In this blog we will be discussing Industry Overviews. Let’s say a client comes to you and says that he wants to make an investment of $500 million in the F&B industry and asks you to enlighten him about the future prospects of that industry. In short, he is asking you to create an industry overview. An industry overview (IO) is a concise summary of an industry that helps a user gauge its “attractiveness”. An IO generally contains information about the size, growth rate, drivers, and profitability of the key players of that particular industry.
Market size and the market segmentation are the two most important sections of an IO. These sections give a glimpse of how large the industry is (in $ terms), how fast is it growing, what are the key product/service types (segments) offered, and how large are these segments comparatively.
Next up is value chain. Value chains are a great way to break up and highlight the activities that a firm is involved in to deliver valuable products or services for the market. Having a broad idea of the sort of entities involved along the whole process and what is the (market) size of each part of the lifecycle helps investor decide which part of the value chain they make a profitable investment.
Next, and perhaps the key section, is the identification of the industry drivers and trends. In the industry drivers section, the aim is to identify the key drivers and understand the positive and negative effects they have on the industry. On the similar line, we build the industry trends section, but the goal here is to identify the micro and macro trends that could include impact of changing demographics, consolidation in the market/industry, and regulatory impact. The challenge with this section is that it requires creativity and originality in terms of recognition and presentation.
As the competitiveness within an industry and governmental regulations play a crucial role in arriving at investment decision, the next logical step is the environment of the industry. The competitive environment is an inherent attribute of the industry and includes the dynamics of its participants, their market share, and the level of fragmentation and consolidation. The pressure of governmental regulations are external and more important for industries that are heavily regulated, example the banking industry. The factors that can be included are: what are the key regulations that affect business scope and scale? And how they affect profitability and growth?
Apart from the above-mentioned points, we can also include recent developments that are expected to have a significant impact on the industry, e.g., passing of a new tax law or the entry of a significantly larger player, essentially to provide the user with more holistic view.
It must have struck you by now that before we start preparing an industry overview, we need DATA!
Hence, it is safe to assume that data searches are a critical part of building any presentation, and it will do you good to keep a few important things in mind you embark on the great data treasure hunt. Rather than going on a wild-goose chase, have a process in mind instead. For example, let’s say you need to study the food and beverage industry in the U.S., you can start by identifying public companies in the industry you’re researching and utilizing databases (Bloomberg, Thomson One, Capital IQ) to find analyst reports on these companies. Next step involves, going to other research databases you have access to, such as IBIS World, ISI Emerging Markets, and MarketResearch.com Academic. Finally, GOOGLE it!
There might be instances when what you’re looking for is just isn’t available easily. In such a case, try and look for abstracts from paid reports, which you can piece together, to broaden your search parameters, get creative with Google searches, and try and search for proxies such as complementary products.
Now toward the end, we would like to take some time and discuss the important things you should look for to avoid looking like a fool during client calls. Always check for inconsistencies in data and formatting. Conduct sanity checks on any information you’ve added after translating from another language. While adding company logos, check the company’s Website to ensure it hasn’t changed recently. Last but not the least, always recheck and mention the sources.
That’s all on this topic. Do give us your valuable comments. 🙂
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