Industry segmentation and industry definition

Drawing industry boundaries is always a m atter of degree. Struc­ tural and value chain differences among  product varieties and buyers work   towards  a narrower  industry  definition.   Industry  segmentation is thus a tool to probe for narrower industry definitions by exposing structural heterogeneity within an industry. Interrelationships among segments and business units (Chapter 9) create possibilities for broader industry definitions.

A useful working industry definition should encompass  all seg­ ments for which segment interrelationships are very strong. Segments where interrelationships with other segments are weak may sometimes be separate industries from a strategic  viewpoint. Related  industries linked by strong interrelationships may in strategic terms be a single industry.

Where  one actually chooses to draw  industry  boundaries  is not so essential as long as both  segmentation  and  strategic  interrelation­ ships are examined  as part  of structural  analysis.   Such an analysis will expose all the key determinants  of competitive  advantage  that derive from competitive scope.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

Leave a Reply

Your email address will not be published. Required fields are marked *