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Chapter 3:Industry Analysis : Chapter 3: Industry Analysis Does the category offer sufficient financial opportunity? Low risk?


Is the category sufficiently attractive? : Is the category sufficiently attractive? Aggregate category factors Size & growth Stage in product life cycle Sales cycle / seasonality Profitability Category factors Threat of entrants Buyer/seller power Rivalry (“dumb” competitors) Substitutes Capacity utilization Environmental factors Technological Political Economic Regulatory Social


Comparative size & growth (BCG) : Comparative size & growth (BCG) Growth of industry Comparative market share dress shoes sneakers football shoes socks tennis shoes = sales


Comparative : Comparative Size of market Comparative market share = profit % Unit A Unit C Unit B Unit D Unit E Unit F Unit G


Attractiveness of Market Variables : Attractiveness of Market Variables Attractiveness High Low Market Size + - Market Growth + - Sales Cyclicity - + Sales Seasonality - + Profit Level + - Profit Variability - +


Product Life Cycle : Product Life Cycle Introduction Growth Maturity Decline sales profits


Attractiveness of category factors : Attractiveness of category factors High Low Threat of new entrants - + Power of buyers - + Power of suppliers - + Competition - + Available substitutes - + Unused capacity - +


Barriers to Entry : Barriers to Entry Economies of Scale Product Differentiation Product Superiority Brand Name Company Reputation Capital Requirements Switching Costs Distribution System


Power of Industrial Buyers : Power of Industrial Buyers Product large percent of buyer’s costs Product is commodity Available substitutes Buyer’s have low profits Buyer has information


Power of Consumer: “Buyers’ Market” : Power of Consumer: “Buyers’ Market” Excess supply Economic strength Easy access to alternative sources Low switching costs Information (Internet) Buying groups (monopsony) Tuangou or team buying


Power of Suppliers : Power of Suppliers Few firms No substitutes Differentiated product High switching cost Limited supply


Fierce Competition : Fierce Competition Many or balanced competitors Slow growth High fixed costs No product differentiation Personal rivalries


Attractiveness of environmental factors : Attractiveness of environmental factors Technological Political Economic Regulatory Social


Technological factors:Improve quality / lower cost : Technological factors: Improve quality / lower cost Product Materials Transportation Production process Environment Energy source Financing Credit cards Smart cards Sophistication of consumer Information China has more than 2.6 million websites China has 111 million Internet users


Political factors:Lower risk / reduce cost of business : Political factors: Lower risk / reduce cost of business Instability Loss of property due to riots, etc. Predictability Difficulty in planning production Government intervention Confiscation Expropriation Loss of transfer of profits Breaches in contracts


Economic factors:Lower costs / increase sales & profits : Economic factors: Lower costs / increase sales & profits Interest rates Inflation Currency exchange rates Wage rates Average wage increased from $.59/hr (2000) to $.92/hr (2005) Unemployment Discretionary income Threat of recession / disinflation Economic growth trend China has grown about 9% annually since late 1970s


Economic Comparison of Countries : Economic Comparison of Countries


Regulatory factors:Protect industries / Increase costs : Regulatory factors: Protect industries / Increase costs Product content laws Packaging and advertising laws Environmental laws Pharmaceutical laws Labor laws


Social factors : Social factors Demographics Lifestyles Attitudes, values


Demographic trends in China : Demographic trends in China Increase in population Increase in urban population Increase in age of population


Increase in Population : Increase in Population 1.3 billion people 1/5 world’s population


Increase in Urban Population : Increase in Urban Population Urban Population 1950 < 13% 2005 40% 2030 60%


Increase in Age of Population : Increase in Age of Population Life expectancy at birth: 72.6 Median age: 32.7 Mexico median age: 25.3 World median age: 27.6 U. S. median age: 36.5 Japanese median age: 42.9 Youth is more educated and higher paid


Chinese Lifestyles : Chinese Lifestyles More discretionary money Smaller % spent on food, clothing and housing Greater % spent on education, entertainment, luxury goods Busier lifestyle More eating out 15% of Chinese overweight McDonald’s offering healthier menu


Chinese Attitudes & Values : Chinese Attitudes & Values Trend to greater individualism? Conflict between consumption and saving? “In China, people like to show off with material things” Yvonne Han, Partner in Shanghai restaurant chain High savings rates Concern for health care and retirement