Industry Analysis & Economic Reforms

7/27/2019 Industry Analysis & Economic Reforms

1/71

Presented by:-

IMRAN AHMAD

1


2/71

Industrial Analysis

Industry analysis is a tool that facilitates acompany's understanding of its position relative toother companies that produce similar products or

services. Understanding the forces at work in theoverall industry is an important component ofeffective strategic planning. Industry analysis

enables small business owners to identify thethreats and opportunities facing their businesses,and to focus their resources on developing uniquecapabilities that could lead to a competitive

advantage. 2


3/71

Competitive Strategy

It means Long-term action plan that is devisedto help a company gain a competitive advantageover its rival. This type of strategy is often usedin advertising campaigns by somehowdiscrediting the competition's product orservice. Competitive strategies are essential to

companies competing in markets that areheavily saturated with alternatives forconsumers

3


4/71

Industry Analysis :-

Porters Five Forces Model Generic Strategies

EMERGING INDUSTRY

DECLINING INDUSTRIES

Economic Reforms:-

Industrial Policy And Foreign Investment

Fiscal Stabilization

TRADE AND EXCHANGE RATE POLICY

Tax Reformations

Public sector policy

FINANCIAL AND BANKING SECTOR REFORMS

4


5/71

Porters Five Forces ModelIn his well- published work Porter

provided an operational frame to

conduct an assessment of aninvestment opportunity in an industry.

According to Porter, the five

fundamental forces that determine thelong-term prosperity of an industryare:

5


6/71

Threat ofSubstituteProducts

Threat ofNewEntrants

Threat of NewEntrants

Rivalry AmongCompeting Firms in

Industry

BargainingPower ofBuyers

BargainingPower ofSuppliers

Porters Five Forces

Model

6


7/71

(1) Rivalry Good rivals, in terms of industry profits, are rivals

who are restrained in their competition.

They are willing to following your firms lead.

In markets that are segmented into differentgroups of buyers, good rivals are satisfied withtaking care of their groups and letting you takecare of yours.

7


8/71

(2) Potential Entrants & Barriers to

Entry

Since industry profits encourage new firms to

enter, firms in a profitable industry remainprofitable to the extent that barriers to entry keepout potential entrants.

Barriers can be of two types:

-Tangible barriers

- Psychological barriers

8


9/71

Types of Entry Barriers1. Tangible barriers anything that would put a

potential entrant at a competitive disadvantageafter entry.

2. Psychological barriers beliefs on the part ofpotential entrants that, if they enter, firmsalready in the business will react aggressively,and are even willing to incur short-term losses,to force out the new entrant.

9


10/71

Tangible barriers examples financial resources: when firms are able to fight off

new entrants by cutting prices as a result of havingsignificant financial resources available

favored access to particular resources: whenexisting firms control resources that are useful oressential to efficient operation (For example, airlines

may control landing slots at favorable times.)

favored access to distribution channels: whenexisting firms can more easily reach the customers

10


11/71

(3) Substitutes & Complements This will limit the ability of the firm to raise prices and

will consequently lower potential profits.

Suppose in addition, that a firm raises its prices. If

firms producing substitute goods would takeadvantage of the opportunity to actively entice awaycustomers, the profitability of the original firm wouldbe limited.

Strong complements can increase the profitability of agood.

For example, vehicles and Fuel. Both products arecomplementary to each other.

11


12/71

(4) Suppliers Bargaining power of suppliers is another force which

determines the industry structure by its strong influence oncost structure. In an underdeveloped supplier industry likethe auto components industry in India, the bargaining powerof the suppliers is limited.

Similarly, industries where the supplier industry capacity is inexcess of demand, the bargaining power of suppliers isrestricted.

On the other hand, due to the socio-political reasons, thesupplier industries like coal, limestone, iron ore and othermineral based industries exercise a significant control on thebuyer.

12


13/71

Factors that tend to make a

supplier more powerful:

1. The supplier has a franchise or patent on a

particular item that is required by firms in theindustry.

2. The supplier is not restrained by any closesubstitutes for its product.

3. The supplier industry is concentrated (there arevery few firms) and the firms are not aggressiverivals with each other.

13


14/71

(5)Bargaining power of Consumers

Typically, in a competitive environment, theindustry players would like to influence theconsumer decision to select the product andservice he would like to use.

The bargaining power of a consumer is real onlywhen the consumer has a choice.

14


15/71

Factors influencing consumers,

bargaining power

Price flexibility

Enhanced after-sales service Introduction to new product features

Developing new market segment

Creating an exclusive product image

15


16/71

Generic Strategies

Differentiation Strategy

A generic business strategy

in which a business

produces distinct products

or services industrywide

for a large market

Cost

Differentiation

Ivory Intro.

AA

16

G i S i


17/71

Generic Strategies

Focus Differentiation

Strategy

Is appropriate for business units that

produce highly differentiated, need-fulfilling products or services for the

speialized needs of a narrow range of

customers in a market niche.

Cost

Differentiation

Cray

17


18/71

Differentiation

Objective: Incorporate differentiating features thatcause buyers to prefer firms product or service overthe brands of rivals

Uniqueness through:

unique product features qualityof inputs performance

after sale service

speed and flexibility image - organizational reputation and brand name

18


19/71

What does it take to be a differentiator?

Customers should be willing to pay a premiumprice

attributes that make the product uniqueshould be valued by the customer

attributes should appeal to large percentage ofthe market (broad differentiator)

Company should be able to communicate itsuniqueness

Costs of differentiation should not be too high.

19


20/71

Risks of Differentiation Strategy Customers may choose to sacrifice some features.

Competitors may imitate the differentiating feature.

Not understanding what buyers want or prefer anddifferentiating on the wrong things.

20


21/71

Focus strategies

Best-cost strategy

21


22/71

Generic Strategies

III. Focus:

Serving the needs of a special market segment better thananyone else

What does it take to pursue a focus strategy?

Ability to segment the market Ability to assess and meet the needs of buyers in a particular

segment better than other competitors.

Risks:

Cost focus - cost leadership

Differentiation focus - differentiation

The narrow market segment may become like the broadermarket thus eliminating the need for a focused approach.

22


23/71

Ways Organizations Can Simultaneously Differentiate

Their Products and Lower Their Costs

Dedication to Quality Quality is defined as the totality of features and

characteritics of a product or service that bear on its abilityto satisfy needs or implied needs.

Process Innovation A business units activities that increase the efficiency of

operations and distribution. Product Innovation

A business units activities that enhance the differentiationof its products and services.

23


24/71

Best-Cost Strategy

Hybrid strategy: Firm pursues low cost and differentiation simultaneously.

High differentiation and low costs can be

complementary: Total Quality Management (TQM)

High levels of advertising and promotional expenditure(differentiation) --> increased market share --> economies of

scale (low costs). Profits generated from pursuit of low costs allow investments in

differentiating features.

24


25/71

Best Cost Provider Strategies

Combine a strategic emphasis on low-cost with astrategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for the money

Deliver superior value bymeeting or exceeding buyerexpectations on product attributes and beating theirprice expectations

Be the low-cost provider of a product withgood-to-

excellent product attributes, then use cost advantage tounder price comparable brands

25


26/71

How a Best-Cost Strategy

Differs from a Low-Cost Strategy

Aim of a low-cost strategy--Achieve lower costs than anyother competitor in the industry

Intent of a best-cost strategy--Make a more upscaleproductat lower costs than the makers of other brandswith comparable features and attributes

A best-cost provider cannot be the industrys absolutelow-cost leader because of the added costs ofincorporating the additional upscale features andattributes

that the low-cost leadersproduct doesnt have

26


27/71

Example-Toyotas Lexus Line Designing high performance characteristics and upscalefeatures

Transferring its low-cost capabilities to making premium

quality cars Underprice Mercedes and BMW

Established a new network of dealers

27


28/71

EMERGING INDUSTRY

ENTIRELY NEW OR RESTRUCTUREDINDUSTRIAL SECTORS, GROWING AT A RATEFASTER THAN THE OVERALL ECONOMY .

SUCH INDUSTRIES USUALLY COME INTOBEING WHEN

CUSTOMER NEED CHANGE

NEW TECHNOLOGY REPLACE OLDER ONESOR WHEN SOCIO-ECONOMIC CONDITION

EMERGE

28


29/71

EXAMPLE OF EMERGING

INDUSTRIESCell phone are replacing conventional telephone

systems.

Courier is fast emerging as substitute to regular postcards

2 stroke engines are being replaced by 4 stroke engine

And insurance industry is expected to grow rapidly

29


30/71

STRATEGIC OPTIONS AVAILABLE

TO NEW ENTRANCE AREHow and what investment to commit to cultivate the

market

How to sustain the market presence and

What entry barriers are important and how to achievethem etc.

30


31/71

DECLINING INDUSTRIESAn industry where growth is either negative or is

not growing at the broader rate of economic growth.There are many reasons for declining industries

Consumer demand may be steadily evaporating

The depletion of natural resources may be occurring,or there may be emergent substitute because of

technological innovation.

31


32/71


33/71

THE STRATEGIC OBJECTIVE OF

DECLINING INDUSTRIESHow to postpone the actual decline of the industries

How to retain the market share

How to improve the market share andHow to expand (in a limited sense) the market

33


34/71

POLICIES AT DECLINING PHASEEnhancing the product features or repositioning the

persuasion

Attempting to hold the existing customers and

If possible to find new customers

34


35/71

Economic Reforms

35


36/71

Industrial Policy And Foreign

Investment

Perhaps the most radical changes implemented in the

reform package have been in the area of industrialpolicy, removing several barriers to entry existing inthe earlier environment.

36


37/71

Abolition of Industrial LicensingThe system of pervasive industrial licensing prevalent

earlier, which required Government permission fornew investments as well as for substantial expansion of

existing capacity, has been virtually abolished.However, the Government has

indicated that the general policy of reserving certainitems for the small-scale sector will continue for socialreasons.

37


38/71

Abolition of MRTP ActThe parallel but separate controls over investment and

expansion by large industrial houses through theMonopolies and Restrictive Trade Practices (MRTP)

Act have also been eliminated.

38


39/71

Restructuring of Companies ActA comprehensive restructuring of the companies Act is

also underway which aims at simplifying andmodernizing this aspect of the legal framework

governing the corporate sector.

39


40/71

Opening up of public sector

industriesThe list of industries reserved for the public sector has

been drastically pruned and many critical areas havebeen opened up to private sector participation.

Electric power generation

Petroleum exploration

Air transport

telecommunication

40


41/71

Radical restructuring of foreign

investment policy The liberalization of controls over domestic investors

has been accompanied by a radical restructuring of thepolicy towards foreign investment.

Earlier, percentage of equity allowed to foreigninvestor was generally restricted to a maximum of40%, except in certain high technology areas.

The new policy is much more actively supportive offoreign investment in a wide range of activities.Permission is automatically granted for foreign equityinvestment up to 51% in a large list of industries.

41


42/71

Fiscal Stabilization The central governments fiscal deficit had expand

steadily during the 1980s and had reached a peck levelof 8.4 % of GDP in 1990-91.

P 1:-CONTAINMENT OF FISCAL DEFICIT:- Substantial reduction in fiscal deficit from 8.4% of

GDP in 1990-91, to 5.9 % in 1991-92.

Further to 5.7 % in 1992-93.

It is achieved by. The abolition of export subsidies in 1991-92 and

reduction in fertilizer subsidy in 1992-93.

42


43/71

Restricting development expenditure, including

expenditure on social and economic infrastructure.The budget support to loss-making public sector units

in the form of government loan to cover their losswould be phased out.

P 2- INCREASE IN FISCAL DEFICIT:-

The process of fiscal deficit was to continue into 3rd

year to be reduced to 4.6% of GDP in 1993-94. But there was a substantial slippage from this target

and estimated to 7.3% of GDP in 1993-94.

43


44/71

This increase in fiscal deficit is due to,

A shortfall in tax revenues compared to budget targets.Customs revenue were below the target because

imports were much lower than expected.

Excise duty collections also fell short because industrialproduction did not recover as expected.

Expenditure also exceeding targets.

Expenditure on development were higher than

projected.Delays In adjusting food prices in the public

distribution system led to higher food subsidies.

44


45/71

TRADE AND EXCHANGE RATE POLICY

45


46/71

Liberalization of import controls Earlier import control was applicable to imports of raw

materials, production materials and capital goods.

Imports of manufactured goods have generally bannedexcept limited goods through special import licenses.

In the 1994-95 policy, the scope for consumer goodsimports has been liberalized by considerably

expanding items which can be imported. Today, all raw materials, other inputs and consumer

goods can be freely imported except small items.

46


47/71

Lowering of customs duties The removal of quantitative restrictions on imports

has been accompanied by lowering of customs duties.

The government has made lowering of customs dutieseach of four budgets since 1991.

The peak rate of customs duties 200% in 1991 waslowered to 65% in 1994.

The rate of customs duties on consumer goods was 90-100% in 1991 and now been lowered to a range 20-40%.

47


48/71

Transformation of exchange rate policy

Exchange rates :- The price of one currency in terms ofanother is called the foreign exchange rate.

Exchange rate policy has gone through a series of

transformation since 1991. The reforms began with a devaluation of 24% in July 1991.

The devaluation was accompanied by an abolition of exportsubsidies to help the fiscal position.

The system was modified in march 1992 by explicit dualexchange rate system, simultaneously with the dismantlingof licensing restrictions on import of raw material andcapital goods.

48


49/71

This dual exchange rate system was again modified toa unified floating rate on march 1993.

After a year , the government , in march 1994,announced further liberalization of paymentrestrictions on current transactions.

Thus between this period of time trade and paymentsystem has moved from a fixed and typicallyovervalued rate to a market-determined exchange ratewithin a framework of considerable liberalization onthe trade account.

49


50/71

Tax Reformations Reform of tax system has been an important element

in the Governments reform programme with majorchanges in both direct and indirect taxes.

Reduction in personal income tax,

The maximum marginal rate personal income tax was56% in June 1991 which has now been reduced to 40%.

Modification in wealth tax, Earlier wealth tax applicable to all personal assets, has

been exempt all productive assets including financialassets such as bank deposits and shares.

50


51/71

Reduction in corporate tax,

The rates of corporate income tax were 51.75% for publiclylisted company and 57.50% for a closely held company

have been unified and reduced to 46%. Reduction in excise duties,

Excise duties have been significantly reduced over thepast years.

51


52/71

52

Sales TaxWe know that it is 6%. It was 4% until 1994.

Does not apply to groceries or services.

Since services are

as a percentage of purchases, thesales tax base is .

Tried to extend it to services in 2007, but it was beatenback.


53/71

53

Excise taxes Cigarettes, liquor, fuels are taxed in $/unit. Curiously,

the more expensive the unit, the lower the percentage.

This contrasts with income, sales, property, which aretaxed in % terms.

Taxes do not go up in times of inflation.


54/71

54

Prescriptions 1Add a second bracket to income tax

Most states do this

Some of this might be borne by people elsewhere,

because MI residents would have higher state taxdeductions against their federal taxes, thus reducingtheir federal taxesother states taxes would go up tomake up for the drop in MI payments.

When this happens, we are exporting part of our incometax.


55/71

55

Prescriptions 2 Extend sales tax to services

Goods tax base is shrinking

Services are now favored relative to goods. Is this whatwe want?

Wouldnt taxes be more neutral if services were treatedsimilarly to goods?


56/71

56

Prescriptions 3 Reduce tax preferences for elderly

Elderly get extraordinarily high tax preferences.

On net they pay negative amounts (i.e. get back morethan they put in).

With baby boom generation age 65, these lossescould really grow.


57/71

57

Prescriptions 4 Change taxation of liquor, cigarettes, fuel from per

unit to ad valorem.

Why do they get special treatment?

Raise more revenue


58/71

58

Prescriptions 5 Remove assessment cap to property tax

Gives localities more control over their finances;

Raises more revenue;

Removes lock-in of people to locations;

Removes inequitable treatment of long-time residentsand recent movers.


59/71

59

What they did! Enacted Michigan Business Tax in July 2007`.

For taxpayers other than financial institutions andinsurance companies, the MBT imposes two taxes

a modified gross receipts tax and a businessincome tax.

Financial institutions and insurance companies aresubject to industry-specific taxes

In addition, significant personal property tax reliefis granted for Michigan commercial and industrialpersonal property.


60/71

60

What they did! Part 2 Raised income tax from 3.9% to 4.35%.

This is supposed to be phased out between 2011 and2015 (after most of the current politicians are gone)and is expected to increase revenues by $765 million ayear.


61/71

61

What they did! Part 3 The original Michigan Business Tax won praise

from businesses when it was adopted in thesummer. It was estimated that up to seven of 10

businesses would pay less under the new formatthan under the Single Business Tax it replaces.

But lawmakers added a surcharge of about 22percent to the tax that will make it more expensive

for some companies. The surcharge was crafted toreplace an unpopular 6 percent tax on someservices.


62/71

Public sector policy Reform of the public sector is a critical element in

structure adjustment programs all over the world andis included on Indias reform agenda. However ,this is

an area where change are being implemented slowly .

62


63/71

Disinvestment of govt. equity in

PSC Instead of outright privatization, the government has

initiate a limited process of disinvestment ofgovernment equity in public sector company with

government retaining 51% of the equity and alsomanagement control.

The disinvestment helps provide non-inflationaryresources for the government budget, without adding

to physical deficit.

63


64/71

Changed policy towards loss-

making PSUs The government has announced that budgetary

support to finance losses will be phased out over 3years and this has had salutary effect in confronting

PSU with a hard budget constraints. SICA(Sick industrial companys Act.)

BIFR (Board for industrial and financialreconstruction)

64


65/71

FINANCIAL AND BANKING SECTOR

REFORMS

1.FINANCIAL MARKETS

2.REGULATORS

3.THE BANKING SYSTEM

4.NON-BANKING FINANCE COMPANIES 5.THE CAPITAL MARKET

6.MUTUAL FUNDS

7.OVERALL APROACH TO REFORMS

8.DEREGULATION OF BANKING SYSTEM 9.CAPITAL MARKET DEVELOMENT

10.CONSOLIDATION IMPERATIVE

65


66/71

1.FINANCIAL MARKETS:- Private sector institutionsplayed an important role. They grew rapidly in commercial

banking and asset management business with the openingof this institutions ,they started making debt in themarket.

2.REGULATORS:- The finance ministry continuouslyformulated major policies in the field of finance. The

government accepted the important role of regulators. TheRBI become more important, SEBI and the IRDA becameimportant institutions.

3.BANKING SYSTEM:- The RBI has given license to newprivate sector banks as part of the liberalization process.

Many banks are successfully running in the retail andconsumer segment ,but they are yet to deliver services toindustrial finance, retail trade, small business andagricultural finance.

66


67/71

4.DEVELOPMENT FINANCE INSTITUTIONS:- FIss access

to SLR funds reduced. Now they have to approach thecapital market for debt and equity funds. DFIs such asIDBI,ICICI have entered other segments of financialservices such as commercial banking, asset managementand insurance through separate ventures.

5.NON BANKING FINANCE COMPANIES:- In the case ofnew NBFCs seeking registration with RBI, the requirementof minimum net owned funds has been raised to 2 crores.Until recently, the money market in India was narrow and

circumscribed by tight regulations over interest rates andparticipants.

67


68/71

6.LONG TERM DEBT MARKET:- The development of along term debt market is crucial to the financing of

infrastructure. The SEBI decided to concentrate on thedevelopment of the debt markets, stamp duty is withdrawnat the time of dematerialization of debt instruments inorder to encourage.

7.THE CAPITAL MARKET:- The number of share holders inIndia is estimated at 25 million. How ever ,only anestimated 2 lack persons actively trade in stocks.

8:OVERALL APPROACH TO REFORMS:- The last ten years

have been major improvements in the working of variousfinancial market participants.

68


69/71

9.MUTUAL FUNDS:- The mutual fund industry is nowregulated under the SEBI regulations,1996 andamendments there to. With the issuance of SEBIguidelines, the industry had a frame work for theestablishment of many more players, both Indian andforeign players.

10.CAPITAL MARKET DEVELOPMENT:- The capital IssuesAct 1947 ,repealed ,office of the controller of capital Issues

were abolished and the initial share pricing weredecontrolled. 11.DEREGULATION OF BANKING SYSTEM:- Government

pre-emption of banks resources through SLR and CRR.New private sector banks allowed to promote and

encourage competition. Recovery of debts due to banksand the and the financial institutions Act 1993 passed, andspecial recovery tribunals set up to facilitate quickerrecovery of loans arrears.

69


70/71

12.CONSOLIDATION IMPERATIVE:- The

consolidation of existing institutions which isespecially applicable for the commercial banks. Inindia, the banks are in huge quantity. There is no needfor 27 PSBs wit branches all over India.

CONCLUSION : It is not possible to play the role of theOracle of Delphi when a vast nation like India isinvolved. How ever a few trends are evident, and thecoming decade should be as interesting as the last one

70


71/71

THANK YOU

Documents

Industry Analysis & Economic Reforms