This document provides an overview of various frameworks and models that are used in analyzing industries, including: - SWOT analysis which examines internal strengths and weaknesses as well as external opportunities and threats. - PEST analysis which evaluates the political, economic, sociocultural and technological external factors affecting an industry. - Porter's Five Forces model which assesses the competitive environment through analyzing the bargaining power of suppliers and customers, threat of new entrants and substitutes, and competitive rivalry. - Porter's Diamond model which examines factor conditions, demand conditions, related and supporting industries, firm strategy/structure/rivalry, and government role in determining national competitive advantage.

1. Analysis of Pakistan Industries
Spring 2010
FRAMEWORKS AND MODELS

2. MODELS & FRAMEWORKS USED IN THIS COURSE
• SWOT
• PEST (STEP)
• Porter’s Five Forces
• Porter’s Diamond

3. S = StrengthsS = Strengths
W = WeaknessesW = Weaknesses
O = OpportunitiesO = Opportunities
T = ThreatsT = Threats
INTERNAL
EXTERNAL

4. STRENGTHS
•Capabilities?
•Competitive advantages?
•USP's (unique selling points)?
•Resources, Assets, People?
•Experience, knowledge, data?
•Financial reserves, likely returns?
•Marketing - reach, distribution, awareness?
•Innovative aspects?
•Location and geographical?
•Price, value, quality?
•Accreditations, qualifications, certifications?
•Processes, systems, IT, communications?
•Cultural, attitudinal, behavioural?
•Management cover, succession?

5. WEAKNESSES
•Gaps in capabilities?
•Lack of competitive strength?
•Reputation, presence and reach?
•Financials?
•Own known vulnerabilities?
•Timescales, deadlines and pressures?
•Cashflow, start-up cash-drain?
•Continuity, supply chain robustness?
•Effects on core activities, distraction?
•Reliability of data, plan predictability?
•Morale, commitment, leadership?
•Accreditations, etc?
•Processes and systems, etc?
•Management cover, succession?

6. OPPORTUNITIES
•Competitors' vulnerabilities?
•Industry or lifestyle trends?
•Technology development and innovation?
•Global influences?
•New markets, vertical, horizontal?
•Niche target markets?
•Geographical, export, import?
•New USP's?
•Tactics - surprise, major contracts, etc?
•Business and product development?
•Information and research?
•Partnerships, agencies, distribution?
•Volumes, production, economies?
•Seasonal, weather, fashion influences?

7. THREATS
•Legislative effects?
•Environmental effects?
•IT developments?
•Competitor intentions - various?
•Market demand?
•New technologies, services, ideas?
•Vital contracts and partners?
•Sustaining internal capabilities?
•Obstacles faced?
•Insurmountable weaknesses?
•Loss of key staff?
•Sustainable financial backing?
•Economy - home, abroad?
•Seasonality, weather effects?

8. PEST ANALYSIS
P = POLITICAL FACTORS
E = ECONOMIC FACTORS
S = SOCIOCULTURAL FACTORS
T = TECHNOLOGICAL FACTORS

9. PEST ANALYSIS
• A PEST analysis is an analysis of the external
macro-environment that affects all firms.
• External factors usually are beyond the firm's
control and sometimes present themselves as
threats.
• However, changes in the external environment
also create new opportunities.

10. Political Factors
• This is the most important influence on the
regulation of any business.
– How stable is the political environment?
– Influence the Government Policy / Law on
your business
– Government’s position on Marketing Ethics
– Government’s policy on the economy
– Government’s view on culture under religion

11. Political Factors - Contd.
– Political System is responsible for Law
Making.
– Immediate laws which affect any business in
general are Central Excise, Sales Tax/ VAT,
Corporate Income Tax, Personal Income Tax
& Service Tax
– Environmental Protection Law
– Controls if any on Marketing Strategies
• Like Marketing / Advertising of Cigarettes,
Tobacco, Alcohol etc.

12. Political Factors - Contd..
• Control on Pricing
– like sugar, drugs etc.
• Government Policies on the Economy
– Role of Public Sector
– Role of Private Sector
– Role of Joint Sector

13. Economic Factors
• Government outlook towards
– Bank Financing
– Interest Rates
– Exchange Rate Mechanism
– Incentives for Exports
– Restrictions for Imports
– Inflation
– Labour Policies

14. Economic Factors - Contd.
• Level of Government Spending
• Avenues for Capital Creation
– Size of the Capital Market
– Role of the Regulator
– Type of the Instruments
– Nature of the Investors
• Business Cycles
• Monsoon
• Energy Availability
• Cost and availability of Energy

15. Socio-Cultural Factors
• Demographics
• Distribution of Income
• Social Mobility
• Life Style Changes
• Consumerism
• Educational Levels

16. Socio-Cultural Factors - Contd.
• Demographics & Distribution of
Income
– Division of population - Male / Female
– Age Group of the Population
– Disposable Family Income
• Disposable Income in the hands of the
different Age Groups
• Education Level of the Age Groups

17. • Life Style Changes & Consumerism
– Attitude to living
• Different Age Groups
• In tune with available disposable income
• Thrust on taking care of present needs by
spending than saving for the future.
• Joint living and nuclear families
• Availability of various media tools
• Reach of the media to the population
Socio-Cultural Factors - Contd.

18. • Advantage of Technology
– In terms of Economies of Scale
• New Discoveries & Innovations
• Speed & Cost of Technology Transfer
• Rate of Obsolescence
Technological Factors

19. PORTER’S Five ForcesPORTER’S Five Forces

20. Bargaining Power of Suppliers
The term 'suppliers' comprises all sources for inputs that
are needed in order to provide goods or services. Supplier
bargaining power is likely to be high when:
The market is dominated by a few large suppliers
There are no substitutes for the particular input,
The suppliers customers are fragmented & their bargaining
power is low
The switching costs from one supplier to another are high,
There is the possibility of the supplier integrating forwards in
order to obtain higher prices and margins.
Forward integration provides economies of scale for the supplier

21. Bargaining Power of Customers
Similarly, the bargaining power of customers determines
how much customers can impose pressure on margins
and volumes. Customers bargaining power is likely to be
high when:
 They buy large volumes,
 there is a concentration of buyers
 The supplying industry comprises a large number of small
operators
 The supplying industry operates with high fixed costs,
 The product is undifferentiated and can be replaces by
substitutes,
 Switching to an alternative product is relatively simple and is
not related to high costs
 Customers have low margins and are price-sensitive,
 Customers could produce the product themselves,
 The product is not of strategical importance for the customer,
 The customer knows about the production costs of the product

22. Threat of New Entrants
The competition in an industry will be the higher, the
easier it is for other companies to enter this industry. The
threat of new entries will depend on the extent to which
there are barriers to entry. These are typically
Economies of scale (minimum size requirements for
profitable operations),
High initial investments and fixed costs,
Cost advantages of existing players due to experience curve
effects of operation with fully depreciated assets,
Brand loyalty of customers
Protected intellectual property like patents, licenses etc,
Scarcity of important resources, e.g. qualified expert staff
Access to raw materials is controlled by existing players,
Distribution channels are controlled by existing players,
Existing players have close customer relations, e.g. from
long- term service contracts,
High switching costs for customers
Legislation and government action

23. Threat of Substitutes
A threat from substitutes exists if there are
alternative products with lower prices of better
performance parameters for the same purpose. They
could potentially attract a significant proportion of
market volume and hence reduce the potential sales
volume for existing players. This category also relates
to complementary products. Threat of substitutes is
determined by factors like
Brand loyalty of customers,
Close customer relationships,
Switching costs for customers,
The relative price for performance of substitutes,
Current trends.

24. Competitive Rivalry between Existing Players
This force describes the intensity of competition
between existing players (companies) in an industry. High
competitive pressure results in pressure on prices,
margins, and hence, on profitability for every single
company in the industry. Competition between existing
players is likely to be high when
There are many players of about the same size,
Players have similar strategies
There is not much differentiation between players and their
products, hence, there is much price competition
Low market growth rates (growth of a particular company is
possible only at the expense of a competitor),
Barriers for exit are high (e.g. expensive and highly
specialized equipment).

25. Porter’s Diamond
Competitive AdvantageAdvantage for Countries
Source: The Competitive Advantage of Nations, by Michael E. Porter.

26. • FACTOR CONDITIONS
– Capital
– Land
– Labour
– Technology
– Machinery
– Raw Material
– Infrastructure
– Knowledge
Porter’s Diamond

27. Porter’s Diamond
• DEMAND CONDITIONS
– Local Demand
• Factors driving local demand
– Growing population
– Educated population
– Sophisticated and informed population
– International Demand
• Countries having advantage due to
availability of a natural resource or human
resource

28. Porter’s Diamond
• FIRM STRATEGY, STRUCTURE AND RIVALRY
– Firm Strategy
• Goal setting
• Processes to achieve goals
– Industry Structure
• Organised vs. unorganised
• Public vs. private companies
– Competition
• Monopoly, Oligopoly, Imperfect Competition,
Perfect Competition

29. Porter’s Diamond
• RELATED OR SUPPORTING INDUSTRIES
– Cluster formation
– Vertical integration can create value
– Growth in supporting industries can effect a
certain industry.

30. • GOVERNMENT
– Regulations for the industry
– Taxes
– Incentives
– Effect on supply of raw material
– Affect on competition
Porter’s Diamond