The document provides a framework for analyzing industries, including analyzing the industry life cycle and key factors such as growth, profitability, demand and supply, entry barriers, competition, and bargaining power of buyers and suppliers. It discusses analyzing industries based on Porter's model and conducting a SWOT analysis. The key aspects of industry analysis covered are the industry life cycle stages, metrics like growth, profitability, demand and supply balance, capacity utilization, entry barriers, competition/market share, bargaining power of buyers and suppliers, substitute products, and technology trends.

1. Q.1) Considering the recent economic developments, choose an
industry and analyse the industry as a whole. Use the sample
industry analysis framework as given in our chapter for your ready
reference.
Industry analysis helps an investor to know an industry or sector, better. For
example, IT, banking, automobile etc. It helps you remain fully abreast of the
trends in individual industry. It provides an up-to-date database and an incisive
analysis of what the numbers speak. It is helpful in understanding the future
functioning and performance of specific industries and respective companies.
Thereby, it is helpful in zeroing in on the right industry segment for final
investment.
In specific, following are the important areas where an investor or analyst
can get an idea of the industry environment.
• Stages of industry life cycle
• Prices of the products and services
• Demand and supply condition
• New investments
• Level of competition
• Regulatory environment
Like other living creatures, industry also has its circle of life and imitates the
human life cycle. The various stages of industry growth are:
• Innovation, technological development, initial phase.
• Growth phase.
• Competitive or maturity phase.
• Declining phase.
Innovation Phase
Whenever a new product is launched in the market there are a few
manufacturers and because of that the product has high demand. In the
initial phase of production the demand is high because the companies are
started based on product demand only. However, the profit margin is
normally very less as the industry is in infancy stage and unable to utilise
maximum resources.
In the initial stage of the industrial life cycle of a new industry the
technology as well as the product are relatively new and have not reached a

2. state of perfection. This is the stage when the new industry develops the
business. At this stage, the new industry normally takes shape when an
entrepreneur overcomes the twin problems of innovation and invention, and
works out how to bring the new products or services into the market. The
best example is that of the early 90s when a few companies like Infosys and
Wipro started in India, finding business opportunities in IT services. During
that time the IT service industry was in a fragmented stage.
This is also immediately followed by the innovation phase wherein the
product innovation is less important but the process innovation begins.
Therefore, because the product is more or less tested now, the question that
emerges is how best the process of production can be improved to have a
competitive edge. New competitors enter an industry after studying the
business potential. The investment at this stage is also a bit risky. It is
because there is no guarantee that the company will be able to overcome
the business challenges despite having technology and processes in place.
Industry Cycle Vs Economic Cycle
We have discussed economic cycle in the previous chapter. However, a
specific industry cycle is not necessarily the same as a business cycle. Very
often a specific industry will out-perform or even drive in the opposite
direction to the general economic cycle. For example, pharmaceutical stocks
are generally resistant to the business cycle. Most individuals buy drugs for
the sole purpose of curing illness. For this reason we cannot assume that
there will be much correlation between demand for medicine and the
economy (one could make that the case if recession leads to people getting
ill because of an increase in stress levels but no such research has been
done). These industries are termed as ‘counter-cyclical’.
INDUSTRY ANALYSIS
As discussed earlier, when we analyze the industry we have to analyze the
industry life cycle, then analyze the industry based on Porter’s Model and
also do a SWOT analysis. However, for ease of doing an analysis, the
following template can be used. The factors influencing those parameters are
also discussed here.

3. Industry Analysis Template
Growth
A growing industry gives room for profitability. But, a mature industry does
not give much chance of profit appreciation. While considering the growth in
value terms, remove the effect of inflation, i.e. an industry with 15 per cent
growth in 1989 when the inflation was 8 per cent, actually had a real growth
of only 7 per cent.
Profitability & Market Share
Average profitability of the industry should be attracti ve. Even if the past
profitability figures may not be high, a sudden turnaround in profitability is
favourable. Understanding a company’s present market share can
tell volumes about the company’s business. The fact that a company
possesses an 85% market share tells you that it is the largest player in its
market by far. When the firm is bigger than the rest of its rivals, it is in a
better position on to absorb the high fixed costs of a capital-intensive
industry.
Demand-Supply
The wider the demand supply gap, the better is the industry’s fortune in the
future. For instance, sponge iron in India is currently booming because the
demand exceeds supply. Similarly, if supply outstrips demand, the industry
faces recession as had happened to the auto industry in India since 1991 till
2000. Avoid such industries for investment.
Capacity Utilisation
Low capacity utilization is a corollary to slackening demand. The dry cell
industry in India is a vivid example.
Entry Barrier
High entry barrier is good for the existing companies. For instance, licensing
requirement for the pollution prone industries like asbestos and cement
stands as an entry barrier. Similarly, high investment cost stands as entry

4. barrier for the integrated steel, cement and petrochemical industries. On the
other hand, low entry barriers for the industries like financial services makes
them vulnerable to competition.
Competition and Market Share
Less the number of competitors, more would be their market share and
higher would be theirmargin. In an industry like television there are too
many competitors, each with very low market share and there is a rampant
price-cutting for survival. Thus the average profitability of such industry is
low. Sometimes price war forces the industry to become sick as happened in
the case of the moulded luggage industry during the Eighti es.
Bargaining Power of Buyers
If the customers have a greater power over the industry, its profits go down
and vice versa. If the buyers are a homogeneous group or industry, their
performance affects operations of the industry. For instance, a recession in
the auto industry had resulted in a recession in the auto-ancillary industry.
Similarly, bankruptcy of state electricity boards results in delayed payment
and hence high debtor turnover ratios for the electrical equipment
manufacturing industry.
Bargaining Power Of Suppliers
Bargaining power of the suppliers and the availability of inputs can affect
industries which do not have multiple sourcing. For instance, in 2003,
sponge iron manufacturers raised the price and this affected their
customers, i.e. mini-steel plants badly, due to which the prices of long
products increased substantially.
Threat Of Substitute Products
Industries that are innovation-oriented like the electronics industry always
face a threat of product obsolescence. Another threat is the competition
from substitute products. For example, in 1991 when the government
reduced the duty on imported scrap, which is a substitute for sponge iron in

5. mini-steel plants, the manufacturers of sponge iron had to reduce their price
immediately.
Technology Trends
Unless the industry has the upgraded technology, profitability cannot be
improved. The conversion of wet to dry process in the cement making
technology helped to improve the efficiency of those plants which opted for
such up gradation.
Q.2) List out two established key companies in your chosen industry.
A - Industry Life Cycle
B - SWOT Analysis.