In the most simple words, Industry Environment can be defined as - the general conditions for the competition that influence all businesses that provide similar products and services.
Harvard professor Michel E.Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. “The overall economic, regulatory, social, and political conditions that affect all participants in an industrial market in a similar way and cannot readily be influenced by marketing.”
The industry environment is composed of the following stakeholders, around which analysis is done. Namely: Competitors, Suppliers and Buyers. There are also other major considerations like the political, legal, technological aspects which are a part of the environment analysis.
What is Industry Environment Analysis?
Industry Environment Analysis is a study or exercise done to assess the current industry environment. This exercise helps understand the various aspects and predict trends of the industry better and helps in many other ways. Generally, industry analysis is done by external research agencies, consulting firms, or businesses themselves.
The major objectives of industry environment analysis are:
- To identify key success factors of that industry
- To assess attractiveness and growth prospects for entry
- To formulate competitive strategy
- To study changes over time and predict trends
To analyse these aspects of the industry, models such as PEST, PESTEL, and PORTER’s 5 forces have been developed.
PEST and PESTEL are two models used to analyze political, legal, economic, social, environmental and technological factors pertaining to that particular industry.