Fluctuations Inflation Deflation
• Customer’s budget
increases
• Less price cuts,
profitable business
• Customer’s capex
not financed
• Budget squeezes
• $ fluctuations
increases price in
local currency
• Impacts expense
budget
• Impacts expense
budgets, TCO & ROI
planning
• Fixed payments
to debt hurts
• Budget for
capex goes
down
• Falling trade barriers across border
• Growth regions like BRICS attractive for developed countries
• Remote domestic players able to participate in global market place
© Anik Saha

16. 16
Macro Environment – Other Factors
Technological Forces
Social Forces
Demographic Forces
Political & Legal Forces
• Disruptive Technology shifts
industry trajectory
• Online route of business
dissolved geo boundary
• Shift in demographic pattern creates threat
& opportunity
• Region with aging population favors
similar products/ services
• Cultural trend of early marriages, consumer
traits etc creates opportunity/ threats
• Social awareness
• Generational trends, cultural shifts
• Example : health consciousness,
Reduced smoking
• online purchases, e-learning
• Deregulations, divestments
• Work culture improving, Trade union
strength reducing
• War situations
© Anik Saha

17. 17
Acknowledgement
Strategic Management by Charles W. L. Hill/ Gareth R.
Jones, Published by CENGAGE Learning
© Anik Saha