The industry analysis (also called 5 C’s analysis) is a tool for decision makers to understand how
companies distribute the profits available in a market. In this model, each company’s economic
viability is influenced by the competition and other players.
Please read the following article for more information on the elements of an industry analysis:
Casadesus-Masanell, R. (2014). Strategy Reading: industry Analysis. Harvard Business
Publishing.
The list presented below includes all the possible sections required for this analysis. You may
have to combine or omit items since some of them may not apply to the selected company or
information is not available.
1) Potential entrants
2) Buyers
3) Complements
4) Suppliers
5) Substitutes
Full Answer Section
Complements
Complements are products or services that are used in conjunction with the industry's products or services. The power of suppliers of complements is high if the complements are essential and there are few suppliers.
Suppliers
Suppliers are the companies that provide the inputs that the industry needs to produce its products or services. The power of suppliers is high if there are few suppliers, the suppliers are concentrated, or the industry's inputs are essential.
Substitutes
Substitutes are products or services that can be used instead of the industry's products or services. The threat of substitutes is high if there are many substitutes that are close in price and quality.
Industry Analysis Example
Here is an example of an industry analysis for the smartphone industry:
Potential entrants
The threat of potential entrants in the smartphone industry is high. There are low barriers to entry, as new companies can easily enter the market with relatively low startup costs. Additionally, there are few regulatory barriers to entry.
Buyers
The power of buyers in the smartphone industry is high. There is a large number of buyers, and buyers can easily switch to a competitor. Additionally, buyers have the ability to easily switch to substitutes, such as feature phones or tablet computers.
Complements
Complements to smartphones include wireless service plans, smartphone cases, and smartphone accessories. The power of suppliers of complements is high, as the complements are essential and there are few suppliers.
Suppliers
Suppliers to the smartphone industry include component manufacturers, such as Qualcomm and Samsung, and assembly manufacturers, such as Foxconn. The power of suppliers is high, as the suppliers are concentrated and the industry's inputs are essential.
Substitutes
Substitutes for smartphones include feature phones and tablet computers. The threat of substitutes is high, as there are many substitutes that are close in price and quality.
Conclusion
Industry analysis is a useful tool for decision makers to understand how companies distribute the profits available in a market. The five forces of competition are potential entrants, buyers, complements, suppliers, and substitutes. By analyzing these forces, companies can identify their strengths and weaknesses and develop strategies to improve their competitive position.
Sample Answer
Potential entrants
Potential entrants are companies that could enter the industry and compete with existing companies. The threat of potential entrants is high if it is easy for new companies to enter the industry. This can be due to low barriers to entry, such as low startup costs or low regulatory barriers.
Buyers
Buyers are the customers of the industry. The power of buyers is high if they have a lot of options and can easily switch to a competitor. This can be due to a large number of buyers, buyers with concentrated buying power, or buyers with the ability to easily switch to substitutes.