Global Industry Analysis
Companies that operate in global industries are subject to influences from both their country of domicile and their industry. As a result, both country analysis and global industry analysis are typically needed.
Country analysis can include not just the country of domicile, but also the major end markets in which a company operates. In each significant country market, analysts and economists typically monitor a wide range of economic, social and political variables. These can include:
- Expected real and nominal growth
- Monetary and fiscal policy
- Investment climate
- Business cycle stage
- Long-term sustainable growth
- Competitiveness
- Factors affecting employment and wages
- Social and political environment
Business cycles across countries are not fully synchronized, so some countries may recover or enter recession sooner than others. However, as markets become more globally integrated international business cycles tend to converge.
To estimate long-term sustainable growth, there are two primary competing theories.
- Neoclassical growth theory assumes that the marginal productivity of capital declines as more capital is added.
- Endogenous growth theory assumes that technological advances and improved labor force education can result in efficiency gains. These can prevent the decline in marginal productivity of capital.
As industries become more global, the country factors are also becoming less significant. Industry factors to consider include:
- Demand analysis - how is the global market for the company’s products and services growing?
- Value creation - Where on the supply chain is value created? Are there advantages to size, scale or scope? Is there a productivity learning curve in the industry?
- Industry life cycle - is the industry a pioneer, accelerating growth, mature, stable or decelerating industry?
- What is the industry’s competitive structure?
- What is the competitive advantage pursued by each industry participant?
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
