Industry Analysis Checklist

Impact on Existing Firms in the Industry Negative Positive

Table 1: Rivalry among Competitors

Cumulative market share of the top 4 competitors Small Large
Industry growth rate compared to economy growth rate Slow Fast
Fixed cost as percentage of total costs High Low
Differentiation creating price premiums Low High
Switching cost for customers switching to other competitors Low High
Openness of terms of sales Secret Open
Excess capacity in the industry – present and expected Large Small
Strategic stakes – competitors only in this industry or diversified High Low
Barriers to exit:
Assets specialization – assets cannot be used in other industries High Small
Cost of exit – costs that will be incurred in exiting from industry High Small
Government restrictions – from exiting the industry High Small

Table 2: Barriers to Entry

Economies of scale Small Large
Product differentiation creating price premiums Low High
Brand identity requiring brand building by entrant Low High
Switching cost for customers switching to other competitors Low High
Access to channels of distribution Easy Limited
Capital requirement to be in business Small Large
Access to current technology of industry Easy Restricted
Access to current raw material of industry Easy Restricted
Government protection against entry by new players None Substantial

Table 3: Bargaining Power of Buyers

Number of buyers (check share of top four buyers) Small Large
Availability of close substitutes Many Few
Switching cost for customers switching to other competitors Low High
Buyer’s threat of backward integration High Low
Industry’s threat of forward integration Low High
Contribution to quality of buyer’s final product Low High
Contribution to cost of buyer’s final product High Low
Buyer’s profitability Low High

1
Impact on Existing Firms in the Industry Negative Positive
Table 4: Bargaining Power of Suppliers
Number of suppliers (check share of top four suppliers) Small Large
Availability of close substitute products for the industry Few Many
Switching cost for industry player to switch to other suppliers High Low
Supplier’s threat of forward integration into industry High Low
Industry’s threat of backward integration into industry Low High
Contribution to quality of industry’s final product High Low
Contribution to cost of industry’s final product High Low
Industry’s importance to supplier Low High

Table 5: Threat from Substitutes

Availability of close substitutes (do not consider alternatives*) High Low
Switching cost for switching to close substitute products Low High
Substitute’s price-value equation Better Worse
Profitability of the producers of close substitutes High Low
*Substitutes provide identical functionality as industry product. Alternatives only serve the same broad purpose.
Close substitutes directly impact profitability. Alternatives do not directly impact profits but can lower the demand.

Table 6: Government actions

Industry protection by government Low High
Industry regulation (pollution, etc.) High Low
Customs and tariff restrictions abroad – bilateral arrangements High Low

Table 7: Overall assessment

Profit Potential for Incumbent Remarks
Low High
1 2 3 4 5
Barriers to Entry These two together
will usually have
Rivalry among Competitors 40% to 50% weight
and Barriers to Exit
Power of Buyers These two together
will usually have
Power of Suppliers 30% to 40% weight
Threat of Substitutes May vary from 0% to
100%!
Government Action May vary from 0% to
100%!
Overall Profit Potential for Weighted average of
Incumbent all factors