Industry Research: An important input for SMEs
Does our company have a business strategy that makes sense within the context of changing general industry characteristics and economic environment?”
Introduction:
Industry within which a company operates is important to analyse the total risks the company exposed to. The studying industry provides insights to help you answer the above question.
How SMEs look at the Industry Outlook?
It is not uncommon to find SMEs to give little or scant attention for industry issues. For them, the focus area remains execution of the works undertaken and the related issues which keep them so busy that they remain oblivion to developments happen in and the around the industry they operate. In many cases, even if they are aware of the fast changing situation, they accept “fait accompli” approach even though there is enough room readjust the strategy to save from risk or capitalise opportunity.
Evaluating the Industry:
While evaluating the industry for entry or for review, three elements require being discussed to understand the inherent risks.
a) Industry/Product Life Cycles: Businesses are affected by industry and product life cycles. As new industries emerge or as new products are introduced, some will gain acceptance and others will not. Over time, sales for a successful product will grow, then level off, and eventually decline. Similarly, Industries, and companies, have life cycles.
b) Generic Risks -Different industries have very specific risks, but they are also subject to generic risks that affect all industries, albeit in different ways. They are Macroeconomic Issues, Cyclicality, Seasonality, Technology Risks, global scenario, etc.
c) Characteristics of Industry Sector: Each industry possesses their own characteristics. The factors assessed include the key success factors, growth drivers, demand-supply position, competitive intensity, the basis of competition, and the various sources of vulnerability.
Why Industry Research Matters?
Several studies have found that industry effects contribute directly and significantly to the success of an individual business. According to some researchers, industry effects account for 19-20% of the overall fluctuations in business segment profitability. The understanding industry as a factor is key in risk management.
Where to get the industry research reports?
Many reputed Industry research agencies release reports which offer quick, precise and easy to understand analyses of the industry. These reports preferable to using an informal internet search method. CRISIL, CARE, India Ratings & ICRA are leading publishers of Industry Research reports in India. In addition, there are many sector specialist research organisations they also serve the niche market. In addition, there are information aggregators who gather the information from various sources and deliver to subscribers.
Conclusion:
Industry research allows firms to identify key success factors, growth drivers and growing markets or product segments. Industry research can provide valuable information on market size and competition as well as assist in undertaking techno-economic feasibility studies, drafting/evaluating their business plans, benchmarking, forecasting, business valuations, litigation support and due diligence. It enriches financial planning significantly.
It is needless to emphasise that challenges and opportunities co-exist. Keeping an eye over the evolving scenario in the industry helps firms to foresee the risks and take corrective steps to pre-empt the distress. It also helps to strategies to capitalise the opportunity much ahead of others. Hence SMEs should keep a tab on industry outlook and remain agile to realigning their business strategy.
