Industry Analysis, Term Paper Example

An industry is an establishment that produces goods for consumption and which are substitutes closer to each other. Industrial analysis is the area that entails in identifying the factors that lead to an industry’s success as well as the challenges and opportunities available for an industry. An industry consists of various sectors, mainly the structural, technological, and the economic sector. The study of these dynamics in an industry employs some analytical tools in order to understand the operation of an industry in the given environment. The model to be looked at here is the Porter’s model of five forces analysis.

The Porter’s five forces analysis is used to determine the structure of an industry and they are namely: the suppler power, the buyer power, competitive rivalry, threat of substitution and threat of new entry. The trading power of merchants or supply power is part of this analysis and it tends to understand how well suppliers are able to keep their market despite having different prices for commodities or when faced with inflation. Within the same industry, suppliers can exert bargaining power over industrial participants by reducing the quality of purchased goods and services or raising prices of commodities. Moreover, the suppliers who are faced with few or no substitutes tend to be more powerful in an industry and if also they are able to compete with the buyers since they will improve their profitability to be successful in the industry.

The bargaining power of purchasers or buyer power mainly entails looking at potential number of buyers. It also entails how well they are able to purchase products from the industry. Buyers may be individual consumers or retailers who may buy products in large scale, hence for these large scale buyers, their bargaining power for price reductions is higher because they buy goods in bulk and so more profitable to the industry. The suppliers mainly depend on the buyers for a higher percentage of the total orders form an industry; hence buyers here also get a higher bargaining power than the suppliers.

Rivalry intensity among current existing competitors is also a factor to consider since it looks at how competitors feel pressure from their rivals and what they do about it to improve their position, which may be through reduction of prices and having better promotions. This competitive rivalry determines how well an industry is able to market its products so as to get more out of the industry. This rivalry may increase where competing industries see opportunity to increase their market position and where these industries lack product differentiation. The threat of substitution of the other hand deals with how substitutes of an industry may limit potential returns of the industry because of the different prices these substitute industries can charge which may be much lower that the main industry.

The threat of entry which looks at how new entrants into an industry bring in new desire to gain market, new capacity as well as desire to share available important resources. Established industries try to discourage potential competitors from entering the same industry because there will be more competition for the markets and the industries will not be in a position to maximize their potential. This also looks at the main barriers to entry which are economies of scale, access to distribution channels, cost advantages, capital requirement, and product differentiation. These five forces are able to give a clear analysis of an industry’s operation.