 Industry Environment Analysis is a market assessment

tool used by businesses and analysts to understand the

competitive dynamics of an industry.
 It helps them get a sense of what is happening in an
industry, i.e., demand-supply statistics, degree of
competition within the industry, state of competition of
the industry with other emerging industries.
Industry analysis,for an entrepreneur or a company, is a
method that helps it to other participants in the industry.
It helps them to identify both opportunities and threats
coming their way and gives them a strong idea of the
present and future scenario of the industry.
There are three commonly used and important
methods of performing industry analysis. The three
methods are:

1. Competitive Forces Model (Porter’s 5 Forces)

2. Broad Factors Analysis (PEST Analysis)
3. SWOT Analysis
 The tool was created by Harvard Business School
professor Michael Porter, to analyze an indstry’s
attractiveness and likely profitability.
Porter recognized that organizations likely keep a
close watch on their rivals, but he encouraged them to
look beyond the actions of their competitors and
examine what other factors could impact the business
environment.
He identified five forces that make up the competitive
environment, and which can erode your profitability.
These are:
1. Competitive Rivalry/Competition
- is the rivalry between companies selling similar
products and services with goals of achieving, profit, and
market share growth.(Number of competitors, Quality
differences, other differences, switching costs, customer
loyalty, costs of leaving market)
2. Supplier Power/Supplier
- a supplier, also called a vendor, is a person or company
that provides goods and/or services to other companies
as one of the contributors to the development process on the
way to the ultimate customer. (Number of suppliers, Size of
suppliers, Uniqueness of service, Your abiliy to substitute,
Cost of changing)
3. Buyer Power/Customer
- a customer is a person or company that receives,
consumes or buys a product or service and can choose
between different goods and supplies. ( Number of
customers, Size of each order, Differences between
competitors, Price sensitivity, Cost of changing)
4. Threat of Substitution/Subtitute
- Different goods that at least partly, satisfy the same
needs of the customers and, therefore can be used to
replace on another. Price of such good shows positive cross-
elasticity of demand. ( Substitute performance, Cost of
change)
5. Threat of New Entry/Competitors
- a company in the same industry or a simlar industry
which offers a similar products or services. ( Time and cost
of entry, Specialist knowledge, Cost advantages, Technology
protection)
 Broad Factors Analysis, also commonly called the
PEST Analysis stands for Political, Economic, Social,
Technological. PEST analysis is a useful framework
for analyzing the external environment.

To use PEST as a form of industry analysis, an

analyst will analyze each of the 4 components of the
model. These components include:
Political
- Political or politically motivated factors that could
impact the organization.
Examples:
Government policy, political stabilityor instability,
bureucracy, competition regulation, foreign trade policy, tax
policy, trade restrictions,
labor/environmental/copyright/consumer/protection laws,
funding grants etc…
 Economic
- Overall economic forces that could impact on your
success.
Examples:
Economic trends,Growth rates, Industry growth, Seasonal
factors, international exchange rates, international trade,
labor cost,
 Social
- Social attitudes, behaviors, and trends that impact on
your organization and target market.
Examples:
Attitudes and shared beliefs about a range of factors
including money, customer service, import, religion, health,
work, leisure, the environment.
 Technological
- Technology that can affect the way you make, distribute,
and market your products and service.
Examples:
Technology and communications infrastructure, legislation
around technology, consumer access to technology,
competitor technology and development, emerging
technologies, automation, research and innovation etc..
 SWOT Analysis stands for STRENGTHS,
WEAKNESSES, OPPORTUNITIES, and THREATS. It can
be a great way of summarizing various industry
analysis methods and dtermining their implications
for the business in question.
 Strengths Weaknesses
Characteristics of a business Characteristics of a business
which give it advantages over which make it disadvantageous
its competitors relative to competitors

Opportunities Threats
Elements in a company’s
Elements in the external
external environment that
environment that could
allow it to formulate and
endanger the integrity and
implement strategies to
profitibility of the business
increase profitability
 Industry analysis, as a form of market assessment, is
crucial because it helps a business understand market
conditions. It helps them forecast demand and supply and
consequently, financial returns from the business. It
indicates the competitiveness of the industry and costs
associated with the entering and exiting the industry. It is
very important when planning a small business, Analysis
helps to identify which stage an indusryis currency in;
whether it is still growing and there is scope to reap
benefits, or has it reached its saturation point.