Presented by:IMRAN AHMAD

Industrial 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.

Competitive Strategy
It means Long-term action plan that is devised to help a company gain a competitive advantage over its rival. This type of strategy is often used in advertising campaigns by somehow discrediting the competition's product or service. Competitive strategies are essential to companies competing in markets that are heavily saturated with alternatives for consumers
3

Industry Analysis : Porters Five Forces Model Generic Strategies EMERGING INDUSTRY DECLINING INDUSTRIES Economic Reforms: Industrial Policy And Foreign Investment Fiscal Stabilization TRADE AND EXCHANGE RATE POLICY Tax Reformations Public sector policy FINANCIAL AND BANKING SECTOR REFORMS
4

Porters Five Forces Model

In his well- published work Porter

provided an operational frame to conduct an assessment of an investment opportunity in an industry. According to Porter, the five fundamental forces that determine the long-term prosperity of an industry are:
5

Porters Five Forces Model

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

6

(1) Rivalry
Good rivals, in terms of industry profits, are rivals who are restrained in their competition. They are willing to following your firms lead.
In markets that are segmented into different

groups of buyers, good rivals are satisfied with taking care of their groups and letting you take care of yours.
7

(2) Potential Entrants & Barriers to Entry

Since industry profits encourage new firms to enter, firms in a profitable industry remain

profitable to the extent that barriers to entry keep out potential entrants.
Barriers can be of two types:

-Tangible barriers - Psychological barriers

8

Types of Entry Barriers

Tangible barriers anything that would put a potential entrant at a competitive disadvantage after entry. 2. Psychological barriers beliefs on the part of potential entrants that, if they enter, firms already in the business will react aggressively, and are even willing to incur short-term losses, to force out the new entrant.
1.

Tangible barriers examples

financial resources: when firms are able to fight off new entrants by cutting prices as a result of having significant financial resources available favored access to particular resources: when existing firms control resources that are useful or essential to efficient operation (For example, airlines may control landing slots at favorable times.) favored access to distribution channels: when existing firms can more easily reach the customers
10

(3) Substitutes & Complements

This will limit the ability of the firm to raise prices and

will consequently lower potential profits. Suppose in addition, that a firm raises its prices. If firms producing substitute goods would take advantage of the opportunity to actively entice away customers, the profitability of the original firm would be limited.
Strong complements can increase the profitability of a

good. For example, vehicles and Fuel. Both products are complementary to each other.
11

(4) Suppliers
Bargaining power of suppliers is another force which

determines the industry structure by its strong influence on cost structure. In an underdeveloped supplier industry like the auto components industry in India, the bargaining power of the suppliers is limited. Similarly, industries where the supplier industry capacity is in excess of demand, the bargaining power of suppliers is restricted. On the other hand, due to the socio-political reasons, the supplier industries like coal, limestone, iron ore and other mineral based industries exercise a significant control on the buyer.
12

Factors that tend to make a supplier more powerful:

1.

2. 3.

The supplier has a franchise or patent on a particular item that is required by firms in the industry. The supplier is not restrained by any close substitutes for its product. The supplier industry is concentrated (there are very few firms) and the firms are not aggressive rivals with each other.
13

(5)Bargaining power of Consumers

Typically, in a competitive environment, the

industry players would like to influence the consumer decision to select the product and service he would like to use.
The bargaining power of a consumer is real only when the consumer has a choice.
14

Factors influencing consumers, bargaining power

Price flexibility Enhanced after-sales service

Introduction to new product features

Developing new market segment Creating an exclusive product image

15

Generic Strategies
Cost

Differentiation Strategy
A generic business strategy in which a business produces distinct products or services industrywide for a large market

Ivory Intro. AA

Differentiation
16

Generic Strategies

Focus Differentiation Strategy

Cost
Cray

Is appropriate for business units that produce highly differentiated, needfulfilling products or services for the speialized needs of a narrow range of customers in a market niche.
Differentiation

17

Differentiation
Objective: Incorporate differentiating features that

cause buyers to prefer firms product or service over the brands of rivals Uniqueness through:
unique product features

quality of inputs
performance

after sale service speed and flexibility image - organizational reputation and brand name

18

What does it take to be a differentiator?

Customers should be willing to pay a premium price attributes that make the product unique

should be valued by the customer attributes should appeal to large percentage of the market (broad differentiator) Company should be able to communicate its uniqueness Costs of differentiation should not be too high.
19

Risks of Differentiation Strategy

Customers may choose to sacrifice some features.
Competitors may imitate the differentiating feature.

Not understanding what buyers want or prefer and differentiating on the wrong things.

20

 Focus strategies
Best-cost strategy

21

Generic Strategies
III. Focus:
Serving the needs of a special market segment better than

anyone else

What does it take to pursue a focus strategy?

Ability to segment the market Ability to assess and meet the needs of buyers in a particular

segment better than other competitors.

Risks:
Cost focus - cost leadership Differentiation focus - differentiation The narrow market segment may become like the broader

market thus eliminating the need for a focused approach.

22

Ways Organizations Can Simultaneously Differentiate Their Products and Lower Their Costs
Dedication to Quality
Quality is defined as the totality of features and

characteritics of a product or service that bear on its ability to satisfy needs or implied needs.

Process Innovation
A business units activities that increase the efficiency of

operations and distribution.

Product Innovation
A business units activities that enhance the differentiation

of its products and services.

23

Best-Cost Strategy
Hybrid strategy:
Firm pursues low cost and differentiation simultaneously.

High differentiation and low costs can be complementary:

Total Quality Management (TQM) High levels of advertising and promotional expenditure

(differentiation) --> increased market share --> economies of scale (low costs). Profits generated from pursuit of low costs allow investments in differentiating features.

24

Best Cost Provider Strategies

Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation

Make an upscale product at a lower cost Give customers more value for the money

Deliver superior value by meeting or exceeding buyer

expectations on product attributes and beating their price expectations Be the low-cost provider of a product with good-toexcellent product attributes, then use cost advantage to under price comparable brands

25

How a Best-Cost Strategy Differs from a Low-Cost Strategy

Aim of a low-cost strategy--Achieve lower costs than any

other competitor in the industry Intent of a best-cost strategy--Make a more upscale product at lower costs than the makers of other brands with comparable features and attributes A best-cost provider cannot be the industrys absolute low-cost leader because of the added costs of incorporating the additional upscale features and attributes that the low-cost leaders product doesnt have

26

ExampleToyotas Lexus Line Designing high performance characteristics and upscale

features Transferring its low-cost capabilities to making premium quality cars Underprice Mercedes and BMW Established a new network of dealers

27

EMERGING INDUSTRY
ENTIRELY NEW OR RESTRUCTURED INDUSTRIAL SECTORS, GROWING AT A RATE FASTER THAN THE OVERALL ECONOMY . SUCH INDUSTRIES USUALLY COME INTO BEING WHEN CUSTOMER NEED CHANGE NEW TECHNOLOGY REPLACE OLDER ONES OR WHEN SOCIO-ECONOMIC CONDITION EMERGE
28

EXAMPLE OF EMERGING INDUSTRIES

Cell phone are replacing conventional telephone

systems. Courier is fast emerging as substitute to regular post cards 2 stroke engines are being replaced by 4 stroke engine And insurance industry is expected to grow rapidly

29

STRATEGIC OPTIONS AVAILABLE TO NEW ENTRANCE ARE

How and what investment to commit to cultivate the

market How to sustain the market presence and What entry barriers are important and how to achieve them etc.

30

DECLINING INDUSTRIES
An industry where growth is either negative or is not growing at the broader rate of economic growth. There are many reasons for declining industries Consumer demand may be steadily evaporating The depletion of natural resources may be occurring, or there may be emergent substitute because of technological innovation.

31

Declining industry are the resultant of the gap in the demand and supply situation, where the supply is larger than demand.

32

THE STRATEGIC OBJECTIVE OF DECLINING INDUSTRIES

How to postpone the actual decline of the industries
How to retain the market share How to improve the market share and

How to expand (in a limited sense) the market

33

POLICIES AT DECLINING PHASE

Enhancing the product features or repositioning the

persuasion Attempting to hold the existing customers and If possible to find new customers

34

Economic Reforms

35

Industrial Policy And Foreign Investment

Perhaps the most radical changes implemented in the reform package have been in the area of industrial policy, removing several barriers to entry existing in the earlier environment.

36

Abolition of Industrial Licensing

The system of pervasive industrial licensing prevalent earlier, which required Government permission for new investments as well as for substantial expansion of existing capacity, has been virtually abolished. However, the Government has indicated that the general policy of reserving certain items for the small-scale sector will continue for social reasons.

37

Abolition of MRTP Act

The parallel but separate controls over investment and expansion by large industrial houses through the Monopolies and Restrictive Trade Practices (MRTP) Act have also been eliminated.

38

Restructuring of Companies Act

A comprehensive restructuring of the companies Act is also underway which aims at simplifying and modernizing this aspect of the legal framework governing the corporate sector.

39

Opening up of public sector industries

The list of industries reserved for the public sector has been drastically pruned and many critical areas have been opened up to private sector participation. Electric power generation Petroleum exploration Air transport telecommunication

40

Radical restructuring of foreign investment policy

The liberalization of controls over domestic investors

has been accompanied by a radical restructuring of the policy towards foreign investment. Earlier, percentage of equity allowed to foreign investor was generally restricted to a maximum of 40%, except in certain high technology areas. The new policy is much more actively supportive of foreign investment in a wide range of activities. Permission is automatically granted for foreign equity investment up to 51% in a large list of industries.
41

Fiscal Stabilization
The central governments fiscal deficit had expand

steadily during the 1980s and had reached a peck level of 8.4 % of GDP in 1990-91. P 1:-CONTAINMENT OF FISCAL DEFICIT: Substantial reduction in fiscal deficit from 8.4% of GDP in 1990-91, to 5.9 % in 1991-92. Further to 5.7 % in 1992-93. It is achieved by. The abolition of export subsidies in 1991-92 and reduction in fertilizer subsidy in 1992-93.
42

 Restricting development expenditure, including

expenditure on social and economic infrastructure. The budget support to loss-making public sector units in the form of government loan to cover their loss would be phased out.

P 2- INCREASE IN FISCAL DEFICIT: The process of fiscal deficit was to continue into 3rd year to be reduced to 4.6% of GDP in 1993-94. But there was a substantial slippage from this target and estimated to 7.3% of GDP in 1993-94.
43

 This increase in fiscal deficit is due to, A shortfall in tax revenues compared to budget targets.

Customs revenue were below the target because

imports were much lower than expected. Excise duty collections also fell short because industrial production did not recover as expected. Expenditure also exceeding targets. Expenditure on development were higher than projected. Delays In adjusting food prices in the public distribution system led to higher food subsidies.
44

TRADE AND EXCHANGE RATE POLICY

45

Liberalization of import controls

Earlier import control was applicable to imports of raw

materials, production materials and capital goods. Imports of manufactured goods have generally banned except limited goods through special import licenses. In the 1994-95 policy, the scope for consumer goods imports has been liberalized by considerably expanding items which can be imported. Today, all raw materials, other inputs and consumer goods can be freely imported except small items.
46

Lowering of customs duties

The removal of quantitative restrictions on imports

has been accompanied by lowering of customs duties. The government has made lowering of customs duties each of four budgets since 1991. The peak rate of customs duties 200% in 1991 was lowered to 65% in 1994. The rate of customs duties on consumer goods was 90100% in 1991 and now been lowered to a range 20-40%.

47

Transformation of exchange rate policy

Exchange rates :- The price of one currency in terms of another is called the foreign exchange rate. Exchange rate policy has gone through a series of transformation since 1991. The reforms began with a devaluation of 24% in July 1991. The devaluation was accompanied by an abolition of export subsidies to help the fiscal position. The system was modified in march 1992 by explicit dual exchange rate system, simultaneously with the dismantling of licensing restrictions on import of raw material and capital goods.
48

 This dual exchange rate system was again modified to

a unified floating rate on march 1993. After a year , the government , in march 1994, announced further liberalization of payment restrictions on current transactions. Thus between this period of time trade and payment system has moved from a fixed and typically overvalued rate to a market-determined exchange rate within a framework of considerable liberalization on the trade account.

49

Tax Reformations
Reform of tax system has been an important element

in the Governments reform programme with major changes in both direct and indirect taxes. Reduction in personal income tax,
The maximum marginal rate personal income tax was

56% in June 1991 which has now been reduced to 40%.

Modification in wealth tax, Earlier wealth tax applicable to all personal assets, has been exempt all productive assets including financial assets such as bank deposits and shares.
50

 Reduction in corporate tax, The rates of corporate income tax were 51.75% for publicly listed company and 57.50% for a closely held company have been unified and reduced to 46%. Reduction in excise duties, Excise duties have been significantly reduced over the past years.

51

Sales Tax
We know that it is 6%. It was 4% until 1994.
Does not apply to groceries or services. Since services are as a percentage of purchases, the

sales tax base is . Tried to extend it to services in 2007, but it was beaten back.

52

Excise taxes
Cigarettes, liquor, fuels are taxed in $/unit. Curiously,

the more expensive the unit, the lower the percentage. This contrasts with income, sales, property, which are taxed in % terms. Taxes do not go up in times of inflation.

53

Prescriptions 1
Add a second bracket to income tax Most states do this Some of this might be borne by people elsewhere, because MI residents would have higher state tax deductions against their federal taxes, thus reducing their federal taxes other states taxes would go up to make up for the drop in MI payments. When this happens, we are exporting part of our income tax.

54

Prescriptions 2
Extend sales tax to services Goods tax base is shrinking Services are now favored relative to goods. Is this what we want? Wouldnt taxes be more neutral if services were treated similarly to goods?

55

Prescriptions 3
Reduce tax preferences for elderly Elderly get extraordinarily high tax preferences. On net they pay negative amounts (i.e. get back more than they put in). With baby boom generation age 65, these losses could really grow.

56

Prescriptions 4
Change taxation of liquor, cigarettes, fuel from per

unit to ad valorem.
Why do they get special treatment? Raise more revenue

57

Prescriptions 5
Remove assessment cap to property tax Gives localities more control over their finances; Raises more revenue; Removes lock-in of people to locations; Removes inequitable treatment of long-time residents and recent movers.

58

What they did!

Enacted Michigan Business Tax in July 2007`. For taxpayers other than financial institutions and insurance companies, the MBT imposes two taxes a modified gross receipts tax and a business income tax. Financial institutions and insurance companies are subject to industry-specific taxes In addition, significant personal property tax relief is granted for Michigan commercial and industrial personal property.
59

What they did! Part 2

Raised income tax from 3.9% to 4.35%.
This is supposed to be phased out between 2011 and

2015 (after most of the current politicians are gone) and is expected to increase revenues by $765 million a year.

60

What they did! Part 3

The original Michigan Business Tax won praise from businesses when it was adopted in the summer. It was estimated that up to seven of 10 businesses would pay less under the new format than under the Single Business Tax it replaces. But lawmakers added a surcharge of about 22 percent to the tax that will make it more expensive for some companies. The surcharge was crafted to replace an unpopular 6 percent tax on some services.
61

Public sector policy

Reform of the public sector is a critical element in

structure adjustment programs all over the world and is included on Indias reform agenda. However ,this is an area where change are being implemented slowly .

62

Disinvestment of govt. equity in PSC

Instead of outright privatization, the government has

initiate a limited process of disinvestment of government equity in public sector company with government retaining 51% of the equity and also management control. The disinvestment helps provide non-inflationary resources for the government budget, without adding to physical deficit.

63

Changed policy towards lossmaking PSUs

The government has announced that budgetary

support to finance losses will be phased out over 3 years and this has had salutary effect in confronting PSU with a hard budget constraints. SICA(Sick industrial companys Act.) BIFR (Board for industrial and financial reconstruction)

64

FINANCIAL AND BANKING SECTOR REFORMS

1.FINANCIAL MARKETS 2.REGULATORS 3.THE BANKING SYSTEM 4.NON-BANKING FINANCE COMPANIES 5.THE CAPITAL MARKET 6.MUTUAL FUNDS 7.OVERALL APROACH TO REFORMS 8.DEREGULATION OF BANKING SYSTEM 9.CAPITAL MARKET DEVELOMENT 10.CONSOLIDATION IMPERATIVE
65

 1.FINANCIAL MARKETS:- Private sector institutions

played an important role. They grew rapidly in commercial banking and asset management business with the opening of this institutions ,they started making debt in the market. 2.REGULATORS:- The finance ministry continuously formulated major policies in the field of finance. The government accepted the important role of regulators. The RBI become more important, SEBI and the IRDA became important institutions. 3.BANKING SYSTEM:- The RBI has given license to new private sector banks as part of the liberalization process. Many banks are successfully running in the retail and consumer segment ,but they are yet to deliver services to industrial finance, retail trade, small business and agricultural finance.
66

 4.DEVELOPMENT FINANCE INSTITUTIONS:- FIss access

to SLR funds reduced. Now they have to approach the capital market for debt and equity funds. DFIs such as IDBI,ICICI have entered other segments of financial services such as commercial banking, asset management and insurance through separate ventures. 5.NON BANKING FINANCE COMPANIES:- In the case of new NBFCs seeking registration with RBI, the requirement of minimum net owned funds has been raised to 2 crores. Until recently, the money market in India was narrow and circumscribed by tight regulations over interest rates and participants.

67

 6.LONG TERM DEBT MARKET:- The development of a

long term debt market is crucial to the financing of infrastructure. The SEBI decided to concentrate on the development of the debt markets, stamp duty is withdrawn at the time of dematerialization of debt instruments in order to encourage. 7.THE CAPITAL MARKET:- The number of share holders in India is estimated at 25 million. How ever ,only an estimated 2 lack persons actively trade in stocks. 8:OVERALL APPROACH TO REFORMS:- The last ten years have been major improvements in the working of various financial market participants.

68

 9.MUTUAL FUNDS:- The mutual fund industry is now

regulated under the SEBI regulations,1996 and amendments there to. With the issuance of SEBI guidelines, the industry had a frame work for the establishment of many more players, both Indian and foreign players. 10.CAPITAL MARKET DEVELOPMENT:- The capital Issues Act 1947 ,repealed ,office of the controller of capital Issues were abolished and the initial share pricing were decontrolled. 11.DEREGULATION OF BANKING SYSTEM:- Government pre-emption of banks resources through SLR and CRR. New private sector banks allowed to promote and encourage competition. Recovery of debts due to banks and the and the financial institutions Act 1993 passed, and special recovery tribunals set up to facilitate quicker recovery of loans arrears.
69

 12.CONSOLIDATION IMPERATIVE:- The

consolidation of existing institutions which is especially applicable for the commercial banks. In india, the banks are in huge quantity. There is no need for 27 PSBs wit branches all over India.
CONCLUSION : It is not possible to play the role of the

Oracle of Delphi when a vast nation like India is involved. How ever a few trends are evident, and the coming decade should be as interesting as the last one

70

THANK YOU
71