Evaluation of sector's attractiveness
| Evaluation of sector's attractiveness |
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| See also |
By evaluation of the attractiveness of the sector, we can determine the structural characteristics of the sector, the forces causing the changes, it also provides information about competitors. This method makes possible to assess the profitability of entering the sector (or exit from the sector) and facilitates the development of an appropriate strategy. Evaluation of the attractiveness of the sector is carried out on the basis of comparisons with other industries.
Evaluation criteria
The attractiveness of the sector is mostly determined by using the following evaluation criteria:
- market criteria (e.g. market, competition, stability),
- financial criteria (e.g. profitability, return on investment, capital needs, the level of prices),
- organizational and technical criteria (e.g. technology, the quality level of the products, the delivery system, the possibility of cooperation).
Weighing scale of evaluation criteria can be specified in the range of 1 to 10 points. Levels of importance are as follows:
- 10 points maximum
- 7 points - high
- 5 points - average (in a good way)
- 4 points - average (sufficient)
- 1 point - slight degree of suitability
Example of application
Table 1. Example scoring of the attractiveness of the sector
- Technological requirements |
| Evaluation criteria | The range of validity | Importance and severity of present situation |
| 1. Competition power | 1-10 | 8 |
| 2. Market saturation level | 1-10 | 7 |
| 3. Market dynamics | 1-10 | 10 |
| 4. industry Risk | 1-10 | 8 |
| 5. Freedom of economic activity | 1-10 | 10 |
| 6. Macroeconomic Risk | 1-7 | 4 |
| 1-7 | 5 | |
| 8. Capital needs | 1-7 | 6 |
| 9. Operational risk | 1-5 | 3 |
| 10. Opportunities of cooperation | 1-5 | 5 |
| Total | 1-81 | 66 |
At the end we have to sum the weighted rating scale and determine category of sector:
- high attractiveness of the sector = > (81-73)
- satisfactory attractiveness of the sector = > (70-60)
- satisfactory attractiveness of the sector = > (59-49)
- weak attractiveness of the sector = > (48-38)
- critical attractiveness of the sector = > (37-27)
References
- Dawid, H., & Reimann, M. (2005). Evaluating market attractiveness: individual incentives versus industry profitability. Computational Economics, 24(4), 321-355.
