Analysis of the general situation and competition in the industry begins with the study of the main economic characteristics. The term industry refers to a group of companies whose products have similar consumer properties and are intended for the same consumers. The main economic characteristics of the industry:
market size; scale of competition (local, regional, national, global); the growth rate of the market and the stage of its life cycle (the beginning of the rise, rapid growth and peak, the beginning of maturity, maturity, saturation and stagnation, decline); the number of competitors and their relative size (many small companies or a few large ones); the number of buyers, including industrial ones, and the relative size of the latter; the degree of integration of the main competitors and its direction along the technological chain (“forward” and “backward”); distribution channels; the speed of technological changes in production and the pace of development of innovative products; the degree of differentiation of goods (services) of competing companies (high, weak, absent); the possibility of economies of scale in procurement, production, transportation, marketing and advertising; compactness of the location of the main companies in certain regions (for example, Silicon Valley or Hollywood in the USA, the leather industry in Italy, wine regions in California and France, the financial district in New York) [41 pp.77-90]; the presence of a learning effect, when unit costs decrease as the cumulative volume of output of the product increases as a result of the accumulation of production experience; the degree of utilization of production capacities as the main condition for reducing production costs; the required amount of capital investment, the conditions for entering and exiting the industry; industry profitability (above or below the average for the economy as a whole).
The economic characteristics of the industry have a big impact on the strategy development process. For example, in a capital-intensive industry where the cost of only one plant reaches hundreds of millions of dollars, it is possible to partially reduce the share of fixed costs in the cost of production by intensive use of fixed assets and increased revenues from the sale of products. For example, commercial airlines to increase the profitability of their airliners worth several million Dollars reduce their time on the ground (increasing the frequency of flights of each aircraft per day) and strive to maximize the filling of the cabins with the help of a flexible system of discounts. In industries where technological superiority over competitors’ products is of great importance, companies are actively engaged in R&D – an innovative strategy becomes a condition for the company’s survival in the market. In an industry with a pronounced learning effect, the largest manufacturer gains a competitive advantage.