Directory UMM :Data Elmu:ppt:

Part II: Business Environment

Assessing Industry
Conditions

Copyright © 2004 South-Western. All rights reserved.

Introduction to
J eff Madura
Business
3e

5

Assessing Industry
Conditions

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5–2

Learning Goals
• Identify

industry conditions that
impact business performance.

• Explain

why some firms are more
exposed to industry conditions.

• Explain

how a firm can compete in
its industry.

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5–3

Industry Characteristics
• Firm

performance can be highly
dependent on industry
characteristics:
– Industry demand
– Industry competition
– Labor environment
– Regulatory environment

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5–4

Small Business Survey
Are Firms Affected by
Industry Regulations?

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5–5

Impact of Industry
Demand
• Industry

demand

– Total demand for the products in an industry
can be affected by:
 Population

growth
 Seasons and weather
 Economic conditions
 Changes in consumer income levels and
preferences

– Impacts the performance of individual firms

in an industry.
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5–6

Industry Competition
• Each

industry has firms that
compete against each other for
customers.
– Level of competition varies across industries
 Intense

competition can reduce market
share and profitability of individual firms.

– Weak competition in an industry
 Increased

market share for individual firms
allows firms to charge higher prices and not
lose customers.

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5–7

Labor Environment
• Labor

characteristics differ by
industry:
– Cost of labor
– Impact of unions
 Can

increase cost of labor
 Possibility of labor strikes

– Managers must try to estimate how the labor
environment might impact labor expenses.

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5–8

Regulatory Environment
• Federal

regulations

– Environmental rules
– Restrictions on operating in particular
locations
– Restrictions on who can engage in particular
types of business
– Restrictions on the types of services that can
be provided
– Regulations that promote competition

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5–9

Summary of Industry
Characteristics
• Consider

the impact of all industry
characteristics on firm performance
– Changes in demand and competition
 Impact

quantity of products produced,
revenues and operating costs

– Changes in labor and regulatory
environment
 Impact

expenses

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5–10

Industry
Effects on a
Firm’s
Performance

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Exhibit 5.1

5–11

Copyright © 2004 South-

e-business

business online

5–12

Sources of Industry
Information
• Many

firms attempt to monitor
industry conditions on their own.
– Good sources of industry information
 Value

Line Investment Survey
– Information about publicly traded firms:
financial characteristics, earnings forecasts,
general information
 Standard and Poor’s Industry Outlook
– Industry data to help forecast industry demand,

competition, the labor and regulatory
environments
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5–13

Exposure to Industry
Characteristics
• Some

firms are more exposed to
industry conditions than other firms.
• Factors that impact a firm’s
exposure:
– The firm’s market share
– The firm’s focus on its main industry
 Smith

Corona in typewriters and word
processors

 Motorola in telecommunications
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5–14

Influence of Market Share on
Exposure to Industry Conditions

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Exhibit 5.2

5–15

Comparison of Performance
across Industries

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Exhibit 5.3

5–16

Reducing Exposure
• Diversification

– Developing and acquiring businesses in a
variety of industries or markets to reduce
business risk.
 Attempts

to create a more stable return on
investment than focus on a single industry.
 Firms should only diversify into businesses
for which the firm has sufficient expertise.

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5–17

How Diversification Can
Influence
the Return on Equity

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Exhibit 5.4

5–18

Competing Within an
Industry
• Intense

competition can separate
the performance of well-managed
firms from poorly managed firms
• To enhance performance potential,
firms should:
– Assess its competitors.
– Develop a competitive advantage.

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5–19

Assess the Competition
• Identify

industry segments and main
competitors by:
– Segmenting by type of business
 Degree

of competition differs by segment

– Segmenting by perceived quality
• Measure

the degree of competition

– Anticipate changes in competition
 Entry

and exit of competitors
 Expansion of existing firms
 Increases in price competition

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5–20

Identifying Industry
Segments

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Exhibit 5.5

5–21

Develop Competitive
Advantage
• Ways

to maintain or increase market
share:
– Low-cost production
 Set

a lower price to gain market share.

– Better quality than competitors
 Create

higher quality without incurring
excessive costs.

– Product differentiation
 Satisfy

customer needs in ways that are
different than competitors.

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5–22

SWOT Analysis
• Firms

use SWOT analysis to develop
a competitive advantage
– Assess strengths and weaknesses
– Identify opportunities and threats
– Use strengths to capitalize on opportunities
and reduce exposure to threats.

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5–23

Chapter Summary
•

Industry demand, competition, and the
labor and regulatory environments
influence business performance.

•

Firms that have large market share and
focus most of their business on that
industry will be most affected by industry
conditions.

•

Firms can successfully compete by
assessing their main competitors and
developing a competitive advantage.
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5–24