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28 September 2015 |
"Industry" refers to a sector of an economy, grouping together companies that are related in terms of their primary business activities. An example could be the automotive industry, which is the grouping together of companies focusing their business on the sale, manufacturing, production, design and marketing of motor vehicles.
An industry analysis aims to establish the attractiveness of a particular industry. Profit margins (the amount of profit generated per item after deducting the average cost of producing each item) vary between different industries, and tools used to analyse industries can pinpoint why that is the case. This helps to understand the competitive environment in which a company operates.
Case studies often present candidates with a hypothetical scenario in which a (fictional) client is looking to acquire a (fictional) company. Candidates are then often asked to state whether they think the acquisition of the company should go ahead, i.e. would be beneficial to the client. In such a case study interview it is crucial to possess the ability to account for the strengths and limitations of the industry within which the company being analysed operates. This understanding forms part of what is often referred to as a candidate"s commercial awareness. Commercial awareness includes the ability to understand the wider factors underlying, and potential limitations to, a company"s operations and profit potential.
Understanding, and being able to apply, at least one simple framework for industry analysis will help candidates stand out in case study interviews and will also strengthen candidates" ability to analyse a business case.
A PESTLE analysis outlines the impact political (P), economical (E), socio-cultural (S) technological (T), legal (L) and environmental (E) factors have on an industry. It is a useful tool to help candidates understand how macro-level elements impact on an industry and deepen their appreciation of how being part of a specific industry affects a company.
measures the extent to which changes in income affect demand of a product. The demand for luxury goods has a high elasticity, which means that when people"s incomes decrease, the demand for luxury goods decreases drastically.
Interest rate is the amount charged, expressed as a percentage of the loan amount (principal), by a lender to a borrower. A country"s central bank sets an interest rate that is followed by banks and financial institutions across the country. It therefore affects the entire supply of money.
***Foreign Direct Investment
Level of investment made in the country from investors from other countries. The investor and the investment is therefore foreign.