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Submitted By, Divya P. Velayudhan Roll No. 09 S3, MBA FT

INDUSTRY ANALYSIS Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services. Understanding the forces at work in the overall industry is an important component of effective strategic planning. Industry analysis enables small business owners to identify the threats and opportunities facing their businesses, and to focus their resources on developing unique capabilities that could lead to a competitive advantage. "Many small business owners and executives consider themselves at worst victims, and at best observers of what goes on in their industry. They sometimes fail to perceive that understanding your industry directly impacts your ability to succeed. An industry analysis consists of three major elements: the underlying forces at work in the industry; the overall attractiveness of the industry; and the critical factors that determine a company's success within the industry. The premier model for analyzing the structure of industries was developed by Michael E. Porter in his classic 1980 book Competitive Strategy: Techniques for Analyzing Industries and Competitors. Porter's model shows that rivalry among firms in industry depends upon five forces: the potential for new competitors to enter the market; the bargaining power of buyers and suppliers; the availability of substitute goods; and the competitors and nature of competition. These factors are outlined below. INDUSTRY FORCES The first step in performing an industry analysis is to assess the impact of Porter's five forces. "The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long term return on invested capital," Porter stated. "The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defend itself against these

competitive forces or can influence them in its favor." Understanding the underlying forces determining the structure of the industry can highlight the strengths and weaknesses of a small business, show where strategic changes can make the greatest difference, and illuminate areas where industry trends may turn into opportunities or threats. EASE OF ENTRY Ease of entry refers to how easy or difficult it is for a new firm to begin competing in the industry. The ease of entry into an industry is important because it determines the likelihood that a company will face new competitors. In industries that are easy to enter, sources of competitive advantage tend to wane quickly. On the other hand, in industries that are difficult to enter, sources of competitive advantage last longer, and firms also tend to benefit from having a constant set of competitors. The ease of entry into an industry depends upon two factors: the reaction of existing competitors to new entrants; and the barriers to market entry that prevail in the industry. Existing competitors are most likely to react strongly against new entrants when there is a history of such behavior, when the competitors have invested substantial resources in the industry, and when the industry is characterized by slow growth. Some of the major barriers to market entry include economies of scale, high capital requirements, switching costs for the customer, limited access to the channels of distribution, a high degree of product differentiation, and restrictive government policies. POWER OF SUPPLIERS Suppliers can gain bargaining power within an industry through a number of different situations. For example, suppliers gain power when an industry relies on just a few suppliers, when there are no substitutes available for the suppliers' product, when there are switching costs associated with changing suppliers, when each purchaser accounts for just a small portion of the suppliers' business, and when suppliers have the resources to move forward in the chain of distribution and take on the role of their customers. Supplier power can affect the relationship between a small business and its customers by influencing the quality and price of

the final product. "All of these factors combined will affect your ability to compete," Cook noted. "They will impact your ability to use your supplier relationship to establish competitive advantages with your customers." POWER OF BUYERS The reverse situation occurs when bargaining power rests in the hands of buyers. Powerful buyers can exert pressure on small businesses by demanding lower prices, higher quality, or additional services, or by playing competitors off one another. The power of buyers tends to increase when single customers account for large volumes of the business's product, when a substitutes are available for the product, when the costs associated with switching suppliers are low, and when buyers possess the resources to move backward in the chain of distribution. AVAILABILITY OF SUBSTITUTES "All firms in an industry are competing, in a broad sense, with industries producing substitute products. Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge," Porter explained. Product substitution occurs when a small business's customer comes to believe that a similar product can perform the same function at a better price. Substitution can be subtlefor example, insurance agents have gradually moved into the investment field formerly controlled by financial planners or suddenfor example, compact disc technology has taken the place of vinyl record albums. The main defense available against substitution is product differentiation. By forming a deep understanding of the customer, some companies are able to create demand specifically for their products. COMPETITORS "The battle you wage against competitors is one of the strongest industry forces with which you contend," according to Cook. Competitive battles can take the form of price wars, advertising campaigns, new product introductions, or expanded service offeringsall of which can reduce the profitability of firms within an industry. The intensity of competition tends to increase when an industry is characterized by a number of well-balanced competitors, a slow rate of industry growth, high fixed costs, or a lack of differentiation between products. Another factor

increasing the intensity of competition is high exit barriersincluding specialized assets, emotional ties, government or social restrictions, strategic inter-relationships with other business units, labor agreements, or other fixed costswhich make competitors stay and fight even when they find the industry unprofitable.

INDUSTRY ATTRACTIVENESS AND INDUSTRY SUCCESS FACTORS "Industry attractiveness is the presence or absence of threats exhibited by each of the industry forces," Cook explained. "The greater the threat posed by an industry force, the less attractive the industry becomes." Small businesses, in particular, should attempt to seek out markets in which the threats are low and the attractiveness is high. Understanding what industry forces are at work enables small business owners to develop strategies to deal with them. These strategies, in turn, can help small businesses to find unique ways to satisfy their customers in order to develop a competitive advantage over industry rivals. Success factors are those elements that determine whether a company succeeds or fails in a given industry. They vary greatly by industry. Some examples of possible success factors include quick response to market changes, a complete product line, fair prices, excellent product quality or performance, knowledgeable sales support, a good record for deliveries, solid financial standing, or a strong management team. "The reason for identifying success factors is that it will help lead you to areas where you can establish competitive advantages," Cook noted. The first step is to determine whether or not the company possesses each success factor identified. Then the small business owner can decide whether the company can and should develop additional success factors.

THE IMPORTANCE OF INDUSTRY ANALYSIS A comprehensive industry analysis requires a small business owner to take an objective view of the underlying forces, attractiveness, and success factors that determine the structure of the industry. Understanding the company's operating environment in this way can help the small business owner to formulate an effective strategy, position the company for success, and make the most efficient use of the limited resources of the small business. "Once the forces affecting competition in an industry and their underlying causes have been diagnosed, the firm is in a position to identify its strengths and weaknesses relative to the industry," Porter wrote. "An effective competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces." Some of the possible strategies include positioning the firm to use its unique capabilities as defense, influencing the balance of outside forces in the firm's favor, or anticipating shifts in the underlying industry factors and adapting before competitors do in order to gain a competitive advantage. Business owners must understand the industries in which they operate to ensure continued success. The financial health of a business is usually a reflection of the health of the industry; therefore, by conducting an industry analysis, business owners can create a strategy that's more likely to help the business grow and succeed. Performance In general, a company performs as well as its industry is performing. Therefore, understanding how an industry changes is key to predicting the performance of a firm in that industry. For example, if the price of steel drops significantly, a steel-products manufacturer may be able to get cheaper materials and enjoy higher profit margins. Being able to predict changes such as these allows companies to react strategically. Positioning Understanding the industry and its competitors helps planners position their companies in the market for their products or services, allowing them to determine how they can differentiate from other companies in the same industry. Without an industry analysis, a

business might enter a market that's too competitive or one that's already saturated with similar products and services. Opportunities and Threats Another reason industry analysis is such an important tool for businesses is that it helps firms identify potential opportunities for the business to develop, as well as threats that could prevent company growth. Being able to meet a consumer need that's otherwise underserved might be an opportunity; high capital costs or strict government regulations on imports or exports are examples of possible threats in various industries. Internal Preferences Although an industry analysis looks primarily at the external factors affecting a business, it can help determine whether there's a fit between internal management preferences and the business environment. If there's a disconnect, the business may not survive as managers resist the forces that shape an industry. A thorough industry analysis may be combined with a SWOT --- or Strengths, Weaknesses, Opportunities and Threats --- analysis, which looks at both internal and external factors to help analyze a company's potential for success in a given market. PORTERs FIVE FORCES

PASSENGER CAR INDUSTRY 1. INTRODUCTION India represents one of the worlds largest and fastest growing automobile markets. De-licensing in 1991 brought revolutionary changes in the industry and provided well-deserved and timely growth impetus to the industry. This attracted foreign auto giants to set up their production facilities in the country in a bid to take advantage of various benefits offered by the industry. Large middle class population, improving income levels and strong technological capability have been boosting automobile demand in the country for past few years. Even in the wake of economic slowdown, the industry sustained its positive growth momentum mainly because of strong domestic demand for passenger cars. According to our new research report India Passenger Car Market Analysis, the passenger car market, which constitutes around 7 8.5% of passenger vehicle sales (in FY 2010), has immense growth potential as passenger car stock stood at around 11.6 per 1,000 people in 2009. Realizing booming passenger car demand in the country, many domestic and foreign automobile giants are formulating capacity expansion strategies, and billions of dollar worth of investments are already in pipeline. Considering huge market potential, production of passenger cars is projected to grow at a CAGR of around 11% between 2010-11 and 201314. The recent launch of Tata Nano has brought about a new revolution in the countrys small car segment. Seeing the good initial response from consumers, many other players in the industry are chalking out their plans to launch cars in this segment in the next few years. In fact, the compact and mini passenger car segments are fast becoming the primary source of revenue generation for both domestic and international manufacturers due to the strong fundamentals of large number of middle class consumers and rising fuel prices. 2. MARKET SEGMENTATION Budget car segment- It is the largest segment in Indian market. Here the entry level starts from Rs 1.5 to 3 lakh. Maruti 800 and Omni are the dominant players in these segments. With the launch of Tata Nano with a price range of 1lakh the outlook of this segment has changed. This segment is sometimes referred to as the small car segment. Competition in this segment is extreme in Indian market.

Maruti 800 (Budget Car Segment) Compact car segment- It lies between budget car and family car. Preferred price range is between Rs 3 to 4.5 lakh. Maruti Zen, Fiat Uno, Tata Indica, Santro, Matiz is some of the dominant players in this segment. Maruti Zen (Compact car segment) Daewoo Matiz (Compact car segment Cars of compact segment -Family car segment- The purchasing capacity of buyers of this segment is somewhat higher than that of the budget and compact car segment. Price ranges between Rs 4.5 to 6 lakhs. Maruti Esteem, Daewoo Cielo, and HM Contessa belongs to this segment. In India cars that are sold in India as Budget Car and Compact Car do not meet their purpose, especially in term of space, that they turn to the family car segment. Daewoo Cielo (Family Car segment) Premium car segment- This segment represents the buyer who require true world class luxury car. Price ranges between Rs 6 to 8 lakh. Ford Escort, Honda City, Honda City, Mitsubishi Lancer, Audi 1800, Opel Astra etc are some of the major cars in this segment. Opel Astra (Premium car segment)Super luxury saloon segmentBuyer in this segment looks for a real super premium segment car. Mercedes Benz E229, E-250, Rover Montego, Audi 6, BMW is the players in this segment. Obviously, this is a tiny segment. 3. PORTERs FIVE FORCES 1. The threat of new entrants In most markets, the capital and expertise needed to setup an auto or parts manufacturing facility, would be a great enough barrier to entry to prevent many new entrants from setting up. However, given India's incredible growth forecasts, infrastructure progress (especially new and better roads), and ever-expanding financing options to rural residents, the market is attractive. As such, we expect the threat of new entrants to be high. Result: Unfavorable

2. The bargaining power of buyers/customers Buyers in India have a wide variety of choice. There are more than 20 foreign manufacturers selling in India (including ultra high-end such as Rolls-Royce and Lamborghini). Of course there are also a plethora of incredibly cheap choices, like the famous Tata Nano. Result: Unfavorable 3. The threat of substitute products India is famous for its two-wheelers (bikes and mopeds) and threewheelers. These are very real and obvious threats to auto manufacturers. Result: Unfavorable 4. The amount of bargaining power suppliers have It is likely that the suppliers to the manufacturers have considerable bargaining power. They are not held ransom by one single manufacturer as they can market their products to any of the others in India. Result: Unfavorable 5. The amount of rivalry among competitors High. The industry is not yet in its shake-out phase and is still struggling to find the up-and-coming stars and possibly topple the leaders. Result: Unfavorable

4. MAJOR PLAYERS Tata Motors in one of the major players of the automobile manufacturing companies in India. It has three different manufacturing units in India they are, Jamshedpur in the East, Pune in the West and Lucknow in the North and all three manufacturing units specialize in the manufacturing of different automobile like Jamshedpur unit produces trucks, engines and axles, the Pune unit caters to the production of Medium Heavy Commercial vehicles and Heavy Commercial Vehicles, utility vehicles and passenger

cars and the Lucknow unit produces MCVs, Tata Sumos along with a number of spare parts. Some of the well known cars manufactured by Tata Motors are:Tata Indica, Tata Indigo, Tata Indigo Marina, Tata Sumo and Tata safari. Hindustan Motors Limited: Hindustan Motors Limited is one of India's pioneering companies in manufacturing passenger cars Ambassador, Multi Utility Vehicles (Trekker, Porter, and Pushpak) and the mid segment premium car Mitsubishi lancer. It is because of Hindustan Motors that we see the Mitsubishi Pajero a great sports car on the Indian roads. Maruti Udyog Limited: By far the most trusted and best known car manufacturer in India. Maruti Udyog manufactures a host of SUVs, Sedans and passenger cars. Some of Maruti's most popular cars are: Maruti 800, Alto, Omni, Gypsy, Zen, Wagon R, Versa, Esteem, Baleno and Swift.

5. SWOT ANALYSIS STRENGTHS Large domestic market Sustainable labor cost and advantage Competitive auto component vendor base Government incentives for manufacturing plants Strong engineering skills in design etc

WEAKNESS Low labor productivity High interest costs and high overheads make the production uncompetitive Various forms of taxes push up the cost of production Low investment in R & D Infrastructure bottleneck OPPORTUNITIES

Commercial vehicles : SC ban on overloading Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties Rising in rural demand

THREATS Rising input costs Rising interest rates Cut throat competition CONCLUSION The rapid structural transformation of the Indian industry over the last decade, coupled with a number of factors including intense competition, demanding consumer preferences, tightening emission standards, and the global strategies of the various players, has led to significant technological change in the industry. This has allowed the car manufacturers to meet the challenges of the market as well as public policy imperatives driven by environmental and other concerns. In this process, they have also developed significantly their technological capabilities, especially in design, development, and manufacturing (although to different levels among different manufacturers). Yet, there is much more to be done, if the industry is to meet its ambitious target (and the governments policy goal) of being a serious player on the global automotive stage, especially since exports and healthy domestic markets go hand in hand. At the same time, the industry will also have to face challenges such as those that might emerge as India moves to open its economy further under the WTO or as transportationrelated environmental impacts become more severe, especially in urban areas. The ability to implement and manage new technologies will doubtless play a central role in meeting these challenges. Therefore, Indian automobile manufacturers, as well as related firms such as the autocomponents suppliers and fuel suppliers, will have to build on their recent progress and continue to strengthen their technological capabilities. And, in turn, public policy that is designed to inculcate technological dynamism within these firms will need to pay particular attention to the drivers of technological change in this industry and target any programs accordingly.