Directory UMM :Data Elmu:ppt:

(1)

Copyright © 2004 South-Western. All rights reserved.

Part II: Business Environment

J eff Madura

Introduction to

Business

3e

Introduction to

Business

3e

5

Assessing Industry

Conditions

Assessing Industry

Conditions

(2)

5–2

Assessing Industry

Conditions

(3)

5–3

Learning Goals

•

Identify industry conditions that

impact business performance.

•

Explain why some firms are more

exposed to industry conditions.

(4)

5–4

Industry Characteristics

•

Firm performance can be highly

dependent on industry

characteristics:

–

Industry demand

–

Industry competition

–

Labor environment

(5)

5–5

Small Business Survey

(6)

5–6

Impact of Industry

Demand

•

Industry demand

–

Total demand for the products in an industry

can be affected by:

 Population growth

 Seasons and weather  Economic conditions

 Changes in consumer income levels and

preferences

–

Impacts the performance of individual firms

(7)

5–7

Industry Competition

•

Each industry has firms that

compete against each other for

customers.

–

Level of competition varies across industries

 Intense competition can reduce market

share and profitability of individual firms.

–

Weak competition in an industry

 Increased market share for individual firms

(8)

5–8

Labor Environment

•

Labor characteristics differ by

industry:

–

Cost of labor

–

Impact of unions

 Can increase cost of labor  Possibility of labor strikes

–

Managers must try to estimate how the labor

(9)

5–9

Regulatory Environment

•

Federal regulations

–

Environmental rules

–

Restrictions on operating in particular

locations

–

Restrictions on who can engage in particular

types of business

–

Restrictions on the types of services that can

be provided

(10)

5–10

Summary of Industry

Characteristics

•

Consider the impact of all industry

characteristics on firm performance

–

Changes in demand and competition

 Impact quantity of products produced,

revenues and operating costs

–

Changes in labor and regulatory

environment

(11)

5–11

Industry

Effects on a

Firm’s

Performance

(12)

5–12

business online

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(13)

5–13

Sources of Industry

Information

•

Many firms attempt to monitor

industry conditions on their own.

–

Good sources of industry information

 Value Line Investment Survey

– Information about publicly traded firms:

financial characteristics, earnings forecasts, general information

 Standard and Poor’s Industry Outlook

– Industry data to help forecast industry demand, competition, the labor and regulatory

(14)

5–14

Exposure to Industry

Characteristics

•

Some firms are more exposed to

industry conditions than other firms.

•

Factors that impact a firm’s

exposure:

–

The firm’s market share

–

The firm’s focus on its main industry

 Smith Corona in typewriters and word

processors

(15)

5–15

Influence of Market Share on

Exposure to Industry Conditions

(16)

5–16

Comparison of Performance

across Industries

(17)

5–17

Reducing Exposure

•

Diversification

–

Developing and acquiring businesses in a

variety of industries or markets to reduce

business risk.

 Attempts to create a more stable return on

investment than focus on a single industry.

 Firms should only diversify into businesses

(18)

5–18

How Diversification Can

Influence

the Return on Equity

(19)

5–19

Competing Within an

Industry

•

Intense competition can separate

the performance of well-managed

firms from poorly managed firms

•

To enhance performance potential,

firms should:

–

Assess its competitors.

(20)

5–20

Assess the Competition

•

Identify industry segments and main

competitors by:

–

Segmenting by type of business

 Degree of competition differs by segment

–

Segmenting by perceived quality

•

Measure the degree of competition

–

Anticipate changes in competition

 Entry and exit of competitors

 Expansion of existing firms

(21)

5–21

Identifying Industry

Segments

(22)

5–22

Develop Competitive

Advantage

•

Ways to maintain or increase market

share:

–

Low-cost production

 Set a lower price to gain market share.

–

Better quality than competitors

 Create higher quality without incurring

excessive costs.

–

Product differentiation

 Satisfy customer needs in ways that are

(23)

5–23

SWOT Analysis

•

Firms use SWOT analysis to develop

a competitive advantage

–

Assess

strengths

and

weaknesses

–

Identify

opportunities

and

threats

(24)

5–24

Chapter Summary

•

Industry demand, competition, and the

labor and regulatory environments

influence business performance.

•

Firms that have large market share and

focus most of their business on that

industry will be most affected by industry

conditions.

•

Firms can successfully compete by