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Bryan Galloway is a strategist for JS Investments, a small money management firm. His goal is to analyze industries to determine whether there is justification for over- or under-weighting. His supervisor, Robyn Black, CFA, has asked that he document the process he uses to make his recommendations. However, just to be sure that Galloway understands industry analysis. Black asks him to provide examples of supply and demand analysis. Galloway makes the following two statements to prove that he understands the issue:
Statement 1: In analyzing supply in the tire and rubber industry, it is clear that the sale of each additional automobile will result in the sale of approximately two winter tires.
Statement 2: In analyzing demand for services in the healthcare industry, for every 100 new hospital beds required, 20 additional doctors are needed.
Black is not entirely confident in Galloway's abilities to analyze various industries, but decides to allow him to continue with his analysis.
Four of the largest holdings for JS Investments are a tobacco company, a soda drink company, an oil company, and a cable TV company. Black is worried that government intervention will have a serious impact on future growth for these companies and asks Galloway to further research each of the industries involved. However, just to make sure Galloway can handle this project. Black first asks him to review the basics of industry analysis.
In reviewing the factors affecting pricing considerations, Galloway concludes that all of the following are of direct importance:
Factor 1: Price changes in key supply inputs.
Factor 2: Product segmentation.
Factor 3: Ease of entry into the industry.
Factor 4: Degree of industry concentration.
Galloway also makes the following statements about the characteristics of the phases of the industrial life cycle:
Characteristic 1: Participants compete for market share in a stable industry.
Characteristic 2: Changing tastes have an important impact on the industry.
Characteristic 3: It is not clear that a product will be accepted in the industry.
Characteristic 4: Proper execution of strategy is critical.
Each of the phases is represented by one characteristic.
Which of the following choices best describes all the elements that Galloway should consider in doing an analysis of external factors in an industry analysis?
A. Technology; government; social; demographic; foreign.
B. Government; technology; end users; degree of concentration; ease of entry.
C. Social; demographic; foreign; pricing; degree of concentration.
Answer: A
External factors that arc important in an industry analysis arc technology, government, social, demographic, and foreign. (Study Session 11, LOS 38.d)



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