Industry Environment Analysis

• a group of firms producing products that are close substitutes

  industry
• In the course of competition, firms in an industry influence one another.
• companies use a rich mix of different competitive strategies to pursue above-average returns when competing in a particular industry
• An industry’s structural characteristics influence a firm’s choice of strategies
• the industry environment is measured primarily in the form of its characteristics
• Compared with the general environment, the industry environment has a more direct effect on the competitive actions and responses a firm takes to succeed.
• To study an industry, the firm examines five forces that affect the ability of all firms to operate profitably within a given industry.
• The five forces are:

  threats of new entrants

  product substitutes

  power of buyers

  power of suppliers

  intensity of rivalry among competitors
• The five forces of competition model expands the scope of a firm’s competitive analysis.
• firms must not concentrate on direct competitors but must search more broadly to recognize current and potential competitors by identifying potential customers as well as the firms serving them
• suppliers can become a firm’s competitors (by integrating forward) as can buyers (by integrating backward)