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You can use the following template for analyzing the structure of an industry. It
requires you to rate the attractiveness of an industry on a 5-point scale for several factors
relating to each of the five forces in Porters model. (A 7-point scale would be better, but the
5-point scale is easier to use.) It provides the anchors at the two ends of the scale for each
factor with examples of industries corresponding to the anchors. You will note that we have
included separate sections in the template for exit barriers and government. The former
contributes to rivalry among competitors (and is, therefore, not a sixth force). The latter,
according to some, should be treated as the sixth force, although Porter says the effect of
government on an industry is felt through one or more of the five forces.
If you want, you can attach different weights to different forces and also to different
factors within each force. If an industry has different segments which are structurally
different, you can separately analyze the attractiveness of each segment. You can also
analyze the changes in industry structure by using the template at two different points of time
(for instance, today and five years from now) to obtain greater insight into likely opportunities
and threats that you can expect from the industry environment. To reduce the element of
subjectivity, you can get the attractiveness evaluated by several colleagues and arrive at
average scores. Even the weights of different factors and forces could be based on the
opinion of your colleagues and you could attach greater weight to the opinion of colleagues
with greater expertise. Use your creativity to benefit from this tool.
Table 1: Rivalry among competitors
High rivalry implies low
attractiveness of the industry
for the incumbent firm
Attractiveness
Low
1
No. of
Large
competitors
Remarks
High
Grocery
Wide bodied
store
jetliner
Small
Industry growth
Slow
Vinyl record
Internet browser
Fast
Fixed cost
High
Steel
Low
Differentiation
Low
Sugar
Beer
High
Switching cost
Low
Diskette
Software
High
Openness of
Secret
Used car
Stocks
Open
Large
Residential
Office space in
Small
property in
South Mumbai
terms of sales
Excess capacity
Bangalore
Strategic stakes
High
Internet
Part-time coaching
Low
browser
__________________________________________________________
2000 by Deepak K. Sinha, Indian Institute of Management Bangalore, Bannerghatta Road, Bangalore 560076..
Use the remarks column to annotate your evaluation. As a rule of thumb, industries in
which the combined market share of the largest four firms (called 4-firm concentration ratio)
exceeds 70% are very profitable. Concentration ratios between 60%-70% are associated with
average and those below 60% with low profitability. The 4-firm concentration ratio in the
wide bodied jetliner industry is 100% and in the grocery store business almost zero. Thus,
you can support the evaluation of your industry by giving the 4-firm concentration ratio.
Table 2: Barriers to exit
High barriers to exit implies
low attractiveness of the
industry for the incumbent
Attractiveness
Low
High
1
Assets
High
Remark
Steel
Automotive
specialization
Small
gears
Cost of exit
High
Steel
Tea stall
Small
Government
High
Public bus
Grocery
Small
service in UK
store
restrictions
Attractiveness
Remark
Low
1
High
2
Economies of scale
Small
Tea stall
Oil refinery
Large
Product
Low
Sugar
Beer
High
Brand identity
Low
Sugar
Cigarette
High
Switching cost
Low
Diskette
Software
High
Access to channels
Easy
Newspaper
Petrol
Limited
Capital requirement
Small
Tea stall
Oil refinery
Large
Access to
Easy
Generic
AIDS
Restricted
drugs
medicine
Distilled
Ivory
Restricted
Public bus
Substantial
differentiation
of distribution
technology
Access to raw
Easy
material
Government
water
None
Tea stall
protection
in UK
Attractiveness
Low
1
Availability of
High
Remark
High
Fountain pen
AIDS
close substitutes
Switching cost
Low
medicine
Low
Diskette
Customized
High
Software
Substitutes
Better
Vinyl record
Suburban
price-value
Worse
trains in
Mumbai
Profitability of
High
Vinyl record
Trans-
the producers of
Low
Atlantic flight
substitutes
Small
buyers
Availability of
Attractiveness
Remark
Low
1
High
2
5
Toothpaste
Large
AIDS
Few
cars
Many
Fountain pen
substitutes
medicine
Switching cost
Low
Diskette
Software
High
Buyers threat of
High
Cars
Low
Oil refinery
High
Low end
Semi-
High
packaging
conductor
backward
cars
integration
Industrys threat
Low
of forward
integration
Contribution to
Low
quality
chips
Contribution to
High
Housing
Paper clips
Low
Low
Public bus
Luxury cars
High
cost
Buyers
profitability
service
Attractiveness
Remark
Low
1
High
2
Small
PC
Tea stall
Large
Few
PC
Tea stall
Many
Switching cost
High
PC
Garment
Low
Suppliers
High
PC
Wide
Low
suppliers
Availability of
substitutes
threat of
bodied
forward
jetliner
integration
Industrys
Low
Petrol pumps
Garment
threat of
High
retailers
backward
integration
Contribution
High
PC
Low end
to quality
Contribution
High
Oil refining
Talcum
to cost
Industrys
Low
packaging
Low
powder
Low
Vinyl record
Cars
High
importance to
supplier
Attractiveness
Low
1
Industry
Low
High
2
Tea stall
5
Public bus
protection
Industry
Remark
High
in UK
High
Chemicals
Software
Low
High
Garment
Software
Low
regulation
(pollution,
etc.)
Customs and
tariff
restrictions
abroad
Attractiveness
Remarks
Low
1
High
2
Barriers to entry
Rivalry among competitors
Barriers to exit
Power of buyers
Power of suppliers
Threat of substitutes
Government action
Overall attractiveness
Relative Weights