Industry
What is Industry?
When it comes investigate more about industry, we might think that industry is kind of company that produces good or service. It is the common definition of industry. Theorically, industry is a company that involve activities to provide goods or service based on their primary purpose.
As of starting to build an industry, better for us to start an industry analysis first. It is a business research to procure industry’s potential. It helps us to decide where the business will go into. We definitely start a business utterly, no reckless. Learn what becomes trend nowadays and intend to compete within it is a way of industry analysis. Therefore, industry analysis is a starting point to make a business continues and is important.
There are five forces that determines an industry’s profit, these are:
- Rivalry. If the rivalry within town of a business is formidable, it is would likely make an industry hard to gain high profit. Otherwise, if the rivalry is deserted, the industry would be called as an innovation and wield a greater probability to yield more profit.
- Threat of substitutes. A substitute of an item could sink the market in which will have an impact to the original item.
- Supplies power. This component is important. As the supply power is high, then it can influence to the price and limit the quantity of a product.
- Buyer power. The power of buyers is the impact that customers have on a producing industry. When buyer power is strong, the buyer has the ability to set the price.
- Barriers to entry. Barriers to entry are unique offerings of companies in an industry that any company wishing to enter that industry must be prepared to overcome.
There are also six major sources of barriers to entry:
- Economies of scale. This occur when an industry that mass-producing an item set their average cost lower. Which means, it adds odds to the new entrants to set their cost.
- Product differentiation. A brand (even the strong one) still need advetisements trying to win market. These advertisements will of course take a bunch of spending. Would it be easy to the new entrant?
- Capital requirements. Need of large amount of money investment is one barrier for new entrant to compete in an industry where certain industries may require investment in facilites.
- Switching costs. Commonly, the competitors may have purchased land in the past which require lower cost compared to the new entrant in which they have to pay more for land or facilities.
- Access to distribution channels. New entrants forced to provide discounts and promotions in order to persuade distributor which may have another competitor with long-standing relationship.
- Government policy. This policy includes copyright and license to the business.
The rivalry among the existing firms potentially suppress an industry’s profit as they gain more experience in the market they operated. Besides, they able to lower their average cost and in case their product would likely attract the market. Which hardened the odds for new entrant.
There are also example types of industry, such as: Emerging, Fragmented, Mature, Declining, and Globa Industry.
Emerging Industry
The characterictics are:
- Market volatility. As example nature calamity like Covid. Demand for a specific item will greatly increase in the market.
- Growth and investment potential.
- High rates of economic growth.
- Income per capita.
As for new firms start in an emerging industry, they have a primary opportunity. It is to capture first-move advantage. Need to be underline that investors are interested to invest on emerging industry.
“The creation of exchange traded funds (ETFs) that focus on specific new sectors can offer investors a way to invest in emerging industries while mitigating some of the risks.” (https://www.investopedia.com/terms/e/emergingindustry.asp, paragraph 10)
Fragmented Industry
The characteristics are:
- Lack of dominant company. As we start a business, we would likely to start a business where it lack of players inside.
- Low barriers to entry. We could focus to a local marketing than a national one.
- Opportunity for differentiation. Due to we choose a fragmented industry, we can offer something nobody else did. Which mean we can compete with less competition.
As discussed, the primary of this industry is establish the leadership of the business. As we offer something new in a business where less player and focus on local marketing.
Mature Industry
Mature industry is an industry that grow slower than any industry. This mainly caused by the limited innovation and no increase in demand. Altough its characteristic is low price to earning ratios and high dividend yield, this primary opportunity for new firm is stablility even with tiny growth.
Declining Industry
Declining industry is industry that have gone from maturity and experiencing the flat sales or even decreasing sales. Therefore, leadership may be the primary oppotunity as firm tries to be the dominant player with niche strategies and achieving lower cost.
The example of this industry is Nucor Steel where he made “minimill” innovation. This innovation make a narrower range of product that contrary with most steel industry at the time. In which they used large blast furnace and had to produce a significant quantities. Afterwards, Nucor proved his concept and quickly growth within the large declining steel industry in U.S.
Global Industry
The global industry refers to industry that operates and mainly focus to international specific market. Basically, there are two strategies in this industry, multidomestic strategy and global strategy. Multidomestic one is focused to the market share on country-by-country basis. The same basic is applied to the global strategy, in case focused to all the foreigner markets. The success key of this industry is to understand customer’s needs and interests.
Competitor Analysis
Competitor analysis is more detailed than industry analysis. This researches more about the strength and weakness of other competitor in the market we operate, defining the strategies we about to make, and to avoid any threat. The basic step of this analysis is to identify the competitor in which they are direct competitor, indirect competitor, or future competitor. What are the difference among them?
Direct competitor is the easiest to find within our circles. They sell the same product as we do. This kind of competitor is the most important as they can steal our customers. While the indirect competitors are selling almost the same product with different purpose.
Future competitor, this might be a little problem as they don’t appear yet at the time we operate. But, be aware that this type of competitor can exist at any time and can win the competition as the market we focused has been observed before by this competitor.
With the discussion about competitor, it is very important to a firm to collect intellegence about their competitor in order to know and understand their business challenge and make a more effective strategies than their competitor.
There are three resources of competitive intellegence that entrepreneurial firm should be comfortable using:
- Attend any conference and talk shows. By doing this, an entrepreneur could talk about the latest market trend.
- Purchase competitor’s product. Using this method, we learn how our competitor treat their customer. Besides, we could have a sight how good is their product and learn how product in the market we operate.
- Talk to customer. This is one of the effective way to know the competition. Our end of business is customer. Therefore, we should know the information what customer needs.
Author’s opinion
Before we start a business, we would likely have some research. By doing so, we know even a little detail of the market we are about to focus. Basically, business is where we provide goods for customer. Besides, we have to compete in an open market. The researches mentioned are a basic one to know competitors. According to author’s personal opinion, talk to the customer is the most important. User experience is the most important thing in order to have a better experience. If we don’t do research of these analysis, we would sorely even the odds.
Reference:
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https://study.com/academy/lesson/declining-markets-characteristics-strategies-for-companies.html
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12. Barringer, Bruce R. & R. Duane Ireland. 2016. Entrepreneurship Successfully Launching New Ventures, 6th Edition.