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Industry Analysis Term Paper
The purpose of the paper is (i) to provide each student with the opportunity to apply economic analysis to a real world industry and to learn how to deal with business problems from an economic perspective; (ii) to make students learn
how to find economic data pertaining to that industry; and (iii) to make students apply statistical tools to analyze demand and cost for a particular firm’s profit maximization.
2. Defining the Industry
Students are supposed to choose one target industry. It is very important to define the industry precisely; otherwise, there will be a tremendous amount of unrelated data available.
Many secondary sources used for business research have their data arranged by codes established by the Office of Management and Budget of the U.S.
government. The U.S. Standard Industrial Classification (SIC) system has been recently replaced by the North American Industry Classification System (NAICS)
(you can find them trough any website search engine). These codes are widely adopted for record keeping purposes and are often used to index private publications such as market guides, directories of companies, and periodical
indexes. Familiarize yourself with the SIC/NAICS categories. Remember: it is important to either narrow or broaden your industry definition based on how much information you are finding.
3. Data Collection
For any strategic planning process, it is important to understand the industry in which you are or will be operating, for without an understanding of that industry,
your strategy is unlikely to succeed. Every manager must determine for him/herself the information required to address the decision at hand. In an
increasingly competitive and dynamic business environment, success depends on a continuous updating of information on market trends, competitors, and customers.
There are two types of data that can be collected and analyzed: (a) primary data collected from government record; (b) secondary data collected from reference
materials. Prior to conducting any primary research, savvy managers know that secondary research should be the starting point in the data collection process.
The government and other agencies publish a great deal of information which can be invaluable in an industry assessment, and which is readily available if you
know where to look. While you may not be able to find out everything you need to
know, secondary information is an essential management tool.
The sources of this information are abundant (in printed documents, via the Internet, etc.), however, they are not always easy to find. Your first challenge is
to know where to look and find the most current, relevant, accurate, and reliable information, in a timely manner, when there are so many sources to choose from and investigate. Data must be current, reliable, unbiased, accurate, and relevant to the problem at hand if they are to be useful to the manager. Good managers rely on this information to make decisions that are based on the realities of the marketplace, not their opinions or conjectures. Decisions based on information,
however, are only as good as the information itself.
1. Each paper must include a cover sheet (see the MS-Word file “COVER SHEET”). All the group members have to initial on the sheet for the final
2. Your paper should have a logical flow to it, and make use of appropriate headings and subheadings. Follow the suggested format described in Section 5 below.
3. Any table, graphic (such as bar charts, trend lines, etc.) must be included in an appendix at the end of the paper.
4. The text of your paper (the text only, not including Table of Contents, References, Tables, Charts, and other appendices should be about 12~14
pages. The text must be double-spaced with font size 12 in MS Word format. For the whole paper, limit the length within 18 pages (including the
5. Be sure to acknowledge the source of all information from outside sources
in the text (e.g., “According to Wards’ Automotive News, December 2002,
GM has a …”). For article citation, author name and year are required; for
example, (Smith, 2007). Also be sure to have a list of references (i.e. URL is required for online reference) at the end of your paper. Use of information from outside sources that is not attributed will be considered plagiarism. The
3 consequences of academic dishonesty will result in getting a failing grade in
6. Quotations must correspond exactly with the original in wording, spelling,
and punctuation. Page numbers must be given. Changes must be indicated:
use brackets to identify insertions; use ellipsis dots (…) to show omissions.
Also indicate where emphasis has been added. Only lengthy quotations(more than 50 words) should be separated from the text; such quotationsmust be double-spaced and indented at the left margin. References toauthors in the text must exactly match those in the Reference section.
7. Tables must be designed to fit comfortably on a page. For tables, use the’create table’ feature in MS-Word. Each table must have a title and benumbered consecutively with Arabic numbers. Do not abbreviate in columnheadings, etc. For example, spell out “percent”; do not use the percent sign.
Place a zero in front of the decimal point in all decimal fractions (i.e., 0.357,
not .357). Each table should be no more than 10 columns wide.
8. Figures should be supplied as high quality. Figures should be produced inblack and white. Tints and complex shading should be avoided. Figuresmust have a title and be numbered consecutively with Arabic numbers.
9. References should be prepared in general accordance with the APA(American Psychological Association). The references themselves should
be in 10 point font and formatted as a left margin indented with the first linerealigned with the left margin. Below are some examples of differentcitations.
5. Paper Outline and Grading Weight
I. Table of Contents (1 page): 2%
II. Executive Summary (1 page): 10%
The last part you write, but which should appear first in your report, is the
Executive Summary. An Executive Summary is usually a one-page synopsis,
touching on key, insightful highlights of the report. Picture the Executive
Summary as satisfying someone’s request to “just give me the short version,”
Most readers don’t have time to read the whole report, but want to know what
it says and what your conclusions are (i.e. whether we should or should not
enter this industry for profit; what pricing/production strategies for existing
firms are most effective for market share extension, …etc).
III. Introduction (2 pages): 15%
A. Description. This is to be a general introduction to the particular
industry. What does the industry produce? What is SIC/NAICS code and
B. History. A brief history. How has the organization of and the nature of
competition in the industry evolved from its earliest beginnings?
C. Organization. What parts of the chain of production/service do the firms
undertake themselves and what do they buy from outside suppliers or
pass on to independent distributors or retailers?
D. Relevant governmental or environmental factors. What role does
government play in the industry? How does regulation or other
government policy (reform, trade policy …etc.) affect it?
IV. Market Structure (2 pages): 10%
You need to answer the following two questions precisely:
A. How can the structure of the industry best be characterized: perfect
competition, monopolistic competition, oligopoly, or monopoly? Briefly go
over the market characteristics to confirm your definition here. (5%)
B. How many major firms (up to top four if applicable) are there in the
industry and what are their market shares? A table showing the market
shares is required here. (5%)
V. Industry Demand (2 pages): 15%
A. What are the key determinants of the market demand? (10%)
You may want to think about the following factors: population and
demographic changes, new regulation (reform), income and wealth trends,
consumer tastes and preferences, prices of substitutes and complements in
consumption, introduction of new substitutes or complements in consumption,
expectations about the future prices of this particular good/service.
B. Describe the current change in the determinants that has caused the
demand change. (5%)
In general, your insight in this section will determine the quality of paper.
VI. Cost Structure (2 page): 15%
You need to answer the following questions precisely:
A. What are the key determinants of an existing firm’s (1) fixed costs and (2)
variable costs? Explain your answer. (10%)
B. What is the shape of the existing firm’s total cost cure and marginal cost
curve, U-shaped or L-shaped? A graph illustration here will be a plus.
VII. Analysis of Competitive Forces (Porter’s five forces) (3 pages): 20%
In each of the following forces, please highlight “strong”, “moderate” or
A. The threat of entry by new competitors (4%)
For example, those industries with high entry barriers, such as LCD
manufacturing, will have fewer firms entering. With fewer firms, there is
less environmental complexity, and it is easier for one firm to begin to
dominate the industry. Economic rents are usually higher in such an
environment. This makes the industry attractive. For industries with low
barriers to entry, such as the restaurant industry, new firms come and go
with great rapidity. This prevents dominance by any one, or a few, firms.
Economic rents are usually low. This makes the industry unattractive.
B. The intensity of rivalry among existing competitors (4%)
What are the current top firms and their market shares? How they
compete (i.e. price or quality)? Any alliance or particular strategy is
practiced now for competition? An industry characterized by high rivalry is
unattractive because it limits the ability to achieve above normal economic
rents. At the other extreme, industries with no rivalry are usually
dominated by a few major firms which could limit strategic flexibility.
C. Pressure from substitute products (4%)
Are the industry’s products/services differentiated and, if so, according to
what characteristics (design, function, price range, geographic market,
etc.)? How innovative is the industry, and what are the sources of
innovation? An industry will be attractive if there is no threat from
substitute products. A substitute is any product or service that will fulfill the
same need while using a different technology. An example would be
substituting plastic for paper for food carry out. The electric car is a
substitute for the internal combustion engine; therefore the auto as we
know it, even though the auto industry is the primary developer. The
relevance is that substitutes can render obsolete the present capital
investment of the industry.
D. The bargaining power of buyers (4%)
First, determine who the buyers are. What are the channels of distribution
for the industry? Do not only consider the ultimate consumers unless there
are no intermediaries. Identify significant macro-environmental trends,
such as changes in customer demographics, needs, wants, lifestyle, etc.
that have/will positively/negatively affect the industry. Do buyers have
strong power over firms to negotiate price in this industry? How the power
E. The bargaining power of suppliers (4%)
What are the markets for inputs (labor, machinery, capital, raw materials,
etc.) like? While we were concerned about threats in the “entrants”
section, here we are concerned with power. Do suppliers have power over
firms in this industry? The first step is to determine what this industry
purchases. Not in detail, but as a generalization. Focus on suppliers of key
items that firms in this industry must have. Would firms have access to
labor on favorable terms? Does this industry have unions? If so, they limit
access to labor and usually increase costs. Do firms in this industry
require highly skilled knowledge workers? How is the present labor market
for this industry?
VIII. Conclusion (1 page): 10%
Your analysis should lead you to reasonable conclusions. You have, by
now, discovered a number of factors. You are now in a position to look
beyond the obvious and to see – and write about – the opportunities and
threats facing firms in an industry. State what you consider to be the
opportunities and threats for firms that would enter this industry. Support
your final argument as to whether we should or should not enter this
industry; or, what pricing/production strategies for existing firms are most
effective for market share extension. Make sure that
conclusion/recommendation and executive summary are consistent. Do
not just repeat the sentences in the previous sections.
IX. References (1 page): 3%
Please list the references that you cite, but also a listing of the material
that contributed to your body of knowledge.
IIX. Appendices (Optional)
Here you should put your tables, charts, or anything else that you think is important to an understanding of this industry.