Industry trends analysis

The term "industry" refers to a group of rivals whose outputs are the same as or serve as a market replacement for specific goods and services. An organization of businesses that are connected by their principal business activities is referred to as an industry. There are numerous industry classifications in contemporary economies, which are often organized into bigger categories called sectors. Individual businesses are classified into an industry depending on their primary sources of income. For the purposes of attribution, a corporation is still considered a device maker even though its financing section contributes 10% to overall revenues.

Business owners and other individuals use an industry study as a business technique to ascertain the present commercial climate. Understanding different economic aspects of the market and figuring out how to exploit those aspects to your advantage are both beneficial to business. Although a business owner may undertake an industry analysis in accordance with their unique objectives, there are a few fundamental guidelines for carrying out this important business activity. Industry analysis is the study of market conditions at a specific period, including competitive activity and relationships with suppliers and customers. Porter's Five Forces Analysis, another name for industry analysis, is a very helpful tool for business strategists. It is based on the finding that profit margins differ between industries, which can be accounted for by an industry's structure.

The main goal of the five forces is to evaluate a company's desirability. However, the research also offers a place to start when developing a strategy and comprehending the environment in which a company competes. Different ways that industry analysis aids the sector include

• It aids in determining its allure.
• To be ready for how it will alter.
• To better comprehend how to compete.
• To recognize the stages of the life cycle.

Life cycle stage identification

• Emerging (very new, young industry growing at <5%/yr):
  The industry is in its early stages, during which time resources should be managed, used effectively, identified, etc. Industry growth will be less than 5% annually. The early stages of an industry's life cycle are no longer possible because to new technology like wireless communication or personal computers. It is quite difficult to predict which businesses will flourish and which will fail at this point. At this point, some businesses will likely be profitable while others may entirely fail. Therefore, choosing a specific company in the business at this point carries a high level of risk. Since the new product hasn't yet saturated the market, earnings and sales will increase quickly at this time.
  For example: Only a small percentage of homes had personal computers in the 1990s, compared to practically all homes having fans or even refrigerators. Therefore, products like freezers will expand at a far slower rate than fans.
• Growth (growing at >5%/yr):
  A growing stage will follow the emerging stage. The industry will expand at a rate more than 5% annually. At this point, sales will be expanded and other markets will be looked sought to sell the product in. Several industry leaders begin to emerge once the product has proven itself in the market. The survivors of the emerging stage become more consistent, and market share can be easily predicted. The activities of the enterprises that have handled will allow for a more detailed tracking of the performance of the sector as a whole. As the product enters the market and becomes widely used, the industry's growth rate is still faster than it was at the beginning.
• Mature (growth has slowed to <5%/yr):
  The industry is currently in its third stage. After the industry has grown, if the growth rate slows by 5% annually, this stage is said to as mature. The product has reached the point where people can spend all of their money on it. Any increase after this just mirrors the expansion of the economy as a whole. As the service and product become more standardized at this level, it forces the producers to engage in intense price competition. As a result, the profit margins are reduced, which puts additional pressure on profitability. Businesses at this stage are frequently referred to as "cash cows" because they provide consistent cash flows but provide very little opportunity for expansion.
• Declining (negative growth for a prolonged period) :
  There will be a decline in the company's expansion, which is sometimes referred to as the declining stage, if the growth of the business slows and the number of sales drops, making profit a difficulty. A corporation or industry is said to be in a declining stage if it has negative growth for an extended period of time. The industry will experience negative growth at this point. The industry's growth and sales will both decline. Prices rise, costs become suboptimal, profitability declines, etc. The following characteristics are found in the decreasing stage:
  • Sales volume drops or stays the same
  • Costs start to be less than ideal.
  • Profitability becomes more of a hurdle for effective manufacturing and distribution.
  • Prices and profitability drop

Industry analysis as a tool to develop competitive strategy of a industry

Industry analysis enables a business to create a competitive strategy that perfectly thwarts the forces of competition or influences them in its favor. Knowing the root of the competitive forces is essential to creating a competitive strategy. These competitive factors can be developed and recognized by the company to:

• Draw attention to the company's most important weaknesses and strengths.
• Emphasize areas where industry trends point to the highest significance as either opportunities or risks for the company.
• Identify the areas where strategic adjustments will have the biggest impact.