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• Business is a commonly used term referring to progress, prosperity, growth, development, employment, productivity, and profitability in the global economy
• The Business Dictionary defines a business as an organization or economic system where goods/services are exchanged for money
• It is an enterprising entity engaged in commercial, industrial, or professional activities
• A company transacts activities by producing goods, offering service, or retailing manufactured products
• Transactions occur when value is exchanged between companies
• Industry is a collection of competitors producing similar or substitute products/services for a defined market
• It is organized economic activity concerning the processing of raw materials to create goods and provide services
• The production side of a business is referred to as an industry

Types of Industry

• Primary industry involves production of goods through nature with minimal human intervention and largely provided by nature (farming, forestry, fishing, horticulture)
• Manufacturing industry involves firms transforming raw materials into finished products using equipment, machines, and manpower for everyday consumption
• Construction industry covers infrastructure such as buildings, roads, bridges, and water systems
• Service industry involves businesses rendering work for customers for a fee, earning revenue via intangible products
• Extractive industry refers to business activity extracting raw materials for consumer use (oil, gas, mining, and quarrying)
• Genetic industry involves firms reproducing products from plants and animals for sale (poultry raising, cattle breeding, hog raising)
• Import-export industry involves buying and selling foreign goods where export is selling and import is buying for global market expansion
• Retail industry involves companies selling commodities directly to consumers, boosted by seasonal shopping trends

Economics of Strategy: Industry and Environmental Analysis

• Industry analysis is a study or research conducted before launching a business
• It is a function completed by business owners to assess the current business environment, understand marketplace components, and gain a competitive advantage
• Industry and market analysis defines a company's market position
• Environmental analysis studies a potential business and considers the market where a firm operates, identifies target customers, and identifies external/internal elements affecting performance
• External analysis utilizes PESTEL, while internal uses SWOT

Industry Analysis: Porter's Five Forces of Competition Framework

• Porter's Five Forces shows how an industry's structure determines the intensity of competition and level of profitability
• Firms analyze internal forces like price, profitability, and external forces

Industry Rivalry

• Economic models on competition make firms strive for a competitive advantage over their rivals
• Competitive advantage indicates a firm gains and sustains profits higher than its industry average.
• A company with the same benefits as competitors but at a lower cost (cost advantage) has a competitive edge
• Rivalry among firms happens, especially among established companies such as Coca-Cola and Pepsi-Cola
• Aggressive competition dissipates profits by driving down prices, leading to losses
• Competition triggers advertising/innovation

Bargaining Power of Buyers

• Affected by the number of buyers, the significance of each customer, and the cost for a customer to switch companies
• Smaller and more powerful clients have more power to exert pressure on prices, affecting profits

Bargaining Power of Suppliers

• Addresses if suppliers can drive up the price of goods/services
• Affected by number of suppliers, uniqueness of aspects, and the cost to switch
• Suppliers drive up competition, increasing prices or reducing quality, making cost recovery difficult

Threat of Substitute

• Presence of substitutions makes tough for a company

Threat of New Entrants

• A company's power is affected by new entrants into its market
• The less the cost/time it takes for a competitor to enter the market, the more a company's position is weakened

SWOT Analysis

• SWOT analysis is used to analyze an organization or process to evaluate the strengths, weaknesses, opportunities, and threats
• This analytical framework can help a company meet its challenges and identify new markets
• Focuses on strengths, minimizing threats, and maximizing available opportunities with the key objective to craft a coherent and successful competitive position

Factors the SWOT helps firms with

• Work on strengths (positive characteristics that give an organization or business an advantage over other businesses)
• Eliminate weaknesses (negative attributes of a business)
• Pursue opportunities (external possibilities the business can venture into or take advantage of)
• Prepare for threats (negative external factors that can affect business performance)

PESTEL Analysis

• PESTEL analysis stands for political, economic, social, technological, legal, and environmental
• PESTEL determines factors influencing a business and each factor's impact