Class Session 3

ICLA
This reading material has been prepared to teach the Industry Competitive Landscape Analysis course in Trim. 2 to 1st year full-time MBA students of NMIMS (2023-24 batch) of Division L and Division G, and is intended for their study and learning.
Conveying the contents of these to anyone else, or the use of these for any other purpose, is expressly prohibited
Industry Analysis in strategy formulation for a
firm
• The industry analysis for a firm’s strategy has the following
perspectives:
• Impact of several external factors on the industry of which the firm is a
part
• This informs the firm where its sub-universe is headed, and the impact of these
factors on all competing firms in the industry, and
• provides inputs for changes in the industry and industry boundaries
• Impact of external factors on the firm in question

• Different types of firms can be affected differently by the industry forces
• This analysis provides inputs on how the firm in question will be directly impacted
by the forces/factors
Industry Analysis in strategy formulation for a
firm
• An important perspective to firm strategy arising from industry analysis
• ‘Opportunities and threats’ from the external environment and the 5 forces are
assessed and examined as strategy is developed
• These ‘opportunities and threats’ need to be examined and assessed along

with the ‘strengths and weaknesses’ of the firm
• Both feedback and feed forward into each other in developing strategy
• Hence, the importance of session no.2 before session No.3
• The SWOT, together, are inputs to strategy development, which involves

the ‘firm-based view’ and the ‘industry-view’
• Undertaking , or doing, industry analysis…
Elements of industry analysis : PESTEL analysis –
for a macro-level assessment of opportunities and
threats
Economy-wide /Sectoral/Industry trends as an input to strategy -
Industry/Firm growth prospects affected by trends and

developments : Economic, Customer, Technology, Government,
Environment, and Social, Cultural, Political
• Generally, more industry-focused than firm-focused

• or at least, as much industry focused as firm-focused
Elements of industry analysis: the Five Forces and
their impact on the focal firm, and firms in an
industry
Examining again the Framework for Industry Analysis –Michael
Porter’s Five Competitive Forces that shape strategy….
Buyers
Anchor V Guard
Finolex Havells
Potential New
Entrants : e.g., Polycab Suppliers
Chinese imports Syska Others
KEI Cables (Several)
Legrand
Understanding Industry Analysis:

Examining the competitive impact of Substitutes to the
each of the five forces industry’s products –
e.g. IoT
There is a battle for Value Capture between all the
forces in the industry and the firms in the industry
The Value Capture impact of industry forces on a firm
The competitive threat of

‘bargaining power’ and inter-
firm competition
affects the firms in the industry
(and the industry) through
potential reduction in industry
(and firm) value capture
The Value Capture
impact of Buyers on Buyers exercise bargaining power over the firms in the
industry: By reducing prices,
Firms in an industry… or by demanding greater value from firms in the
industry
Buyers are therefore demanding higher ‘consumer-

surplus’ – the difference between value provided by
companies and price realised
Firms in the
Competitive impact on firms: this reduces firm profits;
industry and affects the business accruing to specific firms
However, where a firm’s product is differentiated (or is

in short supply), buyers can drive up prices and
consumption, leading to increase in profits and business
The Value Capture impact of industry forces on a firm– Suppliers and
Firms in an industry
Suppliers with a strong relative bargaining
position may extract a greater price from the
firm(s),
and reduce the firms’ contribution in value
capture
However, supplier firms may compete among

each other – leading to
- reduction in price,
- better quality products
hence, improving profits of buyers
This is the optimization reality for suppliers
The Value Capture impact of industry forces on a firm– Competitors,
Substitutes and Potential Entrants, and Firms in an industry
• Competitors in the industry,
Potential Entrants, and
Substitutes decrease a firm’s
value capture from buyers
through
• potential reduction in
prices, and
• through creating
differentiated offerings
This affects the business
obtained by firms, and reduces
profits
The Value Capture impact of industry forces on a firm– Competitors,
Substitutes and Potential Entrants, and Firms in an industry
Industry competitors, potential entrants

and substitutes compete with the
industry players by attempting to create
more Use Value and/or lower Exchange
Value and/or better consumer surplus
for the buyer
Simultaneously, all three are engaged in

attempting to extract maximum the
maximum price from the buyer – for
returns and profits
This is the optimization reality for these

three forces
Suppliers of input materials and their competitive
impact on firms in different types of industries
• Under what circumstances can suppliers of input materials exercise
high bargaining strength – i.e. the potential to charge higher prices?
• While we will largely relate our understanding to suppliers of input
component and raw materials, many of the principles will extend to
suppliers of other items as well
• i.e. plant, equipment, and services
Supplier Bargaining Power – Examining two cases of different levels of concentration of input material suppliers
Company 1 2 -3 companies In which of these

supply most of the input
two cases is the
items/material
bargaining power
of the suppliers
likely to be
higher?
Large
Company 2 Number
of
Dispersed
Suppliers
Supplier Bargaining Power – Examining two cases of different levels of concentration of input material supplies w.r.t. no. of
items and suppliers
The suppliers that would have

high bargaining power:
Quite obviously, the 2-3

companies supplying input
Company 1 2 -3 companies
supply most of the input Higher industry concentration
items/material leads to greater supplier
bargaining power:
What are the measures of

industry concentration?
Large
Number
Company 2 of
Dispersed
Suppliers
Measures of industry concentration
A simple/simplistic measure:
• Top 4, Top 8, Top 16 market shares
A more evolved measure:
• Hirschman –Herfindahl index : HHI=s12+s22+s32+…sn2
• where: sn=the market share percentage of firm n
items and suppliers
In which of
%age End Product Input High Supplier 2 -3 companies these two
Value Covered by Items/Material - Cover Industry supply each of the cases is the
input materials: 30% of End-Product Value Concentration input items/material competitive
impact of the
Deepening colour Input Items/ suppliers
shows higher Material: High Supplier 2 -3 companies likely to be
contribution from Cover Industry supply the input higher?
the input items
70% of end-products Concentration items/material
by Value
items and suppliers
%age End Product In which of

Input High Supplier 2 -3 companies these two
Value Covered by
input materials: Items/Material - Cover Industry supply each of the cases is the
30% of End-Product Value Concentration input items/material competitive
Deepening colour impact of the
shows higher Input Items/ suppliers
contribution from Material: High Supplier 2 -3 companies likely to be
the input items Cover Industry supply the input higher?
70% of end-products Concentration items/material
by Value
Quite obviously, the 2-3
companies supplying input
materials for finished products
accounting for 70% of total end-
product value
This leads to superior bargaining

power of suppliers, as well as
greater negative impact on value
capture by the
st firms
This reading material has been prepared to teach the Industry Competitive Landscape Analysis course in Trim. 2 to 1 year full-time MBA students of NMIMS (2023-24 batch) of Division L and Division G, and is intended for their study and learning.
items and suppliers
2-3 companies
%age End Input supplying input
Product Value Items/Material - Cover materials for
Covered by input 30% of End-Product Value finished
materials: products
Input Items/ High Supplier 2 -3 companies accounting for
Deepening colour 70% of total
shows higher Material: Industry supply the input
Cover Concentration items/material end-product
concentration in
70% of end-products
value -
fewer suppliers
by Value
What could be
examples of
these?
items and suppliers
Examples of such cases :
Suppliers of rare
%age End Many Input
Product Value
minerals/metals such as
Items/Material - Cover those to the
Covered by input 30% of End-Product Value
materials: semiconductor industry:
Gallium Arsenide,
Input Items/ High Supplier 2 -3 companies Silicon, Germanium etc.
Deepening colour
shows higher Material: Industry supply the input (Chinese cos. : >90% of
concentration in Cover Concentration items/material global supplies)
fewer suppliers 70% of end-products
by Value Semi-conductor chip
manufacturers (TSMC,
Intel, Qualcomm,
Nvidia)
Their buyer margins

would be low – unless
these end-products
products involve
specialization/design
quality
items and suppliers
Examples of such cases :
Suppliers of rare
%age End Input
Product Value
minerals/metals such as
Items/Material - Cover those to the
materials: semiconductor industry:
Gallium Arsenide,
Input Items/ High Supplier 2 -3 companies Silicon, Germanium etc.
Deepening colour
shows higher Material: Industry supply the input (Chinese cos. : >90% of
concentration in Cover Concentration items/material global supplies)
by Value Semi-conductor chip
manufacturers (TSMC,
Intel, Qualcomm,
Nvidia)
The high supplier

bargaining power could
affect industry
profitability
items and suppliers
The high supplier
bargaining power could
%age End Many Input affect industry
Product Value Items/Material - Cover profitability
materials: There would be two
types of impact:
Input Items/ High Supplier 2 -3 companies
Deepening colour Temporary cycles of
shows higher Material: Industry supply the input input material price
concentration in Cover Concentration items/material fluctuation (i.e.,
fewer suppliers 70% of end-products fluctuation in prices of
by Value rare metals / minerals) –
can seriously impair
short-term customer
performance
However, of relevance
to strategy is the
potential, sustained,
long-term low
profitability of
customers with low
value-addition
items and suppliers
The high supplier
%age End bargaining power could
Many Input
Product Value affect industry profitability
Items/Material - Cover
Covered by input 30% of End-Product Value There would be two types
materials:
of impact:
Input Items/ High Supplier 2 -3 companies Temporary cycles of input
Deepening colour
shows higher Material: Industry supply the input material price fluctuation
concentration in Cover Concentration items/material (i.e., fluctuation in prices of
rare metals / minerals) –
can seriously impair short-
by Value term customer
performance
How does this affect the
inter-firm dynamics in the
low value-added buyer-
industries?
Buyers that are not

financially strong will
either gradually exit, or will
cease to be threat to large
players
items and suppliers
Case 1
The few
%age End Input concentrated
Product Value Items/Material - Cover
suppliers would
have high bargaining
materials: power in case 1
where the
Input Items/ High Supplier 2 -3 companies
Deepening colour buyers are
shows higher Material: Industry supply the input
dispersed
concentration in Cover Concentration items/material
If the buyers are not
by Value
dispersed, but are
concentrated; and
account for a
sizeable proportion
of supplier business,
the bargaining
strength of the
suppliers would be
relatively lower
If the buyers are not dispersed, but are concentrated. the
bargaining strength of the suppliers would be relatively lower –
an example
Area Buyer's relative position Illustration

A buyer industry is Higher bargaining Power Projects of power
important to the supplier, and is cos.- few companies
concentrated in a few buyer and engineering
firms construction firms (suppliers)
Having seen the case of a larger part of a firms’
business accounted for by a concentrated supplier
industry – which lends bargaining strength to
suppliers
Let us explore the case of bargaining strength /

impact of concentrated suppliers based on the
proportion of the supplier industry’s output sold
to firms
Bargaining strength / impact based on the portion of the concentrated supplier industry’s output
sold to firms
Dealer channel and workshops: Account for 20%

No. of firms across of Grinding Wheel Business
2 industries
Industry 1 Grinding Wheel Suppliers Caveat –
buying a specific
supply grinding wheels and Unless the
supplier industry's
product. abrasives to two customer groups company has
Deepening colour : highly
higher %age of differentiated
supplier firms' Industry 2 Machine Tool Companies - products and
business Account for 80% of Grinding Wheel Business pricing power
The grinding tool companies’ pricing to Industry 1 , which accounts for a much smaller part of the business of the grinding
wheel companies’ business (assuming that these two companies are the only major suppliers of grinding wheels), will be
relatively higher – i.e., commanding higher margins
The steel industry will be more guarded in their pricing to the construction industry
• accounting for 50% of steel consumption
than in their pricing to , say, the steel packaging drum manufacturers
•This
st
accounting for a much smaller proportion of consumption
reading material has been prepared to teach the Industry Competitive Landscape Analysis course in Trim. 2 to 1 year full-time MBA students of NMIMS (2023-24 batch) of Division L and Division G, and is intended for their study and learning.
We have examined bargaining strength accruing from
‘muscle’, i.e., strength arising more from quantitative
factors – i.e., strength from concentration
Exploring and examining now, the aspect of bargaining strength to

suppliers arising from qualitative factors : products that are
differentiated
Bargaining strength to suppliers arising from qualitative factors : products that
are differentiated
%age End
Product Value
Covered by input
materials:
Deepening colour
shows higher
concentration in Crucial, highly differentiated input items
fewer suppliers made by supplier firms; account for moderate
to low value of industry end-products
Bargaining strength to suppliers arising from qualitative
factors : products that are differentiated
• Quite obviously,
• the concentration of supplies with a few firms enables high prices and
margins
• the differentiated nature of these products ensures that the supplying firms
can charge a premium.
• Can there be a further competitive, strategic advantage for the

supplier industry?
• i.e., for e.g., in the case of products which may be a small part of the actual
value of the user firm’s end-product…
• is there another factor that leads to further price leverage to these companies?
Bargaining strength to suppliers arising from
qualitative factors : products that are differentiated
• Consider some companies whose products are
• highly differentiated
• made only by a few companies?
• Characteristics of most such items :

• Technologically advanced, complex and proprietary
• Examples…
Teflon – from DuPont
• Teflon : Properties:
• High Strength
• Flexibility
• Durability
• Non-reactive – except at very high temperatures, and that too with specific
metals
• Corrosion resistance
• Temperature resistance
Teflon – from DuPont
• Teflon : Uses :
• Industrial Manufacturing:
• Corrosion and chemical resistant coating on metals in chemical factories
• Automotive
• Use in making automotive components – fuel pipelines, fuel tank valves, piston rings: due to
temperature and chemical resistance properties
• Heated seats
• Brake sensors
• Consumer electronics
• Cable manufacture
• Semiconductor manufacture
• Also used in making ‘Tawas’ in India that are non-stick
• This material is not directly substitutable
Other examples
• Other examples of such differentiated offerings:
• Intel – supplying processor chips to the PC/DC industry and for enterprise
servers
• Snapdragon (from Qualcomm) : supplies microprocessor chips to the
Smartphone industry.
• Nvidia : supplying video graphic processing units for use in PC’s/DC’s and
gaming hardware
qualitative factors : products that are
differentiated
• In all these cases, the offering is a brand popularised by the company
with the ‘customer’s customer’ – i.e. with the individual and business
customers
• Provides a value to the consuming company that is in excess of

monetary, functional and physical value
• ‘My Product Uses Teflon/Intel/Snapdragon’ is an important industry-

level benefit to consuming industrial product and consumer product
firms
qualitative factors : products that are differentiated
• The competitive, strategic implication for the firms in the user

industry?
• The firms that use these product have a competitive advantage vis-à-
vis the other firms that don’t
• E.g., Dell, HP, Lenovo models with Intel; all high end Smartphones
with a Snapdragon processor; Teflon coated consumer and industrial
products
• Correspondingly, the firms that do not use these brands may have a
lesser brand image and reputation
Examining the likely tendency of firms to charge very high prices for
differentiated products if the contribution of that product to the
supplying firm’s business is high
• Intel – has a high dependence on the PC/DC industry; hence, it is
likely to be circumspect in prices charged to firms in these industries
• Snapdragon – likewise in Smartphones
• Nvida – Likewise in the PC/DC segment
• Teflon – has business from multiple industries; hence, will extract its
price in many industries
The Bargaining Strength of Buyers
Bargaining strengths of buyers and sellers can be understood in relative

terms
- i.e., situations that provide a bargaining strength to suppliers vis-à-vis
firms in the industry
- are those that provide bargaining strengths to the firms in the industry
vis-à-vis their buyers
- or reduce the bargaining strengths of buyers vis-à-vis the firms in the
industry
Examining a few other cases of bargaining strength
of suppliers (i.e. the firms in the industry)….
Area Supplier's position Illustration

The product Higher bargaining Power Engines of Pratt and Whitney,
supplied to the buyer industry Rolls Royce, CFM supplied
by a supplier is crucial to the to aircraft manufacturers
quality of the buyer industry
A buyer industry faces high Higher bargaining Power Cans for packaging
switching costs from a supplier supplied by a firm, along
industry with expensive and complex
packing machinery
Forces other than suppliers and buyers – conditions that avert/lead to their impact on the
industry/firm
Threat of New Entrants - Barriers: Threat of Substitutes - Factors to be assessed :

• Economies of Scale • Changes in buyer behaviour
• Cost Benefits independent of scale • Regulatory and ESG developments
• Intangible assets : brands, patents and • Tech-based disruptions
technology
• Distribution channels, customer loyalty
• Supply chain resources
• Tacit competencies – path dependent; firm-
specific
Firms in the industry need to assess

opportunities as well as threats: Inter-firm rivalry….Factors to be assessed :
-i.e., Can the firm enter, or extend its • The structure of the industry (no. and types of
business into, a new industry firms), and the business context and conduct of
the firm
Can a firm substitute another industry • Certain industry characteristics - Exit Barriers and
or its products Industry Growth
Complementors
• Complementors to an industry are products or services that facilitate
and aid the sale of the industry’s products
• As they are sold or made available along with the industry’s products, they
add value by improving the fulfilment of customer needs
• The emergence, development, and growth of complementors can

influence the growth and profitability of an industry favourably
• and affect the growth and profitability of others unfavourably
Complementors – examples:
• Cabling and related technologies, and wireless technologies for broadband
networks
• Can provide a fillip to a large range of IT, tech-enabled and digital businesses
• Social and Digital Media : Facebook, Instagram, Twitter, YouTube, OTT services etc.
• Mobile communication
• E-commerce
• Tech startup propositions
• IT enablement of firms
• among others
• The development of the national highways can accelerate the growth of the
commercial and passenger transport
• To the detriment of railway transportation
• App’s and functionalities for mobiles – can increase usage and sales of mobile
phones
• and reduce business for certain conventional industries : e.g., the publishing industry
• Increase in educated manpower – in specific disciplines – e.g., IT-trained manpower
for factories – can improve performance of a range of manufacturing industries

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ICLA

• Impact of external factors on the firm in question

• These ‘opportunities and threats’ need to be examined and assessed along

• The SWOT, together, are inputs to strategy development, which involves

Economy-wide /Sectoral/Industry trends as an input to strategy -

Industry/Firm growth prospects affected by trends and

• Generally, more industry-focused than firm-focused

Understanding Industry Analysis:

The competitive threat of

Buyers are therefore demanding higher ‘consumer-

However, where a firm’s product is differentiated (or is

However, supplier firms may compete among

This is the optimization reality for suppliers

Industry competitors, potential entrants

Simultaneously, all three are engaged in

This is the optimization reality for these

Company 1 2 -3 companies In which of these

The suppliers that would have

Quite obviously, the 2-3

What are the measures of

%age End Product In which of

This leads to superior bargaining

Their buyer margins

The high supplier

Buyers that are not

Area Buyer's relative position Illustration

Let us explore the case of bargaining strength /

Dealer channel and workshops: Account for 20%

Exploring and examining now, the aspect of bargaining strength to

• Can there be a further competitive, strategic advantage for the

• Characteristics of most such items :

• Provides a value to the consuming company that is in excess of

• ‘My Product Uses Teflon/Intel/Snapdragon’ is an important industry-

• The competitive, strategic implication for the firms in the user

Bargaining strengths of buyers and sellers can be understood in relative

Area Supplier's position Illustration

Threat of New Entrants - Barriers: Threat of Substitutes - Factors to be assessed :

Firms in the industry need to assess

• The emergence, development, and growth of complementors can

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