Definition of industry: An industry can be defined as a group of companies offering products or services that are close substitutes for each other – that is, products or services that satisfy the same basic customer needs. (Hill et al., 2014, p. 44; emphasis in original)

This answer will analyse the industry context of the company, considering both the competition and the other forces, and discuss the attractiveness of the industry. It will do this by

Porter’s first question focuses on the importance of having a clear idea of what the companies in the industry offer to customers. For instance, sport apparel producers such as Nike and Adidas belong to the same industry, but they cannot be compared with fashion houses such as Valentino and Prada. Nevertheless, some fashion designers create brands specifically dedicated to sport, such as Emporio Armani 7.

Porter’s second question considers that the scope and the definition of the products/services should be neither too granular nor too broad. It is important to identify the level at which the competition takes place. For instance, gyms in a 200,000-people city such as Milton Keynes compete between each other for clients, but they are not much affected by the strategic choices of the gyms in Birmingham.

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A market share is the percentage of total sales completed by a company within an industry in a specific time period, typically one year. Market shares show the size of the company in that specific industry. Studying the market shares of an industry are important in order to understand the type of competition that the companies in that industry are facing.

To evaluate the competition in an industry, you can calculate two indexes: the n-firm concentration ratio and the Herfindahl index, which you will also use later to categorise industry types. Before starting your analysis, remember that if a company operates in more than one industry, it is very important to distinguish which revenue stream corresponds to the analysed industry.

The n-firm concentration ratio is the sum of the number of largest market shares in the industry. For instance, concentration ratio 4 (CR4) is the sum of the largest four market shares in the industry, while CR6 is the sum of the largest six market shares in the industry. The higher the concentration ratio, the more concentrated the industry, because a limited number of firms control a larger amount of the market shares.

H Index - https://learn2.open.ac.uk/mod/oucontent/view.php?id=1492808&section=5.3

Make reference to Oligopoly, Monopoly- https://learn2.open.ac.uk/mod/oucontent/view.php?id=1492808&section=6

Development stage - In the development stage, there is a limited number of players in the nascent industry offering differentiated products with a low level of competition. Rivalry is limited but profits are low because of the amount of investment needed to start up.

Growth Stage - In the growth stage, the demand for new products/services expands quickly because more buyers adopt the solutions proposed by competitors. Entering this industry is still possible given the exponential growth and the diffusion of technology. The arrival of new competitors does not harm existing players (incumbents).

Maturity Stage - When the rate of growth of the sales reduces, the industry enters its maturity stage: the demand becomes oriented to substitution of older products and competition become tougher. With its onset, the industry could be subject to one or more shakeouts. Although demand is not growing at the previous rates, competitors are still expanding their capacity with the effect of reaching an excess of capacity. In Figure 7.11, the excess of capacity is happening at the end of the growth phase.

Decline Stage - For several reasons, an industry may enter a decline stage. Reasons could range from social changes, such as new buyers’ tastes, to technological innovations which create new industries able to better serve the same customers’ needs.