LM 6: Industry & Competitive Analysis

Question 1

What is competitive analysis?

Answer 1

Evaluate strategy of firm and determine competitive advantage

Question 2

What are 3 widely used classification systems & how do they classify companies? GIT

Answer 2

1. global industry classification standard (GICS): classify by primary business activity in developed & developing economies
2. industry classification benchmark (ICB): classify company based on source of majority of revenues
3. the refinitiv business classification (TRBC): based on sectors down to activities, includes public, private, and government companies unlike ICB & GICS

Question 3

What are 3 alternatives methods of grouping companies? GBS

Answer 3

1. geography
2. business cycle sensitivity
3. statistical similarities

Question 4

How does global industry classification standard (GICS) classify from broadest to narrowest?

Answer 4

1. sectors
2. industry groups
3. industries
4. sub-industries

Question 5

How does industry classification benchmark (ICB) classify from broadest to narrowest?

Answer 5

1. industries
2. super sectors
3. sectors
4. subsectors

Question 6

How does the refinitiv business classification (TRBC) classify from broadest to narrowest? EBIIA

Answer 6

1. economic sectors
2. business sectors
3. industry groups
4. industries
5. activities

Question 7

What are the 5 life cycle stages? EGSMD

Answer 7

1. Embryonic
2. Growth
3. Shakeout
4. Mature
5. Decline

Question 8

What is the difference between embryonic and growth?

Answer 8

Embryonic: industries are characterized by slow growth, high prices & risk, and significant investment.

Growth: Demand increases rapidly, profitability improves as new customers enter the market, falling prices, low competition.

Question 9

What is the difference for life cycle changes of shakeout vs mature?

Answer 9

1. Shakeout: Growth & profits decrease as competition intensifies in a saturated market.
2. Mature: Mature industries have little or no growth, industry consolidation, and high entry barriers.

Question 10

What is decline?

Answer 10

negative growth, excess capacity, high competition

Question 11

What is cyclical, non cyclical?

Answer 11

Cyclical: companies have profits that are strongly correlated with overall economic activity.

Non-cyclical companies enjoy relatively stable demand for their products and/or services throughout the business cycle

Question 12

What is market share?

Answer 12

percentage of an industry’s sales that a particular company owns.

Question 13

What is Industry Capacity?

Answer 13

the maximum amount of goods or services that companies can supply in a period

Question 14

What is industry concentration?

Answer 14

wether market share concentrated among a small number of large firms or fragmented among many small firms

high concentration: Small number of large firms

low concentration: Large number of small firms

Question 15

What is one way to measure the concentration within an industry?

Answer 15

Herfindahl-Hirschman Index (HHI)

Question 16

What is the formula for the Herfindahl-Hirschman Index (HHI)?

Answer 16

sum of squared market shares for each firm

HHI = ((market share % * 100)^2)

Question 17

What does a high and low Herfindahl-Hirschman Index (HHI) indicate?

Answer 17

higher HHI score indicates greater concentration.

lower HHI score indicates lower concentration.

Question 18

What are Michael Porter’s five force framework? TBBTR

Answer 18

1. threat of net entrants
2. bargaining power of suppliers
3. bargaining power of customers
4. threat of substitutes
5. rivalry among existing competitors (intra-industry)

Question 19

What are 6 external influences on an industry growth? PESTLE

Answer 19

1. political influences
2. economic influences
3. social influences
4. technological influences
5. legal influences
6. environmental influences

Question 20

What are political influences and economic influences?

Answer 20

Political Influences: decisions that governments make with respect to taxes, spending, and regulations.

Economic Influences: economic activity impacts the demand for products and services. (interest rate, inflation, etc)

Question 21

What are social influences and technological influences?

Answer 21

social influences: Changes in society occur regarding how people work and spend their leisure time

technology influences: technological advances

Question 22

What is legal influences and enviromental influences?

Answer 22

legal influences: the regulations and laws businesses have to abide by or face the consequence of various penalties.

environmental influences: impact of environmental issues, such as climate change and the depletion of natural resources

Question 23

What are 2 ways to characterize technological influences?

Answer 23

1. sustaining innovations
2. disruptive innovations

Question 24

Whats the difference between sustaining innovations and disruptive innovations?

Answer 24

Sustaining innovations: improve products or service without fundamentally changing their functionality. (eg. camera from 1960 has better quality now)

disruptive innovations: fundamentally alter a market (eg. cameras to digital photos on phone)

Question 25

What are 3 corporate strategies that have been used to achieve above average performance? CDF

Answer 25

1. cost leader (operating more efficiently, while offering comparable products) (flight)
2. differentiate (offering unique products sold a premium prices) (luxury watches)
3. focus on specific segments within an industry (mobile phones for older people)

Question 26

What is ROIC and formula?

Answer 26

return on invested capital

NOPAT (net operating profit after tax) / total invested capital