|You can use an industry and profitability
analysis in several ways to guide your strategic decisions.
You can benefit from industry analysis by:
Understanding the competitive forces in your industry.
Assessing the attractiveness of, and growth opportunities within, a
Developing effective strategies to raise your profitability, power,
and competitive position in an industry.
There are many features
of an industry that determine the intensity of competition and the level of
profitability. A widely used framework for analyzing these factors is the one
developed by Michael Porter of the Harvard Business School. Porter's five
Forces model views the profitability of an industry as determined by five
sources of competitive pressure.
|These five forces of competition include three
sources of "horizontal" competition: the bargaining power of suppliers and
buyers, and competition from established rivalry; and two "vertical"
competition: competition from substitutes and competition from new entrants.
The strength of each of these competitive forces is determined by a number of
key structural factors presented in the table.
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