hiST week we talked about what you would do if you were the economic
adviser of a big company and were asked to analyse its profitability
or that of another corporation.
Now you know how to do that, but what if your boss asked you to
analyse an entire industry, as often happens.
Your management might just want a "big picture" or overview of the
industry your company is in, so it can then ask you to advise on
But, more often, your management is toying with diversifying into a
related industry to make more money. But the managers know little
about that industry, so they want you to analyse it and report.
To do this, you can use a set of "tools" called the "five forces of
industry". They were formulated by a professor at Harvard
University's business school, and can be used to analyse any industry.
If you have attended a business school and gained your MBA, you will
already know these forces.
Force one is the intensity of rivalry among competitors. Let's imagine
that the motor trade in Hong Kong is an industry. Then, if you want to
get into the motor trade, you will find there is intense rivalry.
First, there is the dealer-distributor relationship. Instead of having
one distributor of Ford cars and a number of franchised dealers in
Hong Kong, the sole distributor is the authorised franchisee.
That means you cannot suddenly decide to sell Mazda cars and trucks in
Hong Kong - somebody else has the exclusive franchise.
If you did get a franchise for a new product in Hong Kong, you would
find the competition intense because all major European and Japanese
car manufacturers are already represented and the distributors and
franchisees are fiercely competitive.
They face further competition from the "grey-market" importers who
bring cars in on a personal basis and then sell them at a profit.
The second force is the bargaining power of buyers. Yes, it is very