Industry Analysis: Definition, How It Is Done, Benefits, Importance and MORE

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In the business or industrial field, there are many aspects that must be taken into account to achieve a positive development. For this reason, in this article we are going to know everything related to Industry analysis.

After reading this article you will know what it means, how it is developed, what is its importance and all the necessary details to achieve improvements in the industrial area. Thus, you will be able to highlight that industrial or sectorial area of ​​your business and take the lead in the face of competition within the market.

Are you interested? Keep reading!

What is Industry Analysis?

The Industry analysis It can be defined as a process that seeks to decipher the global importance of a particular company, always starting from the needs of its market.

To do this, investors or owners use the Industry analysis to establish the potential benefits and increase all your strengths. For example, if an industry (or large company) is getting outdated in the technology realm, it is not a good growth investment prospect in the area.

In this way, this analysis also allows to evaluate the internal forces in the industry, such as the processing technology, the raw material and the capacity to satisfy the requests of the wholesale and retail distribution.

Thus, it is possible to reveal the depth of the industry as a whole compared to the rest of the environment, and identify the lowest-level products that indicate that the industry is at risk.

It is also necessary to emphasize that the constant competition between companies promotes the maintenance of large production since when a competition is in peak mode it forces organizations to be more aggressive in their market analysis, sales strategies and in their marketing technologies. production.

How is the Industry Analysis Conducted?

The Industry analysis, also known as industry analysis, is essential to determine the intensity of competition and to highlight all areas that have opportunities or threats.

Based on this, Michael Porter (1986) defined the industry as a group of companies that produce products or provide a service. In addition, the analysis of the industry is the pillar of his model in which he talks about competitive strategies.

The latter can determine the actions with which it will compete within its scope, what the objectives are and what aspects will be necessary to achieve them.

Starting from this, the following fundamentals must be considered when this analysis is going to be carried out:

  • Show all financial information for the industry. This includes everything from the growth rate over the past few years to data on where the information comes from.
  • Easily graph all the information.
  • Browse and provide all the industry data at your regional or local level.
  • Expose both the positive information and the errors, failures and various problems of the industry.
  • Analyze and study the exposed numbers within their own context.

Competitive Forces of Industrial Analysis

The five competitive forces of the Industrial Analysis are expressed below:

  • Threat of entry.
  • Substitution risk.
  • Bargaining power of buyers.
  • Bargaining power of suppliers.
  • Competition between companies in the environment.

Threat of entry

At this point, the threats or risks that are generated when new competitors are included are determined. This could even provide substantial resources, since to deal with them could generate new production capacities and the desire to absorb all customers.

When there is an entry of new competitors to the market, the industries are at risk of suffering profitability problems since it can generate falls in prices and an increase in the demand for inputs.

Substitution risk

After the previous phase, what is known as substitution risk may arise. This is about some products that can assume the same functionality in the industry and that can limit or even lower the profitability rates of one by assigning a limit on their prices.

In simpler words, all the companies in a sector compete between substitute industries, which is why they implement the formula of “the more attractive the price-performance ratio alternative offered by substitute products, the greater the pressure on the profits of the sector. ”.

Bargaining power of buyers

When buyers compete with the industry, to the point of lowering prices, an atmosphere of confrontation is generated between the competitive areas, which can unbalance the profitability of the industry.

Therefore, the extent to which buyers lower prices will depend on the group of buyers in relation to their situation in the market, in addition to the relative importance of their purchases in relation to their business activity.

Bargaining power of suppliers

Since suppliers are a determining factor in the profitability of the industry, they are often good negotiators. This to achieve various market strategies that favor the industry, such as, for example, offering discounts in certain situations.

Competition between companies in the environment

Finally, when speaking of competition or rivalry between the competitors of an industry, it refers to the confrontation that occurs to achieve the highest position among the companies that are in the same market.

They compete in prices and quality, in advertising, introduction and increase guarantees towards buyers, according to Porter.

According to the same author (1986), the companies belonging to an industry are mutually dependent since the competitive tendencies of a company have immediate causes on its competitors.
Finally, the author states that price competition is considered quite unsafe because it very surely leaves the industry in a worse position from profitability.

In this sense, this reduction in costs is frequently imitated by the competition, which ultimately translates into a reduction in the income received from all companies.

Profits

An analysis of the industrial sector allows to achieve a series of benefits such as:

  • A dominant economic precision within the industry area.
  • Establish the competitive forces operating in it and know how effective they are.
  • Examine the drivers of change and their potential impacts on the market.
  • Know the competitive position of companies.
  • Establish the key factors of success in the industry and know the rivalry of the competitors.
  • Analyze how attractive the industry is, especially in terms of performance.

Importance of Continuous Improvement

Every entrepreneur or person involved in the area should have as a priority or center of study the feasibility of their idea and the way in which the industry participates in the project.

For this reason, it is important to analyze the industry in order to decide on its strategy, since without a plan no project will be viable in the long term.

The first question an entrepreneur or entrepreneur should answer is, what determines the profitability of your industry? But before answering this, you must sit down and think about whether the product or service you offer is valuable to consumers or users.

Critical Success Factors

These are those elements that are within the strategy in which the organization must stand out to overcome its competition.

However, these factors have some very important characteristics which will be explained below:

  • They are temporary and related to the company.
  • They establish how strategic they constitute a business plan or process.
  • They are directly related to successful survival or competition.
  • They correspond directly to the organization’s SWOT matrix.
  • They express the temporal distinctions or points of view regarding the key variables.
  • They are specific to each business or industry.
  • They depend on the context or economic, cultural and geographical.
  • They obey the access and availability of resources.

Business or industry concentration

It is defined as the process in which it is possible to accumulate both the capital and the productive capacities of a group of companies in the same hands. For this, two types of sectors are needed or required, which will be presented below:

Concentrated sector: It is where few and few companies distribute the market or at least its majority, leaving only an insignificant part of it for the rest.

Fragmented sector: when there are many companies and no one has a significant market share. In this case, it is essential to accumulate the sales volumes of several of them to achieve or obtain a somewhat significant market share.

The indicators that are used to measure concentration are also known as indices, which aim to expose the structure of the market shares of the companies that participate in it.

These factors, or at least some of them, are:

  • High limitations on entry.
  • Need to achieve economies of high scale.
  • Companies or industries with activities below their breakeven point.
  • Transport values ​​lower than normal or ideal.
  • Primacies over the power of negotiation with the environment.
  • Little differentiation of the product or service.
  • High limitations on departure.
  • Legal code or general or unspecific legislation.
  • Lack of legislation in defense of competition, if necessary.

Thank you for reading!

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