. Dr Adrian Kuah 2008 www.bradford.ac.uk/managementApplied StrategicApplied Strategic 
ManagementManagement 
Industry Structural Analysis 
. Dr Adrian Kuah 2008 www.bradford.ac.uk/managementApplied StrategicApplied Strategic 
ManagementManagement 
Industry Structural Analysis 
The Analysis of Competition 
in an Industry 

Industry Structural Analysis 

The basic premise that underlies industry 

analysis is that the level of industry 
profitability is neither random nor the result 
of entirely industry specific influences but is 
determined, in part at least, by the systematic 
influence of industry structure. 

. Dr Adrian Kuah 2008 

M. Porter 

The profits earned by the 
firms in an industry are 
determined by three factors 

. 
the value of the product orservice to customers; 
. the intensity of competition; 
. 
the relative bargainingpower at different levels inthe production chain. 
. Dr Adrian Kuah 2008 


The Underlying Theory 

. 
theory of monopoly 
. 
the theory of perfect 
competition 
. Dr Adrian Kuah 2008 


The Spectrum of 
Industry Structures 


Structural 
Features 
No. of 
producers 
Entry & Exit 
barriers 
Product 
differentiation 
Information 
Many 
None 
None 
Perfect 
Availability 
Perf. Comp. 
Few 
Significant 
Extensive 
Restricted 
Oligopoly 
Two 
High 
Moderate 
Restricted 
Duopoly 
One 
High 
Low 
Restricted 
Industry Type 
Monopoly 
. Dr Adrian Kuah 2008 

. Dr Adrian Kuah 2008 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
Porter (1985) Industry 
Structural Analysis 

. Dr Adrian Kuah 2008 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
Buyer Power 


Buyers compete with the industry by 

. Forcing down price 
. Bargaining for higher quality/ services 
. Playing competitors against one another 
. Dr Adrian Kuah 2008 


Buyer Power 

Price Sensitiveness 

. 
Product cost w.r.t. to total cost 
. 
Competition with others 
. Dr Adrian Kuah 2008 


Buyer Power 


Bargaining power 

. 
size and concentration of buyers 
relative to suppliers 
. 
buyers¡¯ switching costs 
. 
buyers¡¯ information 
. 
buyers¡¯ ability to backward integrate 
. Dr Adrian Kuah 2008 


Power of Customers Is 
High If: 

. Customer is price sensitive, as when: 
. 
cost of product is high relative to total costs 
. 
it is hard to differentiate products 
. 
customers are facing stiff competition for their 
products 
. Bargaining power: 
. 
size and concentration of customers is high relative tosuppliers 
. 
customers have low switching costs 
. 
customers are well-informed 
. 
customers have the ability to integrate backwards 
. Dr Adrian Kuah 2008 


. Dr Adrian Kuah 2008 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 

Supplier Power 


. Factors determining power of 
suppliers relative to producers 
are same as those determining 
power of producers relative to 
buyers. 
. Dr Adrian Kuah 2008 


Power of Suppliers Is 
High If: 


. Industry is not price sensitive, as when: 
. 
cost of supplied product is low relative to total industry 
costs 
. 
the suppliers¡¯ products are easy to differentiate 
. 
the industry is not facing stiff competition for its products 
. Supplier bargaining power is high, as when: 
. 
size and concentration of suppliers is high relative to the 
industry 
. 
industry has high switching costs 
. 
industry is not well-informed 
. 
supplier has the ability to integrate forward 
. Dr Adrian Kuah 2008 



. Dr Adrian Kuah 2008 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
Threat of 
Substitutes 


. buyer propensity to substitute 
. relative price performance of 
substitutes 
. Low degree of differentiation 
. Dr Adrian Kuah 2008 


Threat of Substitutes 
Is High If: 

..Buyer propensity to substitute is high 
..Relatively good price performance ofsubstitutes 
..Low degree of differentiation 
..BUT there is also the possibility that one'sown products could find new markets assubstitute for some other product. 
. Dr Adrian Kuah 2008 


. Dr Adrian Kuah 2008 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 

Threat of New 
Entry 


. 
economies of scale 
. 
strong learning curve 
. 
product differentiation 
. 
capital requirements 
. 
access to distribution channels 
. 
governmental and legal barriers 
. 
retaliation by established 
producers 
. Dr Adrian Kuah 2008 


..Few economies of scale 
Threat of Entry Is 
High If: 


. 
Not a strong learning curve effect 
. 
Low capital requirements for entry 
. 
Difficult to differentiate the product 
. 
Easy access to distribution channels 
. 
No legislation preventing entry 
. 
Little retaliation expected 
. Dr Adrian Kuah 2008 



. Dr Adrian Kuah 2008 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
POTENTIAL 
ENTRANTS 
Threats of 
New entrants 
INDUSTRY 
COMPETITORS 
Rivalry Among 
Existing Firms 
SUBSTITUTES 
BUYERS 
SUPPLIERS 
Threat of 
substitute products 
or services 
Bargaining 
power of 
buyers 
Bargaining 
power of 
suppliers 
Industry Rivalry 


. Takes in the form of jockeying 
for position, using tactics like 
price war, advertising battles, 
product introduction and 
increased customer services. 
. Dr Adrian Kuah 2008 


Industry Rivalry 


. concentration 
. diversity of competitors 
. product differentiation 
. excess capacity 
. high exit barriers 
. Dr Adrian Kuah 2008 


Industry Rivalry Is 
High If: 


. 
.. Low concentration 
Low concentrationLow concentration 
. 
.. Diversity of competitors 
Diversity of competitorsDiversity of competitors 
. 
.. Market is in slow growth 
Market is in slow growthMarket is in slow growth 
. 
.. Fixed costs are high 
Fixed costs are highFixed costs are high 
. 
.. Extra capacity comes in large inc
Extra capacity comes in large incExtra capacity comes in large incr
rrements 
ementsements 
. 
.. Low differentiation of competing products 
Low differentiation of competing productsLow differentiation of competing products 
. 
.. High exit barriers 
High exit barriersHigh exit barriers 
. Dr Adrian Kuah 2008 


Industry Structural 
Analysis 
Po r t e r s 
Fi v e 
F o r ce s 
E x p l an at i o n 
In d u s t r y 
St r u c t u r a l 
Ana l y s i s 
S t r a t e g i es 
Ad op t e d B y 
K e y P l ay er s 
Rivalry 
Am ong 
Existing 
Com peti-
tors 
R iva lry am o n g 
ex istin g 
co m p e tito rs tak e s 
th e fa m iliar fo rm 
o f jo ck ey in g fo r 
po sitio n , u sin g 
tactics lik e p rice 
co m p etitio n , 
ad v ertisin g 
b attles, in cre a sed 
w arran ties an d 
cu sto m er 
serv ices. 
. T h o ugh re g u lated b y th e 
F ina nc ia l S erv ic e 
A u th o rity (F S A ), th e 
fin a n c ia l se rv ices 
in d u stry c o m p rise s 
n u m ero u s p lay ers in 
v ario u s secto rs th at 
allo w s so m e firm s to 
carry o u t certain in d u stry 
¡®m alp ractices¡¯ an d escap e 
u n -n o tic e d u n til tested . 
. T h e num b e r o f fo reig n 
p lay ers also p lay s an 
im p o rta n t ro le in 
in tro d u cin g n e w 
co m p etitio n an d p ro d u ct 
in no vatio n . 
. L ack o f ¡®real¡¯ 
d iffere n tia tio n an d 
sw itc h in g c o sts ad d s to 
th e riv alry . 
. M a in p la y e rs have high 
strateg ic stak es an d th is 
fu rth er in te n sifie s th e 
co m p etitio n . 
. P lay ers co m p ete o n 
p ro d u c t inno vatio n , 
cu sto m er serv ices an d 
relia b ility th ro u g h 
en h an ced tech n o lo g ies. 
O NCL US I O N: M O D E R A TE LY H I G H 
iv a lry a m o n g st p la y e rs is m o d e ra te ly h ig h a s th e ir m o v e s (m a rk e tin g , te c h n o lo g y , 
ric in g ) is d e p e n d a n t o n m o v e s b y th e m a rk e t le a d e r/s. T h e c o m p e tito rs o fte n fe e l th e 
re ssure an d w o u ld c h e rish op p o rtu n itie s to im p ro v e th e ir p o sitio n in g th ro u g h th re e k e y 
tra te g ie s : (1 ) P ro d u c t In n o v a tio n , (2 ) C u sto m e r S e rv ic e s a n d (3 ) R e lia b ility 
Po r t e r s 
Fi v e 
F o r ce s 
E x p l an at i o n 
In d u s t r y 
St r u c t u r a l 
Ana l y s i s 
S t r a t e g i es 
Ad op t e d B y 
K e y P l ay er s 
Rivalry 
Am ong 
Existing 
Com peti-
tors 
R iva lry am o n g 
ex istin g 
co m p e tito rs tak e s 
th e fa m iliar fo rm 
o f jo ck ey in g fo r 
po sitio n , u sin g 
tactics lik e p rice 
co m p etitio n , 
ad v ertisin g 
b attles, in cre a sed 
w arran ties an d 
cu sto m er 
serv ices. 
. T h o ugh re g u lated b y th e 
F ina nc ia l S erv ic e 
A u th o rity (F S A ), th e 
fin a n c ia l se rv ices 
in d u stry c o m p rise s 
n u m ero u s p lay ers in 
v ario u s secto rs th at 
allo w s so m e firm s to 
carry o u t certain in d u stry 
¡®m alp ractices¡¯ an d escap e 
u n -n o tic e d u n til tested . 
. T h e num b e r o f fo reig n 
p lay ers also p lay s an 
im p o rta n t ro le in 
in tro d u cin g n e w 
co m p etitio n an d p ro d u ct 
in no vatio n . 
. L ack o f ¡®real¡¯ 
d iffere n tia tio n an d 
sw itc h in g c o sts ad d s to 
th e riv alry . 
. M a in p la y e rs have high 
strateg ic stak es an d th is 
fu rth er in te n sifie s th e 
co m p etitio n . 
. P lay ers co m p ete o n 
p ro d u c t inno vatio n , 
cu sto m er serv ices an d 
relia b ility th ro u g h 
en h an ced tech n o lo g ies. 
O NCL US I O N: M O D E R A TE LY H I G H 
iv a lry a m o n g st p la y e rs is m o d e ra te ly h ig h a s th e ir m o v e s (m a rk e tin g , te c h n o lo g y , 
ric in g ) is d e p e n d a n t o n m o v e s b y th e m a rk e t le a d e r/s. T h e c o m p e tito rs o fte n fe e l th e 
re ssure an d w o u ld c h e rish op p o rtu n itie s to im p ro v e th e ir p o sitio n in g th ro u g h th re e k e y 
tra te g ie s : (1 ) P ro d u c t In n o v a tio n , (2 ) C u sto m e r S e rv ic e s a n d (3 ) R e lia b ility 
. Dr Adrian Kuah 2008 www.bradford.ac.uk/managementApplied StrategicApplied Strategic 
ManagementManagement 
Key Success Factor 

Key Success Factors 


. what do our customers 
want? 
. what does the firm need to 
do to survive competition? 
. Dr Adrian Kuah 2008 


GENERAL PREREQUISITES FOR SUCCESS 
The ability to survive 
competition 
ANALYSIS OF COMPETITION 
The main structural drivers? 
The principal dimensions? 
Intensity? 
How to obtain a superior position? 
Supplying a product for which 
customers are willing to pay a 
price that exceeds the cost of 
production. 
ANALYSIS OF CUSTOMERS 
AND DEMAND 
Who? What? How? 
KEY SUCCESS FACTORS 
Identifying 
Key Success Factors 

Identifying Key Success Factors: 
Steel Industry 


WHAT DO CUSTOMERS 
WANT? 
(Analysis of Demand) 
HOW DOES A FIRM 
SURVIVE COMPETITION? 
(Analysis of Competition) 
KEY SUCCESS 
FACTORS 
Customers include auto, 
engineering, container 
industries. Customers 
acutely price sensitive. 
Also require product 
consistency & reliability 
of supply. Specific 
technical specifications 
required for special 
steel. 
Primarily on price. 
Intense due to declining 
demand, high fixed costs 
and low-cost imports. 
Entry and exit barriers 
high. Strong union 
bargaining power. 
Transport costs high. 
Scale economies 
important. 
Cost efficiency 
through scale-
efficient plants, 
low cost location, 
rapid adjustment 
of capacity to 
output, low labour 
costs. In special 
steel, scope for 
differentiation. 

. Dr Adrian Kuah 2008 

Learning Outcome 

. Assessing the business environment ¨C the 
industry 
. Checklist for the 5 Forces to determine 
profitability and competition in the industry 
environment 
. Defining and appraising KSF 
. Dr Adrian Kuah 2008