Handout

Agribusiness 32

February 13, 2015

Industry Analysis

What is an Industry Analysis?

An industry analysis is a marketing process that provides statistics about the market potential of
your business products and services. This section of your plan needs to have specific information
about the current state of the industry, and its target markets. An industry analysis may contain
reference materials such as spreadsheets, pie charts, and bar graphs in order to represent the data.
The industry analysis report sheds light on the economic health of the company, underlining the
understanding whether it will be beneficial for the stakeholders to invest in such a company and
offering recommendations and/or corrective actions to take in case of any untoward developments
in the company.
Industry analysisalso known as Porters Five Forces Analysisis a very useful tool for
business strategists. It is based on the observation that profit margins vary between industries,
which can be explained by the structure of an industry.

Porters Five Forces Analysis

The framework for the Five Forces Analysis consists of these competitive forces:

Industry rivalry (degree of competition among existing firms)intense competition leads to

reduced profit potential for companies in the same industry
Threat of substitutes (products or services)availability of substitute products will limit your
ability to raise prices
Bargaining power of buyerspowerful buyers have a significant impact on prices
Bargaining power of supplierspowerful suppliers can demand premium prices and limit your
profit
Barriers to entry (threat of new entrants)act as a deterrent against new competitors

Industry analysis and competition

Competition within an industry is grounded in its underlying economic structure. It goes beyond the
behaviour of current competitors.
The state of competition in an industry depends upon five basic competitive forces. The collective
strength of these forces determines profit potential in the industry. Profit potential is measured in terms of
long-term return on invested capital. Different industries have different profit potentialjust as the
collective strength of the five forces differs between industries.

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Industry analysis as a tool to develop competitive strategy

Industry analysis enables a company to develop a competitive strategy that best defends against the
competitive forces or influences them in its favour. The key to developing a competitive strategy is to
understand the sources of the competitive forces. By developing an understanding of these competitive
forces, the company can:

Highlight the companys critical strengths and weaknesses (SWOT analysis)

Animate its position in the industry
Clarify areas where strategic changes will result in the greatest payoffs
Emphasize areas where industry trends indicate the greatest significance as either opportunities or
threats

Industry analysis and structure

The five competitive forces reveal that competition extends beyond current competitors. Customers,
suppliers, substitutes and potential entrantscollectively referred to as an extended rivalryare
competitors to companies within an industry.
The five competitive forces jointly determine the strength of industry competition and profitability. The
strongest force (or forces) rules and should be the focal point of any industry analysis and resulting
competitive strategy.
Short-term factors that affect competition and profitability should be distinguished from the competitive
forces that form the underlying structure of an industry. Although these short-term factors may have some
tactical significance, analysis should focus on the industrys underlying characteristics.

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Here is a Step-By-Step Breakdown:

STEP 1: Identify your Industry and provide a brief overview. You may need to explore your industry
from a variety of geographical considerations: locally, regionally, provincially, nationally, globally, etc.
Be sure to define relevant industry codes. Provide statistics and historical data about the nature of the
industry and growth potential for your business, based on economic factors and conditions.
STEP 2: Summarize the nature of the industry. Include specific information and statistics about growth
patterns, fluctuations related to the economy, and income projections made about the industry. Be sure to
document recent developments, news, and innovations. Also, discuss the marketing strategies, and the
operational and management trends that are prevalent within the industry.
STEP 3: Provide a forecast for your industry. Compile economic data and industry predictions at different
time intervals (5, 10, 20 years). Be sure to cite all of your sources. Note: the type and size of the industry
will determine how much information you will be able to find about a particular industry. For example, it
is much more difficult to locate published information about specialized niche industries.
STEP 4: Identify government regulations that affect the industry. Include any recent laws pertaining to
your industry, and any licenses or authorizations you would need to conduct business in your target
market. This section may include information about fees and costs involved.
STEP 5: Explain your unique position within the industry. Once you have completed your Competitive
Analysis (in the next section) you can list the leading companies in the industry, and compile an overview
of data of your direct and indirect competition. This will help you communicate your unique value
proposition.
STEP 6: List potential limitations and risks. Write about factors that might negatively impact your
business and what you foresee in the short-term and long-term future.
STEP 7: Talk to people! Go to tradeshows, do cold calls, talk to people in relevant associations and go to
business events.

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References:
http://www.financewalk.com/2011/industry-analysis/
http://www.marsdd.com/mars-library/industry-analysis-and-competition-using-porters-five-forces/
http://www.sba-bc.ca/guide/business-research-basics/industry-analysis-step-step
Porter, M. (1998). Competitive Strategy. New York: Free Press, pp. 3-5.