BizMiner industry reports track 9,000 lines of business at local and national levels. Access industry financial analysis and industry market analysis. The analysis of the industry value chain is a complicated report making, and this involves understanding and involving many parameters. The report making can be made very accurately, and the format can be obtained in the most professional and standard form from this template, and hence your report will be valuable for both accuracy and standards.
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Industry analysis is a theoretical cum mathematical technique to analyse where the company stands with other parallels in the industry in terms of financial, operational efficiencies to see where one can improve, invest and try to adjust products.
What is Industry Analysis?
Industry analysis is one of the primary tasks of equity research analysts. In some companies there’re dedicated teams who primarily do industry analyses and write reports on the same. In simple terms, industry analysis reveals the dynamics of the industry to the stakeholders. So it’s an essential part of creating competitive advantage for a company in the competitive market.
In this article, we will go in detail about how to conduct an industry analysis. You’ll also learn how to write a report after doing industry analysis.
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Let’s get started.
Why do an industry analysis?
Business can’t run in a vacuum. We need data that can help us assess the future of the business. Industry analysis is a way to go about collecting and analyzing the data that can help a business assess their future and formulate a strategic plan to grow the business.
Here’re the key-factors that we will be able to understand if we do industry analysis –
- Retaining valuable, existing customers – Customers generate the revenue for business. So in a business, it’s of great significance that we retain existing customers who generate our 80% of revenue. Industry analysis will help a business understand the competitors and what they’re offering to their customers. It will help a business enhancing their value creation and providing more value to existing customers.
- Attracting new customers – If a business can understand the above picture and can analyze the data of how many customers they’re leaving for their competitors to serve, they will be able to formulate new strategy for attracting more customers who may get interested for their value proposition. Industry analysis is not only about the competitors, but also about the customers they serve.
- Ensuring sustainability of business – Business can’t perpetuate if their value proposition isn’t strong enough. The business needs to know the competitors, what their competitors are doing, what new products competitors are launching, how to create threats for new entrants who may grasp a portion of business and how to keep the business sustainable for the next 10, 20, 30 years. Industry analysis will help a business assess all of it and will provide business a framework to work upon. Of course, the industry analysis can’t be accurate, but business will get valuable information to work on.
- Aligning organizational strategy in culture – Industry analysis will provide with a framework that will help you strategize your vision for the future. But without making it inherent within the organizational culture you won’t be able to create the competitive advantage that you need to create to succeed in the long run. Indirectly, industry analysis will help a business align its strategy with the organizational culture.
- Attracting new and retaining existing star performers – If you don’t have a great team, you can’t achieve your dream. Industry analysis will help you understand what skills you should look for in your existing and new recruits so that they can help you grow the business. When every 7 years technology has been changing, it’s critical to hire someone who has the required skills industry supports. Without which you’ll not be able to generate competitive advantage for your organization.
- Understanding the business and creating a big picture – Industry analysis helps create a helicopter view for the business. Often times, the business makes a mistake of envisioning a picture that’s not aligned with the industry requirement. Industry analysis helps a business to see the big picture and create pixel view (goals and short terms objectives) to work upon.
Without doing industry analysis, a business may run; but the business won’t be able understand whether it’s the right direction or not.
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How to do an industry analysis?
There’re many frameworks we can use to do indusry analysis. But what’s more important is to follow few steps and get to the point where one can use the frameworks for assess the correct picture of the industry.
First we will have a look at the steps you can follow and then we will talk about the frameworks economists/equity research analysts can use to analyze the market/ industry.
- Review the available information: If you dive in, you would be able to find many available reports, white papers, analysis, research reports and presentations. If you don’t have any idea about the industry you’re trying to analyze, first use these materials to get to know the industry. Read everything you need to know and identify the key-factors that can help you write the report after analysis. These reports and information can’t fully help you but they will give you some idea about what to look for while analyzing the industry.
- Get an idea about the right industry: It may happen that you’re searching for real estate industry. But real estate is a huge industry and there’re many sub-industries like household complexes, commercial properties, hotels, amusement industry etc. You need to get an idea about the right industry. If there’s no relevance in the industry you’re searching for, you’ll lose focus and the analysis will not be able to pinpoint accurate data.
- Are you able to forecast future demand and supply? This is the key thing in any industry. Why? Because everything depends on the demand and supply of the industry. Here’s what you should do. Make a list of the competitors in the industry. Find out the financial health of each competitor. Take account of the growth rate and the products they’re selling in the last 5 years. Then do a comparative analysis with your business. You’ll get an idea what to work upon and what to leave alone. In simple terms, you’ll be able to recognize the key factors that are responsible for future demand and supply in the market.
- Competition: This is the most important thing to consider. There’re three common frameworks a business can use to understand the micro and macro factors of business.
Industry Analysis of Automobile Sector, IT Services Sector and Steel Sector
Let us apply some of the learning from the above step to industry analysis of Automobile Sector, IT Services Sector and Steel Sector respectively.
Industry Parameters | Automobile Sector | IT Services | Steel Sector |
Demand: Why would there be a continued demand for the product / service |
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Key supply drivers |
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Degree / nature of change |
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Predictability of business |
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Cyclicality? |
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Ability to increase price ahead of inflation (Pricing power) |
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Some sort of monoploy or Oligopoly |
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Does the company have a recurring revenue stream |
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Does the business have franchise / brands or is it commodity |
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Does the industry enjoy high growth rates ? For how long |
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Porters Five Force Model to Industry Analysis
We looked at the above guidelines, however, the most important and relevant framework is given by Porter in his Five Forces Model.
source: mindtools.com
This model is the best in ascertaining the competitive scenario of the industry and it’s being used extensively by businesses all over the world. Tally erp 9 6 download. There’re five forces that are taken into consideration for industry analysis
- Threat of new entrant: It’s important for a business and industry to know the factors responsible for new businesses to come in the industry. Economies of scales, time and cost of entering the industry, technologies, barriers to entry etc. need to be taken into account.
- Buyer power: To understand the buyer power, the businesses need to know the numbers of customers prevalent in the market, price sensitivity, ability to substitute, cost of changing etc.
- Threat of substitution: It’s important to know that whether there’s any substitute for the products/services available in the market or not.
- Supplier power: This is a simple analysis of suppliers and uniqueness of their supplies.
- Competitive Rivalry: These are competitors’ analyses. The factors that need to be understood are number of competitors, differences in quality, customer loyalty, switching costs etc.
Use this framework to get a good idea about your competition and other key-factors. It would be best if you can use the above 3 framework. You’ll have some great inputs about your industry.
- Recent Trends and developments: As an analyst you also need to consider the recent changes in the industry. The micro and macro factors both you need to consider while looking for the new changes. These are the little details that can affect the effectiveness of your analyses. So pay closer look and pin-point any new changes however small.
- Understanding the components of the industry: Not every industry consists of similar factors. Thus it’s important to understand the basic components of the industry. If you’re analyzing the real estate industry, it’s important for you to know the square feet rate for each sub-industry.
These are the things you need to consider if you would like to do industry analysis. As an equity research analyst, if you know how to do industry analysis, you’ll be able to create an edge over others and attract lucrative jobs that require these skills.
Porter’s 5 forces on Automobile Sector, IT Services and Steel Sector
Let us now apply Porter’s 5 forces model for industry analysis on the Automobile, IT Services and Steel Sector. Please note that the analysis is done from India Point of view.
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Porter’s 5 forces for industry attractiveness | Automobile Sector | IT Services | Steel Sector |
Industry attractiveness summary and reasons for low high returns |
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ENTRY BARRIER – No. 1 Factor deciding industry profitability |
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Asset specificity |
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Economies of Scale |
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Proprietary Product difference |
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Brand Identity |
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Switching cost |
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Capital Requirement |
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Distribution strength |
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Cost Advantage |
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Government Policy |
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Expected Retaliation |
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Production scale |
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Anticipated payoff for new entrant |
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Precommitment contracts |
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Learning curve barriers |
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Network effect advantages of incumbents |
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No. of competitors – Monopoly / ologopoly or intense competition (concentration ratio ) |
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RIVALRY DETERMINANT |
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Industry growth |
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Fixed cost / value added |
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Intermittent overcapacity |
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Product difference |
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Informational complexity |
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Exit Barrier |
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Demand variability |
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SUPPLIER POWER |
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Differentiation of input |
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Switching cost of supplier |
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Presence of substitute |
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Supplier Concentration |
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Imp of volume to supplier |
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Cost relative to total purchase |
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Threat of forward v/s Backward integration |
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BUYER POWER |
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Buyer conc. v/s firm concentration |
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Buyer volume |
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Buyer switching cost |
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Buyer information |
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Ability to integrate backward |
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Substitute product |
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Price sensitivity |
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Price / Total Purchase |
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Product difference |
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Switching cost |
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Buyer propensity to Substitute |
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Intangible assets |
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How to write a report on Industry Analysis?
The simple way to write a report is to follow the steps you used in the previous section. Here’s how you can write a report on Industry Analysis effectively –
- Write an overview of the whole industry analysis – The purpose of writing the overview is to give a big picture to the readers (CEO/ top management professionals) quickly about your analysis. It’s important that you summarize important points and also your findings in a brief manner.
- Analytical Presentation: This is the most important part of the report. You need to use all your findings and analytical judgments to make this part effective. Use graphs, charts, images, pointers to emphasize your points. Talk about the micro and macro factors of the business. Also include the competitors, their products and services, customer satisfaction, how much value the competitors are providing and what they’re missing out on etc. Analyze the controllable and uncontrollable factors and also mention if there’re any recent developments in the industry.
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- Forecast: In the next section, give your suggestions and forecast the possible future of the industry. Also mention the long term and short term valuation of the industry and what could be the challenging issues in the future.
- Finally: Write a summary of the entire report in one-two paragraphs. Include the key-factors of the report and your suggestions in brief.
While writing the report, it’s better if you use lucid language. If you would like to use any jargons, mention the meaning so that the readers don’t get stuck in between.
This is a comprehensive guide of how you can conduct an industry analysis. If you learn these skills along with preparing yourself for equity research analysts profile (conducting industry analysis plus writing the report), you’ll certainly have better prospects than your peers.
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The best way to learn is to do it in action. Just select an industry and follow the above steps to do the analysis in reality and write a report on the same. If you happen to sit for an interview for an organization which is of the same industry, present the report along with your resume. You’ll see how much value addition it would be for you during the interview and how it will help you uplift your candidature in front of the interviewers.
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