Structural Analysis within Industries

Essay by hopia February 2005

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Structural analysis within industries generally talks about the five competitive forces. It provides an overview of the five competitive forces that determine sustainability of industry profitability. In industry structural analysis the primary task is to identify the company's key strategic dimensions because it provides an overall picture of the firm's position in the industry. Strategic dimension is compose of specialization, brand identification, push versus pull, channel selection, product quality, technological leadership, vertical integration, cost position, service, price policy, financial leverage, relationship with parent company(if any) and relationship to host government. According to Porter, each of these strategic dimensions can be illustrated for a company at varying levels of detail, and other dimensions might be added to improve the analysis. After identifying strategic dimensions we can now begin the first step in structural analysis; mapping of the industry into strategic groups. A strategic group is a group of firms in an industry following the same or similar strategy along the strategic dimensions.

In mapping of the industry, we segregate companies by the degree of their specialization and vertical integration. The next step in structural analysis within an industry is to evaluate the height and composition of the mobility barriers protecting each group. Having high mobility barriers can deter companies from entering the industry or the market. Here the competitive force that is being assessed is the threat of new entrants. The third step in structural analysis within an industry is to evaluate the relative bargaining power of each strategic group in the industry with its suppliers and buyers. Since the bargaining power of the suppliers and the buyers are closely related, these two competitive forces are being combined. The fourth step is to assess the relative position of each strategic group with reference to substitute products. And the last...