The competition analysis of industry and key factors of success

During realization of analysis of industry, state of company, possibilities of choice of alternative directions of development of enterprise there is basic work on forming of the base going near new strategy. Before in detail to consider basic design of strategic plan times, it is necessary to pass remark about the information required for analytical work. Receipt of such information, adjustment, a conduct of database is a task of enterprise, requiring serious financial expenses, organizational efforts and presence of skilled managers. But even during the well put work with information in a number of cases getting the real information is simply impossible. It belongs, for example, to the vagueness of change of external situation or to data on the structure of expenses of competitors which are, as a rule, by their commercial secret.

In this case it is however necessary to make an effort produce some estimation of such data. On an external environment it can be prognosis or scenario of development of situation, in regard to competitors are expert estimations. The degree of approaching of these estimations to reality to a great extent depends on experience and qualification of managerial staff of enterprise. The self presence of such estimations is important, as it gives an opportunity to check their validity, watching the actions of competitors or events in an external environment, and, using new data, to correct primary estimations, approaching them to reality. Thus, the used information has evaluation character often, but it must not be an obstacle to the attempt of creation of such analysis. It is confessed that it is better to have any strategy, what to have no.

The competition analysis of industry is plugged in itself by a few divisions (stages) which are examined below.

1. Determination of main economic descriptions of industry

Under industry is understood group of enterprises, whose products have general consumer descriptions and which compete at one user market.

Within the framework of this stage of analysis it is necessary to get answers for next questions:

  • a market size;
  • rates of height of market and position of industry in the vital loop (early development, hasty growth, maturity, satiation, aging and stagnation, reduction of market and sales);
  • scale of competition (local, regional, national, group of countries, global);
  • an amount of competitors and their comparative sizes;
  • an amount of customers and their comparative sizes;
  • a presence in industry of vertical integration;
  • lightness or complication of included in industry and exit from it;
  • rates of technical progress in industry;
  • a degree of differentiation of products of competitors (strongly differentiated, poorly differentiated or practically identical);
  • a presence of factor of economy on scales;
  • whether the attained level of the productivity is critical for the decline of costs;
  • a level of profitability in industry by comparison to middle in a national economy.

2. Motive forces of development of industry

This stage of analysis must give understanding that moves development of industry and what direction it will change in. It is necessary to analyse next factors:

  • economy-wide tendencies;
  • a change of composition of customers and methods of the use of traditional products of industry;
  • appearance of new foods with high-quality other descriptions;
  • changes in technology, new possibilities to produce more high-quality or more cheap products;
  • marketing innovations, differentiation of products, appearance of new methods of distribution of product;
  • appearance in industries of new large firms or exit of large firm from industry;
  • distribution of technological knowledge and secrets of production;
  • a growing scale of branch market;
  • government control of industry;
  • change in the costs of production, for example under influence of price change on raw material;
  • demographic changes;
  • changes of social character or change of lifestyle;
  • reduction of vagueness and decline of risks of investments in industry.

3. Estimation of forces of competition

For the estimation of forces of competition the model of M. Porter, on which a competition in any industry is co-operation of five competition forces, is used:

  • a competition among existing in industry firms;
  • a potential threat of included in industry of new competitors;
  • enterprises of other industries, productive commodities-substitutes;
  • suppliers;
  • consumers.

The most meaningful competition force is usually a competition among existing in industry firms. It shows up in aspiration of vying enterprises to improve the market position, in offensive actions on purpose to rise above competitors or win over a separate competitor, in protective tactics on purpose to defend the occupied positions. The instruments of intrasectoral competition it is been: prices, quality of products, original appearance of products and packing, guarantees, additional services, advertisement, capacity for realization of innovations, power own or partner to the distributive network et al. On this stage of analysis a task consists in general description of intrasectoral rivalry, determination of rules, on which it is conducted in this industry, and estimation of force of intrasectoral competition presently and in a prospect.

A threat of appearance in industry of new firms is next force of competition which must be analysed. The serious consequences of appearance of such firms show up in the decline of profitableness of activity of industry, fight for the redistribution of markets, increase of marketing expenses. The size of threat of appearance of new firms depends on profitability of industry in relation to middle in a national economy and from a presence and importance of entrance barriers. Entrance barriers are obstacles which must be overcame for a successful competition, creating necessary backlogs for this purpose, and which usually do not exist for firms into industry. To the entrance barriers behave:

1.       Economy on scales. If this factor operates in industry, then a novice must at once go out on large volumes, to be competitive. It requires serious capital investments and presence of organizational experience.

2.       Difficulty of access to productive experience and secrets of production.

3.       Orientation of customers on the known trade marks and their adherence of the products known to them.

4.       Large requirement in a capital, unconnected with an economy on scales.

5.       Specific branch advantages of already operating firms, a priori providing to them possibilities of more subzero costs. For example, it can be related to access to raw material or other resources or with the most advantageous location.

6.       Access to the channels of distribution. Existent firms in any case try to tie to itself the participants of channels of distribution, that creates additional complications before novices.

7.       Public policy of adjusting in regard to this industry.

8.       International trade barriers.

Suppliers as force of competition can render affecting competition position in industry due to a price increase on the products. In which measure they succeed it to do or as far as the threat of it is strong, depends on force of suppliers. It is considered, that suppliers possess large force at presence of next terms:

1.       Products which they supply with have a decision value for quality of products of this industry.

2.       A competition from the side of commodities-substitutes is weak or is absent.

3.       A concentration for suppliers is higher, than in this industry.

4.       The products of suppliers are differentiated.

5.       Industry is not one of major customers.

Customers, as well as suppliers, can with greater or less force have influence on a competition situation in industry. It is considered that customers possess large force, when:

1.       products are standardized and not differentiated;

2.       customers are unsensible to the costs related to replacement of suppliers;

3.       on the products of industry quality of products does not depend decision character for customers;

4.       customers are well informed of position in industry.

The most unpleasant competition situation in industries is folded, when a competition among functioning firms is strong, entrance barriers subzero, a competition from the side of commodities-substitutes is strong, and suppliers and consumers possess sufficient force, to influence on a situation in industry, labouring for the aims. However, even when all five forces of competition are considerable, industry can save an attractiveness for separate firms which within the framework of the strategies it is succeeded to protect the positions.

Successful strategy must decide two tasks in regard to forces of competition :

•        as hard as possible to insulate the enterprise from negative influence of branch forces of competition;

•        to use the situation and rules of playing folded in industries the benefit.

4. Estimation of competition positions of vying enterprises in industry

The strategic groups of enterprises functioning in industry are determined in this part of analysis. In spite of that all enterprises are united by the fact of belonging to certain industry, they can considerably differ from each other on different parameters, for example in size, on markets which they work on, on the aggregate of the offered additional services etc. A strategic group consists of vying enterprises with near competition approaches and position at the market.

The technique of selection of strategic groups is named drafting of map of strategic groups. The sequence of executions here following.

1. Determination of descriptions which differentiate enterprises in industry. To model descriptions can be taken:

  • correlation price/quality (high, middle, subzero level);
  • a geographical market (local, regional, national, group of countries, global);
  • a degree of vertical integration (it is absent, partial, high);
  • an assortment (wide, narrow);
  • the used channels of distribution (one, a few, various types);
  • a level of service (it is absent, limited, most complete).
  • additional, important for an analysis descriptions are used In concrete cases.

2. Placing of enterprises on a twoco-ordinate map with the use of pairs of the indicated descriptions.

3. Association of enterprises getting in one strategic space, in one group.

General procedure of drafting of map of strategic groups is here described, the real technique is more difficult although. For example, if the chosen descriptions of correlated inter se a priori, then such map is practically unavailing. To avoid errors in an initial period of work with this instrument, it is expedient to use the pairs of all distinguished descriptions, to choose those maps (one or a few) of strategic groups which appear most interesting.

5. Analysis of the nearest competitors : which their possible actions are

The study of concrete competitive enterprises is taken to the analysis of today's policy and potential steps of the nearest competitors. It is a difficult task, but the right appraised actions of competitors give an opportunity to prepare to them and use the opened possibilities to the enterprise. Intentions of the nearest competitors can demand preparation of enterprises to defence of the positions or development of plan of active offensive actions in case if there are pre-conditions to weakening of positions of the nearest competitors. On the other hand, it is necessary to forecast the actions of competitors in reply to activation of own competition strategy.

It is clearly, that impossible absolutely exactly to predict the future actions of competitors, but it is possible to get around understanding of their approaches. Analysis an estimation of today's position of competitors is the basis of, tendencies of his change and used competition strategy. There are three base competition strategies: leadership in the decline of costs, differentiation of products and focusing. Procedure of realization of analysis of every competitor can be divided into six stages.

1.       Estimation of scale of competition : local, regional, national, group of countries, global.

2.       Estimation of strategic intentions : to be the leader of industry, to become the leader of industry, to be in the group of leaders, move in a leading group, moved to one or two positions in rating of industry, to win over a concrete competitor (not necessarily leader), save the position, survive.

3.       Aims in relation to the market stake: aggressive expansion both through absorption and through an internal height, increase of stake through an internal height (due to reduction of stakes of other firms), expansion through absorption, maintenance of existent market share, willingness to yield a stake for the achievement of short-term tasks on an income (support on profitability, but not on the volumes of sales).

4.       Competition position: becomes stronger, well fixed, able to protect the position, sticks to in a certain group, tries to be moved to prepotent position, becomes weaker, but fights, position which can be protected tries to occupy.

5.       Character of actions : mainly offensive, mainly protective, combination of offensive and protective actions; aggressive, assuming the high degree of risk, conservative imitation.

6.       Competition strategy: leadership in the decline of costs, focusing on a certain market niche (profitable group of population, customers with subzero profits, geographically certain niche, customers with the special necessities etc.); differentiation of products, based on quality, additional services, technological superiority, assortment, reputation of firm and etc.

Since activity of each of the nearest competitors will be considered under such visual angle, possibilities confidently enough to plan the possible concrete steps of competitors, market segment appear for analysts, where it is necessary to expect an attack, involved instruments of competition (prices, advertisement etc.) and other parameters. When the possible actions of the nearest competitors clear up, then possibility to plan the system of return measures for support of own strategy or measure appears, sent to strengthening of own strategy, if position of competitors allows to do it.

6. Key factors of success (KFS)

Key factors of success are general for all enterprises of industry factors realization of which opens the prospects of improvement of the competition position. Business is not in that, a concrete firm can or does not can presently to realize these factors. A task consists in determination of factors giving in this industry the key to success in a competition. A selection of КFS for concrete industry is the first step, on which development of measures must follow on the capture of КFS characteristic for industry. This work is substantial part of development of strategic plan of enterprise taking into account character of aims and tasks of development, as they are imagined by guidance of enterprise. КFS must be examined as foundation of the developed strategy. КFS is not identical for different industries, and for concrete industry can change in time. Nevertheless, it is possible to try to distinguish base КFS, some of which are given below. The task of analysts consists in that, to distinguish 3-5 most essential on the nearest prospect of КFS, for example by ranging of all distinguished factors, mattering for this industry. Exactly they must then underlie strategy of enterprise.

1. КFS based on scientific and technical superiority :

  • experience of organization of scientific researches (important in industries of high technology);
  • ability of rapid realization of technological and (or) organizational innovations;
  • a presence of experience with front-rank technologies.

2. КFS related to organization of production :

  • subzero costs of production;
  • high quality produced goods;
  • high capital productivity (for capital-intensive industries);
  • the benefits related to the site of enterprise;
  • a presence of access to skilled labour force;
  • the debugged partnership with good suppliers;
  • a high yield of labour (for labour intensive industries);
  • subzero costs on НИОКР and technological preproduction;
  • flexibility in the production of different models and типоразмеров, possibility of account of individual queries of customers.

3. КFS based on marketing :

  • well organized own distributive network or presence of hard partner relationships with an independent distributive network;
  • subzero costs of distribution;
  • rapid delivery;
  • well-prepared personnel busy at a sale;
  • accessible and well organized service;
  • neat implementation of orders;
  • a breadth of assortment and possibility of choice of commodities;
  • the attractive, reliable and comfortable packing;
  • a presence of guarantees on commodities and guarantees of fulfiling commitment.

4. КFS, based on possessing knowledge and experience :

  • professional superiority, confessed talent (a factor has an enormous value in the field of professional services);
  • possessing the secrets of production;
  • ability to create the original and attractive design of commodities;
  • a presence of experience in certain technology;
  • the use of clever, keen advertisement;
  • ability quickly to develop and move forward new products.

5. КFS related to organization and management :

  • a presence effective and reliable informative systems;
  • ability of guidance quickly to react on the change of market conditions;
  • expert in this sphere of activity and the well balanced administrative command.

6. It maybe selection and other КFS,

for example:

  • a presence of good character for consumers;
  • access to the financial capital;
  • confession of firm as absolute leader of industry and other

7. Estimation of prospects of development of industry

This stage is final in the analysis of industry. Its task - to generalize the results got on the previous stages, and to produce the integrated picture of prospects of development of industry, both short-term and of long duration.

Among the great number of possible estimations of prospects of development of industry the special attention must be spared to the following.

1.       Potential of height of industry.

2.       Does have prevailing motive forces industries favourable or unfavorable character for all industry and separate strategic groups?

3.       Possibility of entrance or exit of large firms and effluent from here consequences.

4.       Stability of demand on the products of industry and factors, stipulating him vibrations in a short-term and long-term prospect (for example, seasonality, phase of life cycle of industry, presence of commodities-substitutes).

5.       Which are tendencies of change of forces of competition?

6.       Seriousness and complication of problems into which industry runs on the whole.

7.       Degree of vagueness of the future of industry and estimation of risk of investments related to it.

8.       Whether excels the prognosis level of middle profitability at industry analogical index on a national economy or no.

A general conclusion in relation to the prospects of development of industry on the whole can be more or less attractive. There can be the additional criteria of attractiveness of industry at a concrete enterprise. Even if a situation in industry gets worse simply, on occasion it can go on a benefit to some enterprises, to help them to carry out the strategies. For example, it can assist strengthening of positions of leader of industry. Strong enterprises can use instability of weak competitors in the benefit. An enterprise can be isolated or to prepare strong enough defence in regard to factors which do industry on the whole unattractive. In addition, there can be a situation, when continuation of work in this industry is important from the point of view of achievement of success in other industries, where an enterprise have interests.

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