Industry Analysis

What Is Industry Analysis?

Industry analysis refers to the analysis of the industry’s environment that guides the industry to
grow and survive in a competitive environment and gain a competitive edge in the industry as it
predicts the future and changes in the market and analyzes the threats and opportunities in the
way ahead and making decisions and planning accordingly.

The term industry analysis in strategic management explains the procedure followed to
evaluate or analyse the general market environment in which the business is operating. It is
necessary for every business to understand the industry dynamics by studying the trends, level
of competition, potential growth opportunities and resistances that it may face during operation
so that it can plan its business operation strategically for the future.

Analysis of the industrial condition is typically done by keeping in mind market size,
technological advancement, changes in rules and regulations, the objective of the company,
etc.

A detailed study of the industry analysis for business plan is important for strategic
decision-making that is equally important for the management and all stakeholders. It will also
help in proper resource allocation and use them to their optimum capacity along with the
implementation of cost control procedures.

This is a comprehensive guide on how one can conduct an industry analysis. If we learn these
skills and prepare for equity research analysts profile (conducting industry analysis plus
writing the report), we will certainly have better prospects than our peers.
The best way to learn is to do it in action. Just select an industry and follow the above steps to
do the analysis in reality and write a report. If we happen to sit for an interview for an
organization of the same industry, present the report along with our resume. We see how much
value addition would be for us during the interview and how it will help us uplift our
candidature in front of the interviewers.

Types of industry analysis for business plan conducted in companies.

 Analysis of competition – they need to understand the competitor’s profile, their

strength, weakness, market share, quality of products manufactured, etc and use them
as benchmark to compare them with the business. This will help in product and brand
positioning, pricing an differentiation.
 Customer and supplier analysis – This is required to understand the demand and
supply and plan business strategy as per the requirement. If supplier’s position is strong,
it may raise cost and affect sourcing of goods. A stron buyer market will lead to fall in
price, raising the requirement of cost control and innovation to maintain good customer
base to survive in the market.
 Analysis of market – This includes study of various parts of the industry including
market trends, size, growth, segmetation in the form or demographics, customer
 behavior or psychology, geographical environment, etc. It is necessary to use historical
data which will help in predicting the future as well.
 Study of the regulatory environment – Proper analysis of the rules and regulations
that should be followed, the general, laws that govern the industry, and the legal
implications of not following them should be done.
 Study of the value chain – It is important to study the entire chain starting from the
manufacturer to the end customer and identify potential opportunity for cost saving and
expansion.
 Financial and economic analysis – A major part of the industry analysis in
strategic management is study of the financial and economic indicators like inflation,
currency and interest rate fluctuation affecting the industry, effect of economic cycles,
effect of changes in international markets and global competitors in the industry, etc.
 Technology – Technological advancement is a very important factor contributing to
rapid changes in industrial environment. Thus, any business should track the latest
technological developments in the industry in which they are operating so that it is
possible to adopt those ideas in the business itself as fast as possible and remain on the
same page as the competitors. This will help the business to remain sustainable.

How To Do?

There’re many frameworks we can use to do industry analysis. But what’s more important is to
follow a few steps and get to the point where one can use the frameworks to assess the correct
picture of the industry.

First, we will look at the steps you can follow, and then we will talk about the frameworks
economists/equity research analysts can use to analyze the market/ industry.

 Review the available information: you will be able to find many available reports,
white papers, analyses, research reports, and presentations. If you don’t have any idea
about the industry you’re trying to analyze, first use these materials to get to know the
industry. Read everything you need to know and identify the key factors to help you
write the report after analysis. These reports and information can’t fully help you, but
they will give you some idea about what to look for while analyzing the industry.
 Get an idea about the right industry: It may happen that you’re searching for the
real estate industry. But real estate is a huge industry, and there are many sub-
industries like household complexes, commercial properties, hotels, the amusement
industry, etc. It would help if you got an idea about the right industry. If there’s no
relevance in the industry you’re searching for, you’ll lose focus, and the analysis will not
be able to pinpoint accurate data.
 Are you able to forecast future demand and supply? This is the key thing in any
industry. Why? Because everything depends on the demand and supply of the industry.
Here’s what you should do. Make a list of the competitors in the industry. Find out the
financial health of each competitor. Please take account of the growth rate and the
products they’re selling in the last five years. Then do a comparative analysis with your
business.
 Competition: This is the most important thing to consider. A business can use three
common frameworks to understand the micro and macro factors.
Examples

Let us apply some of the learning from the above step to industry analysis report of the
Automobile Sector, IT Services Sector, and Steel Sector, respectively.

Automobile
Industry Parameters IT Services Steel Sector
Sector

IT Services
thrive by
The income
providing
of Individuals Demand supply mismatch due to
Demand: Low-cost
affect the excess supply can put pressure on margin
proposition
sale of Cars
for the same
services

Industrial
Why would there be a
activities Labor/skill Infrastructure growth / Housing
continued demand
affect sales of shortage in Construction demand, especially in higher
for the
Commercial the long run urbanization areas
product/service
vehicle

Easy Loans
and interest Performance of downstream companies
rate should such as Cars, White goods, etc
help

Educated
manpower at
Steel prices
a reasonable
cost
Key supply drivers Price of iron ore
Metal Continuous
prices such as skill
Aluminium, enhancement
rubber, etc of employees

Degree/nature of Moderate. A high Low.

 degree of
The smaller
change – due Strongly dependent on the business
life cycle of a
to technology cycle and demand-supply gaps
change product.
changes /
high
Changes in competition
technology
Predictabilit
y is low due
High. to fast
technology
changes.
Due to car
buying by
consumer The clock
Predictability of and speed for the
Medium
business Commercial Business is
vehicle for high.
Goods
movement
Changes in
the
environment
every 2-3
years
Moderate
Not yet as
for cars.
the model is
Cyclicality? High for High
moving to
commercial
offshore
vehicle
Very
moderate.
More
demand-
supply gap
Ability to increase driven.
price ahead of Only if there is supply shortfall, else
Poor
inflation (Pricing poor
power) Commoditiz
ation at the
lower end and
moving up the
value chain

Some sort of monopoly Low in None at all – None

India.
 High
competitive
close to perfect
or Oligopoly intensity,
competition;
especially in
mid-segment

Yes. High-
Does the company have
value
a recurring Yes Yes.
purchase with
revenue stream
long cycle

Weak to the
moderate
Does the business Franchise/ brand.
have branding is Commodity with poor brand/franchise
No
franchise/brands, or strong in value
franchise.
is it a commodity India.
Lock in due
to Switching
costs

Commercial High
vehicles are growth
cyclical. currently due
Does the industry
Cars / to model
enjoy high growth Cyclical industry
personal shifts. Looks
rates? For how long
vehicle have likely for the
a much next few
steadier trend years

How To Write A Report?

The simple way to write a report is to follow the steps you used in the previous section. Here’s
how you can write a report on Industry Analysis effectively –

 Write an overview of the whole industry analysis – The purpose of writing the
overview is to give a big picture to the readers (CEO/ top management professionals)
quickly about your analysis. It’s important that you summarize important points and also
your findings in a brief manner.
 Analytical Presentation: This is the most important part of the report. It would help if
you used all your findings and analytical judgments to make this part effective. Use
graphs, charts, images, and pointers to emphasize your points. Talk about the micro and
 macro factors of the business. Also include the competitors, their products and services,
customer satisfaction, how much value the competitors are providing, what they’re
missing out on, etc. Analyze the controllable and uncontrollable factors and also mention
if there’re any recent developments in the industry.
 Forecast: In the next section, give your suggestions and forecast the industry’s
possible future. Also, mention the long-term and short-term valuation of the industry
and what could be the challenging issues in the future.
 Finally: Write a summary of the entire report in one-two paragraphs. Include the key
factors of the report and your suggestions in brief.

While writing the industry analysis report, it’s better if you use lucid language. If you would
like to use any jargon, mention the meaning so that the readers don’t get stuck in between.

 This industry analysis framework also leads to proper communication to

stakeholders regarding how to business is performing relative to the entire industry and
its future plans so as to gain faith and trust of the suppliers, shareholders or investors
and ensure a long-term relationship.

Industry Analysis Vs Competitor Analysis

Both the above are two different but related topics that lead to market research and planning.
But there are some differences between the two, as given below.

 The former focusses on industry as a whole but the later focusses only on the
competitors.
 The industry analysis framework deals with industry trends, dynamics, risks,
opportunities, etc, but the latter deals with same but related to competitor companies.
 The main purpose of the same is to provide information at the macro level like the
industry landscape, growth opportunities, unexplored niche, etc. But the latter has the
purpose of providing information about the competitor’s strategies, work process,
decision making, customer base, etc.
 The former provides an overall understanding of the market health and challenges that
is useful for decision making whereas the latter provides an understanding of the per
companies or competitors operate and use it as a benchmark for improvement.

3 major elements of industry analysis are –

1. Understanding the underlying forces at work. i.e changing customers need
and taste, technological innovations, globalization.
2. Understanding the attractiveness of the industry, whether it is feasible to
enter or invest in that industry.
3. Understanding the critical industry analysis factors that determine success
within the industry.