How to Conduct Industry Analysis?

Influences other than the economy are part of the business environment. Demographics, changes in technology, and political and regulatory environments also can have a significant effect on the cash flow and risk prospects of different industries.

Analysis of Demographics

In the past 50 years, the United States has had a baby boom and a baby bust and now is now enjoying a baby boomlet as members of the baby-boom generation have children. The influx of the baby boom and the "graying of the baby boom" have had a large impact on U.S. consumption, from advertising strategies to house construction to concerns over social security and health care. The study of demographics includes much more than growth and age distributions. Demographics also includes the geographical distribution of people, the changing ethnic mix in a society, and changes in income distribution.

The changing age profile of Americans has implications for resource availability. For example, a possible shortage of entry-level workers leading to an increase in labor costs and difficulties in finding qualified persons to replace the retiring baby boomers.

Lifestyles Analysis

Lifestyles deal with how people live, work, form households, consume, enjoy leisure, and educate themselves. Consumer behavior is affected by trends and fads. The rise and fall of designer jeans, chinos, and other styles in clothes illustrate the sensitivity.y of some markets to changes in consumer tastes. The increase in divorce rates, dual-career families, population shifts away from cities, and computer-based education and entertainment have influenced numerous industries, including housing, services, and home entertainment etc.

Technology Analysis

Trends in technology can affect numerous industry factors including the product or service and how it is produced and delivered. There are literally dozens of examples of change taken or are taking place due to technological innovations. For example, demand has fallen for carburetors on cars because of electronic fuel-injection technology. Engineering process has changed because of the advent of computer-aided design and computer-aided manufacturing.

The retailing industry is a user of new technology, Some forecasters envision relationship merchandising in which customer databases will allow closer links between retail stores and customer needs. Rather than doing market research to focus on aggregate consumer trends, specialized retailers can offer products that particular consumer segments desire in preferred locations, Technology may allow retailers to become more organizationally decentralized and geographically diversified.

Analysis of Politics and Regulations

Because political change reflects social values, today's social trend may be tomorrow's law, regulation, or tax. The industry analyst needs to project and assess political changes relevant to the industry.