Different stages Characteristics SWOT analysis S curve

2. Life cycle of an Industry
Four distinct Phases
 pioneering stage,
expansion stage,
 stagnation stage,
declining stage.
The specific phase of an industry can be
understood in terms of its sales (volume and
value) and profitability.

3. Pioneering stage
The first stage in the industrial life cycle of a new industry
Industry is not yet established
technology as well as the product are relatively new
may actually make losses with large injections of capitaland has not
many competitors
rapid growth in demand for output of industry.
a scenario where weak firms are ultimately eliminated and a lesser
number of businesses survive

4. Expansion stage
 Industry is established
 New companies start entering
Competition increases
Development of Strategies , new innovations to offer improved
product at lower price
Demand is more than supply
High return for investor at lower risk as Companies will earn
increasing amounts of profitsand pay attractive dividend.

5. Stagnation stage
Stage the growth of industry stabilizes
Sales may be increasing though at a slower rate due to
o changes in social habits and
o development of improved technology.
emphasis on increasing profit rather than achieving growth.
Stagnation has either an abrupt ending by a new innovation or could
lead to declining stage
Debts are normally re-paid out of internal accruals.
Maturity slowly degenerates into stagnation and sometimes even
creeps into decline.

6. Declining stage
Products are no longer popular.
A typical mature company loses its competitive nerve,
it declines over a period of time into bankruptcy and
winding up.
At this bleak stage, there will be no takers
The risk at this time in investing in these companies is
high but the returns are low, even negative.
An investor should get out of the industry before the onset
of the declining

7. S curve

8. S Curve
 Initial Phase – High level of uncertainty, slow rate of sales
growth
 Growth Phase -- Rising demand · Greater predictability in market
demands and technology Entry of
competition.
 Maturity Phase---- Low market growth , Relative stability in
technology · Intense competition ,
Imbalance in capacity related to business cycle.
 Decline Phase ---- Emergence of substitutes leading to a decline in
sales volume · Chronic over-capacity · Low,
or negative, industry profits.
 The New S curve may emerge after a unplanned discontinuity

9. SWOT Analysis
Financial data analysis
Strengths and weakness
Opportunity and threats

10. Characteristics of industry analysis
Past sale and Earnings performance
• Top line
• Operating margin
• Net margin
Nature of Industry
Labor conditions within the industry
Attitude of government towards the industry
 Competitive conditions
 Stock prices of firms in the industry relative to their earning

11. Characteristics of Industry
Past sales and historical figures serve as a base for forecasting the
growth of the industry, the cost structure in terms of fixed and
variable costs etc and break even levels.
The governments attitude towards the industry in terms of legislative
policies and regulations also play a big role in boosting the growth .
E.g I T tax holiday, excise customs duty , subsidies etc.
Labour intensive industries need to be identified as strikes could
affect them adversely.
 Risk return of investment in particular industry based on current
stock prices of securities in the industry.

12. Market Structure of an Industry
Competitiveness
Absolute monopoly
Perfect competition
Imperfect competition
Collusive oligopoly:
Dominant firm oligopoly:
Monopolistic competition:

13. Absolute Monopoly
 Lack of choice for customers
 Price Market dominance
 inefficiency
 destroyed by high costs, inefficiencies and powerful competition
Perfect Competition
numerous small firms offering an identical product or service. And no
one can affect the market price
profit margins tend to be very low and unattractive for newcomers

14. Imperfect competition
lies between absolute monopoly and perfect competition. few
suppliers who can exercise some degree of control over price.
Collusive oligopoly
 A few suppliers collude to form a cartel in order to avoid co
-mpetition and maximize profits e.g Manufacturers of Tyres in
India
Dominant firm oligopoly:
There is a dominant leader surrounded by a number of small
competitors. E,g toothpaste
Monopolistic competition:
Products are differentiated e.g bath soap industry

15. Competitive conditions
Product differentiation advantages through patents, brand-value,
technology, market access, after-sales service, specification in
purchase orders, etc. consumer durable
• Absolute cost advantages through lower costs, high volumes,
control over key resources, learning and experience curves. Food and
Beverages
• Economies of scale through high capital costs, large scale
operations, massive logistics management, etc.Tata steel, Hindalco

16. MICHAEL PORTER FIVE FORCES’ MODEL
 The bargaining power of the buyers
 The bargaining power of the suppliers
 Entry of new competitors
 The threat of substitutes
 The rivalry among the existing competitors.
 First two are vertical forces and the last three are horizontal
The collective strength of these five competitive forces determine the
ability of a firm in an industry to earn, on average, rates of return on
investment in excess of the cost of capital
The five forces determine industry profitability because they influence
the prices, costs and required
Investment of firms in an industry – the elements of return on
investment

17. Bargaining Power of Suppliers
Inputs are needed in order to provide goods or services
Negotiating power of suppliers of inputs are good when
o The market is dominated by a few large suppliers rather than a fragmented
source of supply,
o There are no substitutes for the particular input,
o The suppliers customers are fragmented, so their bargaining power is low,
o The switching costs from one supplier to another are high,
o There is the possibility of the supplier integrating forwards in order to
obtain higher prices and margins. This threat is especially high when
the buying industry has a higher profitability than the supplying industry,
o Forward integration provides economies of scale for the supplier,
o The buying industry hinders the supplying industry in their development
(e.g.reluctance to accept new releases of products),
o The buying industry has low barriers to entry
 Result is squeeze in Margins

18. Bargaining Power of Customers:
 They buy large volumes, there is a concentration of buyers,
 The supplying industry comprises a large number of small operators,
 The supplying industry operates with high fixed costs,
 The product is undifferentiated and can be replaces by substitutes,
 Switching to an alternative product is relatively simple and is not
related to high costs,
 Customers have low margins and are price-sensitive,
 Customers could produce the product themselves,
The product is not of strategically importance for the customer,
The customer knows about the production costs of the product
 There is the possibility for the customer integrating backwards
e.g vanaspati packs or oil tins

19. Threat of New Entrants
 Economies of scale (minimum size requirements for profitable
operations),
 High initial investments and fixed costs,
 Cost advantages of existing players due to experience curve effects of
operation with fully depreciated assets,
 Brand loyalty of customers
 Protected intellectual property like patents, licenses etc,
 Scarcity of important resources, e.g. qualified expert staff
 Access to raw materials is controlled by existing players,
 Distribution channels are controlled by existing players,
 Existing players have close customer relations, e.g. from long-term
service contracts,
 high switching cost for customers
Legislation and government action

20. Competitive Rivalry between Existing Players
 This force describes the intensity of competition between existing players
(companies) in an industry.

 High competitive pressureresults in a market pressure on prices and margins
that affects profitability.
 Competition between existing players is likely to be high when:
• There are many players of about the same size,
• Players have similar strategies
• There is not much differentiation between players and their products, hence,
there is much price competition
• Low market growth rates (growth of a particular company is possible only at
the expense of a competitor),
• Barriers for exit are high (e.g. expensive and highly specialized equipment).

21. Five Forces Analysis
Statistical Analysis:
Dynamical Analysis:
Analysis of Options: