Industry Analysis: the Threats and Opportunities Facing Businesses - Literature review Example

Business Policy Importance of Industry Analysis Industry analysis is a means that smooth the progress of a company's perception of its place comparative to other companies that create analogous and equivalent products or services. Considering the forces at work in on the whole industry is a vital module of effectual and successful strategic planning. Industry analysis facilitates business owners to discover and recognize the threats and opportunities facing their businesses, and to center their resources on developing inimitable and distinctive competencies that could direct to a competitive advantage. Kenneth J. Cook wrote, "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. Understanding your industry and anticipating its future trends and directions gives you the knowledge you need to react and control your portion of that industry. However, your analysis of this is significant only in a relative sense. Since both you and your competitors are in the same industry, the key is in finding the differing abilities between you and the competition in dealing with the industry forces that impact you. If you can identify abilities you have that are superior to competitors, you can use that ability to establish a competitive advantage." (Cook, 1995) An industry analysis consists of three most key fundamentals: the causal forces at work in the industry; the on the whole magnetism of the industry; and the critical factors that establish a company's success within the industry. The leading model for analyzing the arrangement of industries was developed by Michael E. Porter in his classic 1980 book. A complete industry analysis necessitates a business owner to make an objective examination of the underlying forces, attractiveness, and success factors that establish the composition of the industry. Considering and accepting the company's working environment in this manner can assist the business owner to devise an effectual and successful strategy, pose the company for success, and employ the limited resources of the business in the most efficient way. Collecting and evaluating information on competitors is essential for successful strategy formulation. Porter wrote, “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. An effective competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces.” (Porter, 1980) The first step in carrying out an industry analysis is to evaluate 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." (Porter, 1980) Porter’s Five-Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. Express Mail Industry According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces, upon which I analyze the express mail industry below: Rivalry among competing firms Today, economic and competitive forces are compelling postal services and parcel-shipping companies to modernize on hand practices and spend in technologies to meet up customer demands for quicker or timely delivery, extended services and lesser costs. This must be attained while meeting the mandates of Universal Service and defending the system from those who would use it for unlawful or unsafe actions. Besides recovering revenues gone to other means of delivery, the organizations in this industry are trying to offer value-added products and services that produce new sources of revenue and trim down operating costs. To face this challenge, postal enterprises have need of thorough information about the materials and assets passing through their supply chains. To gather and evaluate this data, the mailing industry must work collectively to put into practice the technologies that will facilitate them to make proper business decisions. Potential entry of new competitors As such the entry in this industry is not very easy pertaining to the high infrastructure and fixed capital costs. However, several international postal organizations are shifting from nationalized institutions to privately run entities. With the privatization of postal services, many face competition for the first time. Potential development of substitute products The greater than before use of the Internet and catalog/direct mail for home shopping has consequence in an outburst in the quantity of small parcel shipments, the majority of which are handled by private carriers such as UPS, Federal Express and DHL. This infers that post offices are losing prospects to make the top shop-at home-customers who are ready to pay for rapid delivery. E-mail, e-billing and automatic checking account withdrawals are wearing volume from every postal entity. Bargaining power of suppliers The bargaining power of suppliers affects the intensity of competition in an industry, especially when there is a large number of suppliers, when there are only a few good substitutes or when the cost of switching is high. In the express mail industry the courier service suppliers do not possess much of the bargaining power as the customers have substitutes available and each competitor is pursuing one or the other competitive strategy to bag more and more customers. Bargaining power of consumers When customers are concentrated or large, their bargaining power represents a major force affecting the intensity of competition in an industry. In the express mail industry, customers have the high bargaining power because they can easily switch to other service suppliers if they do not get the quality of service at the right prices from one. Summary of Findings On the basis of my findings incorporated above in the Porter’s five forces model, I illustrate following set of opportunities, threats and critical success factors for the express mail industry: Opportunities E-commerce inventiveness and the consequential outburst in shop-at-home buys are impacting this industry. One-to-one direct marketing is growing the quantity of catalogs and the subsequent increase in mail order commodities purchases and returns. International shipments are greater than ever, made possible by the Internet as well as the use of the same currency in Europe. Government directives are compelling post offices and parcel couriers to keep up Universal Service levels while gripping the line on costs. Threats Lately the human race has revealed the tendency of mail as an open and permeable communications channel. The wave of anthrax attacks in the U.S. and out of the country has many people concerned about the safeguard of their household mail, business mail and even the neighborhood post office. While safety specialists concur it is unworkable to guard every entrance point in the system, technology that can boost accountability will go a long way in the direction of eliminating inscrutability and safeguarding the mail. Critical success factors Sophisticated data capture, rugged mobile computers and wireless infrastructure, along with application-specific software can assist to move physical goods such as letters and parcels to their intended places with enhanced rapidity and precision. Secure digital postage and improved and better traceability of the mail is another factor that can succeed an express mail enterprise. Growth of improved consumer services with on-demand parcel pick-up and delivery, extra proficient payment systems and alternative credit terms, system optimization, a cutthroat pricing strategy, superior address quality and formation of an industry council are few critical success factors for this industry. Boeing The Boeing Company, newly headquartered in Chicago, Illinois, is the largest aerospace firm in the world, as measured by total sales, and the world’s leading manufacturer of commercial aircraft. It is the world’s leader in military aircraft and largest contractor for NASA. It is one of the largest U.S. exporters. Boeing has diversified itself from a commercial aircraft manufacturer into a complete and full-grown aerospace and defense company. Another new area where Boeing has stepped into is the wireless broadband communication services. Reason For Diversification Planning in early 1990’s The company first started planning for diversification in the early 1990’s and by 1995 much of that planning had taken form. The reason for such diversification strategy was the company’s belief that without diversifying itself, Boeing would maintain 85 percent commercial airplanes and 15 percent defense share. Being greatly reliant on the cyclical commercial airplane industry was not a healthy idea when the company had all the aims to grow and expand. Given tremendous skills and experience in commercial planes would certainly have been valuable and of use in the military arena. Boeing has a long tradition of aerospace leadership and innovation. The company continues to expand its product line and services to meet emerging customer needs. Its broad range of capabilities includes creating new, more efficient members of its commercial airplane family; integrating military platforms, defense systems and the war fighter through network-centric operations; creating advanced technology solutions that reach across business units; e-enabling airplanes and providing connectivity on moving platforms; and arranging financing solutions for its customers. (http://www.boeing.com/companyoffices/aboutus/) Implementation of Boeing’s diversification Strategy CEO Boeing Phil Condit (2003) expresses that at the time of diversification decision, the company’s defense program was too undersized to make a genuine distinction in that area. If the company had chosen to build and grow the business internally, it would have been rather a slow paced process. This is why Boeing decided to make mergers and acquisitions. The first part was the acquisition of Rockwell’s aerospace business, subsequent to that the merger with McDonnell Douglas, and to end with the acquisition of a portion of Hughes. Besides diversifying into defense sector, the company has gone ahead to enrich its portfolio by building and growing some new businesses along the way. However, Condit maintains that the commercial airplanes and defense segments will probably remain the company’s core competencies for quite a while. These new businesses mainly include three segments, namely Connexion, Air Traffic Management, and Boeing Capital Corporation. Connexion by Boeing is a dynamic breakthrough consumer and commercial airline service that will provide air travelers an unparalleled array of high-speed data communication services via a space based network. Not just will this be a commercial service; it will also make easy critical communications between pilots and ground controllers regarding passenger health, plane security, and inclement weather, among other things. Boeing’s competency in satellite systems, commercial aircraft construction, and high-speed critical data transfer technology gives it a competitive advantage that no narrow band provider can match. Boeing is developing an Air Traffic Management (ATM) system to replace the ground-based system. The proposed ATM would integrate today’s separate control, communications, navigation, surveillance, and weather services into a single, seamless Common Information Network (CIN). The new ATM will rely primarily on Global Positioning Satellites (GPSs). Global Positioning Satellites and military communication technologies practical for air traffic management might significantly improve the existing system and shift it from a tactical to a more strategic system. The system should be relatively inexpensive and easy to install on older aircraft, both those of Boeing and Airbus. In a news release on April 21, 2006 this statement appeared: “A significant focus of our work is on helping the new ATM system for Europe maintain interoperability with the current and next-generation air traffic control system being developed by the United States," said Kevin Brown, Boeing Phantom Works vice president and general manager of Advanced ATM. "Interoperability is essential for a globally seamless and efficient ATM system that can meet the tremendous demands of future growth safely." (http://www.boeing.com/phantom/news/2006/q2/060421a_nr.html) The third is Boeing Capital Corp., a consumer and commercial financing segment whose revenues are made up primarily of interest from the financing of receivables and lease income from equipment leased to others under operating leases. This segment is likely to continue to grow as long as airline companies and others need additional airplanes. Because of the high cost of purchasing a commercial aircraft, many of Boeing’s customers will opt for either financing the purchase or leasing the aircraft from the company. This should provide a steady source of revenue for this segment. As long as interest rates are low, the segment can make a good profit. Boeing Organizational Chart Boeing is the world's leading aerospace company and the largest combined manufacturer of commercial jetliners and military aircraft. With additional capabilities in rotorcraft, electronic and defense systems, missiles, rocket engines, satellites, launch vehicles and advanced information and communication systems, the company's reach extends to customers in 145 countries. (http://www.boeing.com/companyoffices/aboutus/) The various business divisions of the Boeing Company can be illustrated in the form of an organizational chart as below: The above-illustrated organizational chart of the Boeing Company clearly depicts its diversified and innovative approach towards running the business. The various business divisions depicted in this chart are each distinct and assist in broadening the company’s horizons. The commercial aircraft division has been the premier manufacturer of commercial jetliners for more than 40 years. Boeing Integrated Defense Systems provides end-to-end services for large-scale systems that combine sophisticated communication networks with air-, land-, sea- and space-based platforms for global military, government and commercial customers. Connexion by Boeing is the business division engaged in providing mobile information services, as entailed in this paper earlier Boeing Capital Corporation is a global provider of financing solutions. At Phantom Works - the R&D unit of The Boeing Company - engineers are defining the future of aerospace. The Boeing Company Shared Services Group (SSG) provides the company's business units and World Headquarters with innovative and effective common services that support the competitive design and manufacture of aerospace and defense products. (http://www.boeing.com/biz_unit.html) The Boeing Company has made sure that it’s products and services remain diversified to balance the cyclical revenues from sole commercial aircraft manufacturing. The company has formed business divisions that are devotedly working and innovating in their respective boundaries utilizing the relevant expertise and skills. And this seems to be working well and fine for the company. In a news release on April 26, 2006 in Chicago, Boeing has reported double-digit growth in revenue, earnings and cash flow. (http://www.boeing.com/news/releases/2006/q2/060426a_nr.html) Key Distinctions Between Multidomestic And Global Industry Porter describes the core differences between a multidomestic industry and a global industry. He says, “The global industry is not merely a collection of domestic industries but a series of linked domestic industries in which the rivals compete against each other on a truly worldwide basis… In a multidomestic industry, then, international strategy collapses to a series of domestic strategies. The issues that are uniquely international revolve around how to do business abroad, how to select good countries in which to compete (or assess country risk), and mechanisms to achieve the one-time transfer of know-how. These are questions that are relatively well developed in the literature. In a global industry, however, managing international activities like a portfolio will undermine the possibility of achieving competitive advantage. In a global industry, a firm must in some way integrate its activities on a worldwide basis to capture the linkages among countries.” (Porter, 1985; 1986) Beer Industry The beer industry has been seeing a lot of globalization lately, although consumers all around the world continue preferring local brands over the imported ones. Besides, the cost of manufacturing at one place and then shipping to other parts of the world is costlier than brewing it regionally. As the millennium came in, the international brewers began extracting positive cash from their regional acquisitions in the 80s and 90s. The beer industry stands global today. Heinkin and Anheuser Busch, the two giants in the beer industry took drastic and significant steps towards becoming global. These companies either acquire breweries in other countries or contract with them, and then brew and market their own global brand there and run it through their distribution network. The motions of new countries that are not traditionally in the beer business are fueling international growth in this industry. The modern way of life style is to trim down the rate of alcohol intake, leaving beer further attractive than spirits and wine principally in budding markets. Therefore, to carry on expansion and development on an international level, Anheuser Busch and Heineken pursue business strategies as mentioned in the pages to come. Anheuser Busch and Heineken Heineken is steady in branding itself internationally as a premium brand. It aims to be the leader in a particular beer market in practically all fragments with an assortment of well-known brands. In particular markets where such a perspective is not practicable, they seek fragment leadership in which the Heineken brand makes the foremost brewery group in the premium fragment. Heineken’s strategy on the whole is to have a typical beer that can be a local beer such as Amstel. Heineken and Anheuser Busch have a propensity to obtain equity in a local brewer and exploit it as a distribution medium for the global brand. These companies adopt the strategy first to build up a sturdy local operating stage and then leverage it over time to make lucrative development through the exact brands and distribution arrangement to provide a local national market. Secondly, these companies choose to widen the assortment to embrace international brands to leverage global comings to assist in optimizing both the local brands and global brands. Next, these companies ensure an evenhanded range of countries between full-grown and budding markets, whereby the full-grown markets such as North America and Europe supply the finances to put in in markets such as Korea and Russia that have inferior GDP and superior prospective for development. Their strategies are also based on the notion that market consolidation will facilitate making safe arrangements and generate shareholder value Consumers in beer industry prefer local brands mainly because they are much more readily obtainable. In about each country, the large national brewers hold or control the wholesale distribution network, and novel competitors must acquire licenses from local authorities and put together profound reserves before preparing to compete. As a consequence in South Africa, for example, such key group of actors as Heineken and Guinness have elected to license their local production, distribution, and marketing to South African Breweries, the governing local actor, rather than try to do business on their own. Conventionally, brewers wanted to control national markets by realizing cost advantages all the way through physical scale. In the United States, for instance, Anheuser-Busch guided the way in constructing enormous economical facilities, thus driving out minor brewers and consolidating the market. However this is no more a successful strategy to pursue. As the payback of physical scale grow fainter, that of intangible scale grow up. The most excellent brewers leverage such intangible resources as brands and market acquaintance to add competitive advantage around the world. Heineken portrays on the lessons it has cultured from advertising and marketing in developed countries to support and build up its position in emergent ones. In order to become winning brands will perhaps have to make inventive cross-category shifts, as Heineken did when it tied local Coke bottlers in Brazil to produce a brewer ‘Kaiser’ that faced up to Brahma and Antarctica in that country's market. Heineken offered brewing proficiency, the Coke bottlers a distribution arrangement. Jointly, they succeeded to gain a 15 percent market share in just a small number of years. Heineken at the moment has the sole most excellent outlook of standing in the midst of the global giants of the future. It has a global brand name; a prevalent presence, both in its own right and through alliances; and well-built expertise in such areas as marketing and production. As the company gets bigger, this expertise will aid it build value - for instance, by improving the operations it acquires. Anheuser-Busch too is in good shape. (Richard et al, 1999) Out-and-out acquirement may not be the most excellent approach. Anheuser-Busch obtained a marginal stake in the Mexican brewer Modelo in 1993 and increased that stake to 51 percent in July 1997. It has also gone into a transaction with Antarctica (Brazil's second-largest brewer) that locks up an alternative for future enhancement in equity, without consuming too much quantity of cash straight. Anheuser-Busch continues globalizing itself by making acquisitions. It has completed its purchase of approximately 29 percent of Harbin Brewery Group Ltd., a leading brewer in China, through the purchase of Global Conduit Holdings Ltd., an investment holding company. “Harbin fits our strategy of investing in leading companies in growth markets like China with good volume and profit growth potential,” said Patrick Stokes, president and chief executive officer of Anheuser-Busch Cos., Inc. “We look forward to working closely with Harbin management and believe this cooperation will allow us to better participate in the long-term growth of the industry in China.” This is Anheuser-Busch’s second investment in a leading brewer in China. Since 1993, Anheuser-Busch has been a minority investor in Tsingtao Brewery Co., Ltd. In 2002, the two companies announced a strategic alliance and initiated a best practices exchange program and other management initiatives. Anheuser-Busch currently owns 9.9 percent of Tsingtao, and has an agreement to increase the ownership to 27 percent over the next several years. (http://www.anheuser-busch.com/news/harbinbrewery.htm) In addition to Tsingtao, Anheuser-Busch equity investments include a 50 percent share in Grupo Modelo, Mexico’s leading brewer. In a survey of 10,000 business leaders and securities analysts, Anheuser-Busch ranked first among beverage companies in quality of products and services researched in FORTUNE magazine’s 2004 “Global Most Admired Companies” listing. The company also is one of the largest theme park operators in the United States, is a major manufacturer of aluminum cans and is the world’s largest recycler of aluminum beverage containers. Consolidation and globalization are fashions happening across nearly all industries including brewing. Simultaneously, brewers could do with a clear-headed approach to sustaining consumer faithfulness with their local brands while constructing new trustworthiness with the global consumer through a further aligned approach of branding. Nothing satisfies such a challenge better than a potent portfolio.     Works Cited Cook, Kenneth J. “The AMA Complete Guide to Strategic Planning for Small Business” Chicago: American Marketing Association, 1995 M.E. Porter, “Competitive Strategy: Techniques for Analyzing Industries and Competitors” New York: Free Press, 1980 ---“Changing Patterns of International Competition”, California Management Review, Vol. 28, No. 2 (1986) pp. 9–40. ---“Competitive Advantage: Creating and Sustaining Superior Performance”, New York: Free Press, 1985. Richard Benson-Armer, Joshua Leibowitz, Deepak Ramachandran; “Global Beer: What's on Tap?” The McKinsey Quarterly. Issue: 1. Publication Year: 1999. Page Number: 3. Boeing www.boeing.com Accessed May 04, 2006. InformationWeek | Diversification | Modern Marvels February 09, 2004 http://informationweek.com/industries/showArticle.jhtml?articleID=17602118&pgno=1&queryText= Accessed May 04, 2006. Bad News Boeing http://www.seattleweekly.com/news/0349/031203_news_boeing.php Accessed May 04, 2006 Ron Starner and Mark Arend; “Behind Boeing’s Flight Plan” http://www.worldbusinesschicago.com/about/upload/99SiteSelection09-01-01.pdf. Accessed May 04, 2006 Harry Schumacher; “The global beer industry 2001 review: Toto, we're not in Kansas anymore” March 25, 2002; http://www.findarticles.com/p/articles/mi_m3469/is_12_53/ai_84678710 Accessed May 05, 2006 Anheuser-Busch Companies http://www.anheuser-busch.com/misc/search.html Accessed May 06, 2006. Heineken International http://www.heinekeninternational.com/pages/content/S2/homepage.aspx Accessed May 06, 2006. Read More