Subject 5. External Influences on Industry Growth, Profitability, and Risk

These external influences include:

Macroeconomic Influences

GDP, interest rates, inflation, the availability of credit, etc.

Technological Influences

Established companies face the threat of technological obsolescence, while technological developments may also help established industries reinforce growth. Infant industries face the threat of a new product not being accepted by the marketplace.

Demographic Influences

Broad shifts in population distribution, age, and income can have very marked effects on different industries. For example, a greater role of sports in the lives of many Americans has increased demand for sports trauma orthopedics.

In most cases, demographic shifts are easy to identify, because they occur over a very long time period. However, it is much harder to quantify such trends and determine their influence on a particular industry.

Governmental Influences

Government regulations, laws, and tax policies can have a marked influence on many industries. They may potentially increase or decrease an industry's prospects.

In certain cases, government policies create new industries. For example, after the Firestone case, governments required the original auto manufacturers to submit all information about their cars, which created a new auto business intelligence software industry.

Trade barriers established by governments support demand for specific domestic industries by fending off foreign competition (an example would be the steel industry in the U.S.).

Social Influences

Fashion changes tend to be short-term and less predictable. For example, new products in the cosmetics or film industries may enjoy a brief spark in demand, which will dissipate shortly.

Lifestyle changes tend to be long-term and more predictable. For example, as a result of greater health consciousness, natural foods and nutritional products enjoyed a boom and hard liquor sales were depressed.

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