Prospects and Financial Attractiveness of Industry

Prospect of financial attractiveness of industry is the last and final step of competition analysis.

An industry will be termed an attractive if profit prospects are above average. Means if ROI is greater than KO then industry will be termed as an attractive .Similarly an industry will be unattractive if its profit prospects are below average. Means if ROI is less than Ko. However, it is a mistake to think of industries as being attractive or unattractive to all firms in the industry and all potential entrants. Attractiveness is relative, not absolute. Industry environment not attractive to weak competitors, but maybe attractive to strong competitors.

Like mobile service providing was not attractive for aircel but this is indeed attractive for reliance jio.

This shows the use and the results of analysis of previous six issues to draw conclusions about the relative attractiveness or unattractiveness of the industry, in both near-term and long-term. Profit prospects are above average.

Company strategists have to assess the industry outlook carefully, deciding whether industry and competitive conditions present an attractive business opportunity for the organization or whether its growth and profit prospects are loamy.

Following are important factors of judging financial attractiveness -

Memory Code: POSITIVE

P- Profitability

O- Organizational competitive position

S- Sustainable growth potential.

I- Industry as a whole

T- Technological risk

I- Industry profitability

V- Vulnerabilities or weaker rivals

E-Ensuring the company ability to defend

• Profitability- Whether competition currently permits adequate profitability and whether competitive forces will become stronger or weaker?
• Organizational competitive position - Organizational competitive position in the industry and whether its position is likely to grow stronger or weaker. (Being a well-entrenched leader or strongly positioned contender in an otherwise lacklustre industry can still produce good profitability; however, having to fight an uphill battle against much stronger rivals can make an otherwise attractive industry unattractive.)
• Sustainable growth potential- Whether continued participation in this industry adds importantly to the   firm’s ability to be successful in other industries in which it may have business interests?
• Industry as a whole is confronted by Problems and severity of problem.
• Technological risk and degree of uncertainty in the industry’s future.
• Industry profitability will be favourably or unfavourably affected by the prevailing driving forces?
• Vulnerabilities or weaker rivals can be acquired. The potential to capitalize on the weaker player of market.
• Ensuring the company ability to defend against or counter act the factors that make the industry unattractive?

If the industry and competitive situation is judged relatively unattractive, more successful industry participants may choose to invest cautiously, look for ways to protect their long-term competitiveness and profitability, and perhaps acquire smaller firms if the price is right; over the longer term, strong companies may consider diversification into more attractive businesses. Weak companies in unattractive industries may consider merging with rival to bolster market share and profitability or, alternatively, begin looking outside the industry for attractive diversification opportunities.

Purpose of Competitive Analysis -

Purpose of methods of competitive analysis is to get a clear picture of following:

Memory code: PICK

1. Potential attraction of investment-organizational funds
2. Intensity of competition-the drivers of industry change
3. Competitors strategies and market positions of competitors and company
4. Competitive success, and profit prospects
5. Key industry traits

Competitive analysis helps strategists in taking decision after proper evaluation of environmental forces.