INDUSTRY ANALYSIS

Narender BansalMBA 3rd SemesterMaharaja Agrasen Institute of TechnologyDelhi-110086

Industry Analysis• After economic analysis, we ask

the question “which industries will benefit most from the upcoming economic environment?”

• This will lead to several industries, and our analysis will lead us to choose the one that we find to be best positioned.

What is an Industry?

INDUSTRY GROUPS

• AGRICULTURE• STEEL• HEALTH CARE• RETAIL• AUTOMOBILES• PHARMACEUTICAL• FINANCIAL SERVICES• HOTEL & TOURISM• IT

• TELECOM• UTILITIES• PAPER & PRINTING• BANKING• FMCG• INFRASTRUCTURE• TEXTILE• OIL AND GAS

EXPLORATION

SIC Code

• ECONOMIC SECTOR– Manufacturing– Distribution– Services

• PRODUCT AND SERVICES– List of what is offered by the industry

• GEOGRAPHIC SCOPE– Local ,Regional, National, International

Computer industry

• Different Market Segments– Personal Computer– Micro Computer– Mini Computer– Mainframe Computer

Furniture industry

Home Furniture Office Furniture

Wooden Hosehold

Metal Household

Industry Analysis tries to find outfollowing answer

Difference between return for alternate industries

Future performance of currently performing companyin one period

Consistent performance over time

Risk difference between different industries

Risk variability over period of time

ECONOMY AND INDUSTRIAL SECTORS

The economic performance of a country,to a large extent,determine Favourable and unfavourablable climate for its industrial participation

Reasons of industrial analysis

• Provide an awareness of market performance

• Identify investment opportunities

• Important part of company’s business plan– Financial institutions

Data Requirement

Product Line Complementry Product Product Growth Product Pattern

(Seasonal,Cyclical)

Econimies of Scales Suppliers Labour Market

Buyer and their Behaviour

Substitute Product Prices Marketing and Selling Cost Structure Logistic

Department of Economic Analysis , Business Publication

Industrial Life Cycle It is Rise and Fall in Customer Interest

Industrial Life Cycle

• Rise and Fall of Customer Interest• Depend on extent of technology and

innovation• Each phase passes from four stages– Introduction Stage– Growth Stage– Maturity Stage– Stability/Decline Stage

Feature of Industrial Life Cycle

Marketing

Manufacturing

Competion

Risk

Margin

Strategy

High AdvertisingSkimming Pricing

Under CapacityHigh Production Cost

Low

High

High but low profit

Increase Market Share

High Advertising

Under CapacityShift to High Production

Many Competitor

Groth Vs Risk

High and High ProfitHigh Prices

Change Quality &Price Image

Market SegmentationServices

Optimum Capacity

Price Competition

Low

Low due to price war

Marketing Effectiveness

Low Advertising

Overcapacity, Mass Production

Exit,Fewer

Very High Risk

Low Profit

Cost Control

Introduction Growth Maturity Decline

TOOLS FOR INDUSTRY ANALYSIS

Qualitative• Cross sectional industry

performance• Industry performnce

overtime• Difference in industry risk• SWOT analysis• Competition over industry

life cycle

Quantitative• Analysing employment data• Analysis of emolument data• Input output analysis• Earning data analysis

Cross sectional industry performance

• Aimed at finding out variability in Rate of return among various industries in given time period

• compare performance in term of – Sale– profit – market capitalisation– dividend

Example

• Stock market growth=10%

• Industrial growth rates= 5% to 8%

• Stock market growth=50%

• Industrial growth rates= 80% to - 20%

Industry performance over time

• To identify stage of product life cycle• Time duration 3 to 5 year • Difficult to forecast future performance due to compositional change

in industry technological change innovation

Differences in industry risk

• Besides focussing on return also consider risk• Specifically investigate two question– Does risk differ across industries in given time period– Are industry risk stable over time

• Measured in term of variability in return/productive value

• Risk pattern also depend on economic situation

SWOT ANALYSISStrenth & weakness

• Assess strenth and weakness

• Internal capability of industry

• Competitive advantage or defensive against weakness

Opportunity & threat

• Evaluate opportunity and threat

• Environmental trend• External situation

– Competitive forces– Technology– Government regulation

SWOT analysis

STRENTH• Capicity• Competitive advantage• Good custermor service• High quality product• Customer loyality• Financial resources

WEAKNESS• Limitation default defect• Competitor has exploitable

advantage• Example:

– Small scale industry hs poor financial resources

– Industry that cater domestic market, would have weakness of catering to global market

SWOT analysis

Opportunity• Favourable condition in

environment• May be trend or need • Growing market of industry

product• Shrinking competition• Identification of new

market

Threat• Unfavourable situation• May be barrior or constraint• Slowing domestic economy • Competition• New entrant• New technology

SWOT analysis

Confront Avoid

Exploit Search

Threat

Opprtunity

Strenth Weakness

Internal environment

External environment

Analysing Employment data

• Life cycle can be predicted by Product life cycle

• Help in identify key industries• Identify growth and decline• Evaluate importance of industry to economy• DetermineCompetitiveness among industries

Data Requrement• Industry wise total employment in current as well earlier years• Industry wise total emolument data in current as well earlier years

Employes:Who receive wge and hold clerical superwisery post

Duration of analysisShort : Changing environmentLong : Predictive purpose

Base year

• Employment share of sub industry

= Employment in sub industry *100

Total employment in industry

Employment in wools=2000Total in textile =11500% Share =2000/11500*100 ie 17.39%

• Change in employment

Current yr no. Of employes _1 *100

Base yr no. Of employes

Current employes:1500Base yr employes:1200% change : [(1500/1200)-1]*100

ie 25 %

Location quotient:Measure concentration of industry’s

concentratio in an area relative to rest of nation

• Industry location quotientIndustry share of regional employmentIndustry share of national employment

orIndustry’s regional employmentTotal national employment

Industry national employmentTotal national employment

% change in location quotient• [(Current yer LQ/Base yr LQ)1]*100

• LQ = location quotient

Employment shift analysis

Current yr total national employment - 1 Base yr total national employment

Base yr total national employment

National avarage growth rate

Industry avarage growth rate

Regional industry base year employment * national avg growth rate

Emolument Data

• Sum of wages and salaries,employer’s contribution to provident fund

• And other fund and workmen and staff welfare expenses

Emolument per employ=Industry regional emolumentIndustry regional emolument

• Change in emolument per employe by industry

Current yr emolument per employeBase yr emolument per employe -1 * 100

Input output analysis

• Total input Include value of fuel,material

consumed,expenditure,repair costtaxes,,postage,banking charges

• Total output value of product byproduct