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11 Characteristics of Industry

John Spacey, August 10, 2020

An industry is a grouping of businesses that offer similar products and services. The following are the basic characteristics that can be used to compare industries and firms within industries.

Sector

A sector is the level of value creation of an industry. These are as follows.

Sector	Level	Examples
Primary	The production of raw materials.	Agriculture, Mining
Secondary	The production of finished goods.	Manufacturing,Craft
Tertiary	Services that add intangible value.	Restaurants, Banks, Retail

Business Model

A business model is how a firm generates and captures value. For example, club goods is a business model used by theme parks whereby a firm offers access to expensive capital for an admissions fee.

Capital

Capital is the productive property that is required to participate in an industry including natural resources, land, buildings, infrastructure, machines, computers and vehicles.

Labor

The labor requirements of an industry. For example, banks that commonly employ large numbers of knowledge workers.

Financials

Financial metrics are typically comparable across an industry. For example, manufacturing firms in a particular region may have similar profit margins, return on invested capital and revenue per employee.

Barriers to Entry

Barriers to entry is how difficult it is for new competitors to enter an industry. For example, restaurants have relatively low barriers to entry such that a successful location may soon face new competitors.

Competition

The level of competition in an industry. For example, farmers that are protected from competing with global producers by the protectionist policies of a government.

Structure

Structure refers to the basic type of competition in an industry. The following are the basic types.

Structure	Number of Firms
Monopoly	A single firm mostly dominates.
Oligopoly	Three to ten firms dominate competition.
Pure Competition	A large number of firms compete.

Monopolies have no competitors and typically need to be regulated to prevent abuse of their market power such as high prices, low quality and unfair practices forced on customers and partners.

Competitive Advantage

What it takes to win competitive battles in an industry. For example, in the fast moving consumer goods industry brand recognition is a primary type of competitive advantage such that firms in this industry must spend heavily on advertising.

Industry Life Cycle

An industry life cycle is a stage of growth of a market for goods and services.

Stage	Growth Level
Nascent	A newly formed industry with space for new entrants but often an uncertain future.
Growth	An industry that is quickly growing revenue.
Mature	An industry that is slowly growing revenue.
Decline	An industry with falling revenues.