Industry landscaping

Knowing which industry a company is in is not the same as knowing how that industry works.

Industry landscaping is the work of mapping it. Who competes, who buys, who supplies, who regulates, and what new technology is arriving. Then, crucially, how all of those push against each other.

The reason to do it is prediction. When something happens from outside — a jump in input costs, a new rule, a cheaper substitute — the map tells you who absorbs the blow.

In one industry the producers simply raise prices and carry on. In another they cannot, and their profits take the hit instead.

The definition. Chapter 6.6: "Industry landscaping involves studying all the players in the industry and their interaction with each other. This includes understanding competitors, customers, suppliers, regulators, and emerging technologies. It also involves studying the differentiating factors between various competitors and customer's preference."

The payoff the workbook names. Such a study "will help the analyst understand how the industry may react to external market events." Its own worked illustration is cost pass-through: in industries with low competition intensity, companies are likely to be able to transfer any increase in input cost to customers, so profit margin is likely to remain intact. Where competition intensity is high, it may create pricing pressure which will likely reduce profits.

The 4 frameworks. The workbook says landscaping "needs to be very comprehensive," allows that analysts can use their own frameworks, and then names 4 established ones: (i) Michael Porter's Five Force Model, (ii) PESTLE analysis, (iii) the BCG Matrix, and (iv) SCP analysis.

What feeds into it. Section 6.7 adds that when "preparing an industry landscape, it is always important to focus on the key performance indicator (KPIs) for the industries" — which vary by industry, and are themselves read off the unit of pricing and the key constraining factors.

On figures. The workbook gives no threshold for what counts as high or low competition intensity. It is a judgement the landscape is meant to support, not a number the analyst is handed.

Illustrative, following the workbook's own cost pass-through logic. Two producers face the same shock: an input cost rise of Rs 400 per tonne. Each sells 6,00,000 tonnes a year and earned Rs 900 per tonne of operating profit before the shock.

The cost shock is identical. The earnings outcome differs by Rs 15 crore, or 28% of operating profit, and nothing in either company's own accounts predicted that.

What predicted it was the landscape: how many credible competitors there are, whether customers can switch easily, and whether a substitute product is waiting. An analyst who had mapped that could size the damage before the cost increase showed up in a quarterly result. An analyst working only from the financial statements finds out a quarter late.

Chapter 6.6 (Understanding the industry landscape) is the hinge of the industry analysis chapter: it defines landscaping and then hands off to the 4 frameworks, each of which gets its own sub-section, 6.6.1 to 6.6.4.

The reliable question is the list — which frameworks the workbook offers for understanding an industry landscape. Also examinable is the cost pass-through illustration, usually put as a scenario: input costs rise in a highly competitive industry, what happens to margins. And note the scope, since a question may test whether regulators and emerging technologies are part of landscaping. They are.

• Landscaping is wider than the competitors. The definition names customers, suppliers, regulators and emerging technologies as well. Treating it as competitor analysis loses the mark.
• The 4 frameworks are aids, not the definition. The workbook says analysts can use their own frameworks; Porter, PESTLE, BCG and SCP are what it offers, not what landscaping is.
• Low competition intensity protects margins; high competition intensity does not. Get the direction right — it is the workbook's own worked example and an easy scenario question to reverse.
• Landscaping is not market sizing. Section 6.4 measures how big the opportunity is; 6.6 maps who is fighting over it.
• There is no numeric definition of competition intensity in the workbook, so a question offering a specific market-share cut-off is not drawing on this section.