Industry Analysis - Assignment Example

Running Head: INDUSTRY ANALYSIS Industry Analysis Inserts His/her Industry Analysis In the current era of globalization and advancements, the businesses have to maintain their operations and functions in accordance with the increasing competition in the industry. The industries, as a whole, have to assist their firms by performing a proper analysis of their own structure and features. Thus, the application of the industry analysis forms a vital part of any industry and its firms. The paper at hand discusses the industry analysis, its elements and application in the current business environment.

Industry Analysis The term industry analysis, commonly known as Porter’s Five Forces Analysis, pertains to a framework for the analysis of the industry and the development of the business strategy given in 1979 by Michael E. Porter (Porter, 2008). It comprises of the five forces which elaborate upon the competitive intensity and thus, determine the attractiveness of a market. The five elements of the industry analysis are explained below:Figure: Industry Analysis Framework1. Barriers to EntryThe entry of the new firms into market can be blocked in many ways.

For instance, low-cost manufacturing or technological advancements can be few of the many barriers for the businesses. Besides this, there are political barriers which block the entry of businesses into the international markets (Marvin, 1987). For example, the bagel industry in US experienced the flood of new companies entering the industry in 1996, which caused a sharp decline in the profit aspect of the industry. This diminished the attractiveness of the industry.2. Barriers to Exit One of the other features of the industry analysis includes the barriers to exit.

It comprises of the legal obstacles, or the strategic significance which stops the business from leaving a market at the proper time. An example can be the case of European oil industry. The exit barriers in the industry have been the outcome of environmental cleanup, high costs of dismantles refineries, and employee layoffs. Due to these factors, a very low level of profits exists which is the result of a persistent projection of extra capacity. 3. Customer Buyer Power In an industry, the businesses operate in two types of markets: the market for outputs and the market for inputs.

The transactions in both markets take place which are a source of value-creation for both suppliers and buyers. There are large customer groups which are equipped with the power to negotiate on better terms of trade and bargain on price. Moreover, they can switch the suppliers thus, increasing the market competitiveness. For example, in a pharmaceutical industry, the buying power is low. Due to the patent protection, the customers have very few alternatives among the prescribed drugs. Ultimately, the market has a low level of buying power, thus, increasing its competitiveness and profitability. 4. Supplier Selling PowerIn a large commodity product and low switching cost business, the supplier power is low.

This strengthens the competitiveness and profits making the situation favourable for the businesses. For example, in the pharmaceutical industry, the supplier power is low, because, of the bulk purchase and low cost switching.5. Products SubstitutesA market offering more product substitutes in the industry offers higher cost switching and buyer power and is low in competitiveness. Thus, the profitability of such a market varies. For example, in the industry for consumer goods, such as soup, the substitutes are many and customer-buying power is high.

This reduces the prices and makes the industry more competitive. 6. Competitive RivalryThe increased competition in an industry lowers its differentiation and leads to more competition threat. It results in an unattractive industry having lower levels of profits and lower prices (Bain, 1956). For example, the computer industry possesses more competition rivalry now than it had in 1980s and 1990s.Conclusion The businesses largely depend upon the competiveness and profitability of the industry.

It is necessary for the firms to assess the threats and competition when entering or exiting the related industry. ReferencesBain J. S., (1956). Barriers to New Competition. Cambridge, MA: Harvard University PressLieberman, (1987). Excess Capacity as a Barrier to Entry, Journal of Industrial Economics Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy, Harvard business Review