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Sample Business Studies Paper on Structural or Five Forces Analysis of the Industry: HF sinclair

Strategic Group Map – Mandatory – MUST precede 5 forces analysis

 

A strategic group is a group of firms competing – directly with one another – in similar price and quality range

 

For example, Bloomingdales which is a luxury goods retailers is NOT competing with Walmart.

 

MUST identify the NAICS code(s) and all MAJOR firms in the industry, clustered by segment or Strategic Group, with annual sales and market share for each firm.

 

Two dimensions on the axis – vertical and horizontal axis represent the basis of COMPETITION in that industry e.g. price and quality

Structural or Five Forces Analysis of the Industry

 

The analysis MUST be completed with a numerical ranking of 1-10 for each force, including empirical data, analysis and logic provided to justify the ranking.

  • 1 = very low intensity of the competitive force
  • 10 = maximum intensity of the competitive force

Note: A lower number = less intense competitive force = higher profitability (all things being equal).

a) Competitiveness of Industry (Rivalry) – use Industry average aggregates

In this section, you MUST:

 

Concentration Ratio? i.e. top 4 firms account for what percentage of industry revenues

Industry annual growth rate vs GDP growth rate? – faster or slower or same?

Industry average ROIC?

Fixed costs as percentage of industry assets? See Bloomberg

Commodity industry with no differentiation?

Capacity added in large chunks or scaleable incrementally

Subject to foreign competition or protected by government laws or regulation? eg foreign firms can NOT buy Canadian airlines or telecoms

 

Note: You are NOT analyzing competitors – you are analyzing STRUCTURAL conditions of the industry to determine INDUSTRY attractiveness ie industry aggregates

 

Important: You must address the questions from the text and the course slides under each of the 5 Forces

  1. b) Threat of Entry to Industry

In this section, you MUST:

  • identify and analyze any BARRIERS facing potential entrants, including:
    • average capital investment needed to enter the industry
    • presence of strong brand names among existing firms
    • economies of scale (i.e., annual break-even point in units)
    • government regulation e.g. CRTC, Investment Canada Act
    • patents
  • provide quantitative or empirical data when analyzing each barrier

 

Important: Do NOT title the heading “Barriers to Entry.” It is a “Threat of Entry.” You are examining and analyzing barriers to entry to determine the threat of entry.

  • low barriers to entry = high threat of entry
  • high barriers to entry = low threat of entry

 

  1. c) Substitutes for products of Industry

 

Competitors are NOT substitutes

 

A substitute is a product with similar – NOT identical – functionality e.g. car vs plane

MUST identify substitutes – if any

 

Oil is a substitute for natural gas which is a substitute for coal which is a substitute for solar which is a substitute for wind etc

 

Note: Many industry associations or Stats Canada provide a chart or table that lists the relative market share of each type 10 years ago, 5 years ago, and today to demonstrate relative shifts (e.g., bottled water is going up while relative liquor consumption is declining).

 

In this section, you MUST use NORMALIZED data to enable comparisons:

  • make a table that lists annual gallons or ounces consumed PER CAPITA or annual dollars spent PER CAPITA, by consumers on milk, water, juice, new age, energy, wine, beer, liquor, etc.
  • identify and analyze the number and functionality or utility of substitutes available, including the price-value relationship between the product and the substitute (e.g., return airplane ticket from Ottawa to Toronto around $200 versus average cost of $50-$100 to rent a car)
  1. d) Power of Suppliers to the Industry (NOT to your firm)

    In this section, you MUST:

  • identify the AGGREGATE numbers of firms and revenues in the supplier industry – look up the NAICS code for the supplier industry
  • analyze the availability of substitutes for the products supplied
  • identify whether the supplier industry is concentrated or fragmented (i.e., less than 5 firms account for more than 50 percent of industry sales)
  • determine whether suppliers are “price takers” or “price makers”

 

e) Power of Buyers: Customers and Consumers of the Industry (not your firm)