Question

What is the importance of industry analysis and impact on business performance?

Answer 1

A business would do industry analysis to assess the market it will operate in. This will help them to gauge the market dynamics which in turn will help to judge performance under different scenarios by taking into consideration the competition in the industry, who are the emerging players, is there a substitute to the industry which can be a huge threat to the industry in the future. Doing industry analysis would help a business in identifying the opportunities as well as threats and use them to its advantage and to plan future course of action. Done properly it might even help a business to stay a step ahead of its competition. There are ways to do industry analysis which are Porters 5 forces, PEST analysis and SWOT analysis.

As mentioned above industry analysis can help in predicting performance. If a business is operating in an industry which is doing well then chances are high that it will also do well. For example in the current scenario the pharmaceutical industry is doing exceptionally well along with the chemical industry. Chemical industry started doing well in India after around 40% of the chemical companies in China were banned due to environmental pollution a few years back. This gave the chemical industry in India a huge boost as the demand shifted to India. So taking cue from this example a business needs to understand such macro economic factors which can come into play. So it is a change that the chemical industry has gone through in India.

A business can judge it's performance by comparing it's products to the already established players and also against emerging players. This will help them to differentiate form the competition and they can come up with better products to gain more market share.