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SAPM III UNIT INDUSTRY ANALYSIS
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Industry Analysis
• After economic analysis, we ask the question “which industries will benefit most from the upcoming economic
environment?”
• This will lead to several industries, and our analysis will lead us to choose the one that we find to be best positioned.
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What is an Industry?
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INDUSTRY GROUPS
• AGRICULTURE
• STEEL
• HEALTH CARE
• RETAIL
• AUTOMOBILES
• PHARMACEUTICAL
• FINANCIAL SERVICES
• HOTEL & TOURISM
• IT
• TELECOM
• UTILITIES
• PAPER & PRINTING
• BANKING
• FMCG
• INFRASTRUCTURE
• TEXTILE
• OIL AND GAS EXPLORATION
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SIC Code
• ECONOMIC SECTOR
– Manufacturing
– Distribution
– Services
• PRODUCT AND SERVICES
– List of what is offered by the industry
• GEOGRAPHIC SCOPE
– Local ,Regional, National, International
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Computer industry
• Different Market Segments
– Personal Computer
– Micro Computer
– Mini Computer
– Mainframe Computer
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Furniture industry
Home Furniture Office Furniture
Wooden Hosehold
Metal Household
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Industry Analysis tries to find out following answer
Difference between return for alternate industries
Future performance of currently performing companyin one period
Consistent performance over time
Risk difference between different industries
Risk variability over period of time
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ECONOMY AND INDUSTRIAL SECTORS
The economic performance of a country,to a large extent,determineFavourable and unfavourablable climate for its industrial participation
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Reasons of industrial analysis
• Provide an awareness of market performance
• Identify investment opportunities
• Important part of company’s business plan– Financial institutions
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Data Requirement
Product Line
Complementry Product
Product Growth
Product Pattern(Seasonal,Cyclical)
Econimies of Scales
Suppliers
Labour Market
Buyer and their Behaviour
Substitute Product
Prices
Marketing and Selling
Cost Structure
Logistic
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Industrial Life Cycle
It is Rise and Fall in Customer Interest
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Industrial Life Cycle
• Rise and Fall of Customer Interest
• Depend on extent of technology and innovation
• Each phase passes from four stages– Introduction Stage
– Growth Stage
– Maturity Stage
– Stability/Decline Stage
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Feature of Industrial Life Cycle
Marketing
Manufacturing
Competion
Risk
Margin
Strategy
High AdvertisingSkimming Pricing
Under CapacityHigh ProductionCost
Low
High
High butlowprofit
Increase Market Share
High Advertising
UnderCapacity Shift to High Production
Many Competitor
Groth VsRisk
High and HighProfitHigh Prices
ChangeQuality &Price Image
Market Segmentation Services
Optimum Capacity
PriceCompetition
Low
Low duetoprice war
Marketing Effectiveness
LowAdvertising
Overcapacity, Mass Production
Exit,Fewer
Very HighRisk
LowProfit
CostControl
Introduction Growth Maturity Decline
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TOOLS FOR INDUSTRY ANALYSIS
Qualitative
• Cross sectional industry performance
• Industry performnce overtime
• Difference in industry risk
• SWOT analysis
• Competition over industry life cycle
Quantitative
• Analysing employmentdata
• Analysis of emolumentdata
• Input output analysis
• Earning dataanalysis
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Cross sectional industry performance
• Aimed at finding out variability in Rate of return among various industries in given time period
• compare performance
in term of
– Sale
– profit
– market capitalisation
– dividend
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Example
• Stock market growth=10%
• Industrial growth rates
= 5% to 8%
• Stock market growth=50%
• Industrial growth rates
= 80% to - 20%
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Industry performance over time
• To identify stage of product life cycle
• Time duration 3 to 5 year
• Difficult to forecast future performance due to
compositional change
in industry
technological change
innovation
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Differences in industry risk
• Besides focussing on return also consider risk
• Specifically investigate two question– Does risk differ across industries in given time period
– Are industry risk stable over time
• Measured in term of variability in return/productive value
• Risk pattern also depend on economic situation
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SWOT ANALYSIS
• Assess strenthand weakness
• Internal capability ofindustry
• Competitive advantage or defensive against weakness
Strenth & weakness Opportunity & threat
• Evaluate opportunity and threat
• Environmental trend
• External situation
– Competitive forces
– Technology
– Government regulation
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SWOT analysis
STRENTH
• Capicity
• Competitive advantage
• Good custermor service
• High quality product
• Customer loyality
• Financial resources
WEAKNESS
• Limitation default defect
• Competitor has exploitable advantage
• Example:– Small scale industry hs poor
financial resources
– Industry that cater domestic market, would have weakness of catering to global market
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SWOT analysis
Opportunity
• Favourable condition in environment
• May be trend or need
• Growing market of industry product
• Shrinking competition
• Identification of new market
Threat
• Unfavourable situation
• May be barrior or constraint
• Slowing domestic economy
• Competition
• New entrant
• New technology
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SWOT analysis
Confront Avoid
Exploit Search
Strenth Weakness
Internal environment
Threat
External environment
Opprtunity
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Analysing Employment data
• Life cycle can be predicted by Product life cycle
• Help in identify key industries
• Identify growth and decline
• Evaluate importance of industry to economy
• DetermineCompetitiveness among industries
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Data Requrement
• Industry wise total employment in current as well earlier years• Industry wise total emolument data in current as well earlier years
Employes:Who receive wge and hold clerical superwisery post
Duration of analysisShort : Changing environmentLong : Predictive purpose
Base year
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• Employment share of sub industry
= Employment in sub industry *100
Total employment in industry
Employment in wools=2000
Total in textile =11500
% Share =2000/11500*100 ie 17.39%
• Change in employment
Current yr no. Of employes _1 *100
Base yr no. Of employes
Current employes:1500
Base yr employes:1200
% change : [(1500/1200)-1]*100ie 25 %
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Location quotient:Measure concentration of industry’s
concentratio in an area relative to rest ofnation
• Industry location quotientIndustry share of regional employment
Industry share of national employment
or
Industry’s regional employment
Total national employment
Industry national employment
Total national employment
% change in locationquotient
• [(Current yer LQ/Base yr LQ)1]*100
• LQ = location quotient
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Employment shift analysis
Base yr total national employment
National avarage growth rate
Current yr total national employment -1 Base yr total national employment
Industry avarage growth rate
Regional industry base year employment * national avg growth rate
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Emolument Data
• Sum of wages and salaries,employer’s contribution to provident fund
• And other fund and workmen and staff welfare expenses
Emolument per employ=Industry regional emolument
Industry regional emolument
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• Change in emolument per employe by industry
Current yr emolument per employe
Base yr emolument per employe -1 * 100
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Input output analysis
• Total input
Include value of fuel,material consumed,expenditure,repair costtaxes,,postage,banking charges
• Total output
value of product
byproduct
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