The steps in an industry analysis are: * Identify the industry and describe its market.
Footwear was a mature, highly competitive industry marked by low growth, but fairly stable margins. However, the individual firms could be quite volatile. * Classify the market structure of the industry.
The market for athletic and casual shoes remained fragmented, despite the presence of a small number of global footwear brands. Since product lifecycles tended to be short, active management of inventory and production lead times were critical success factors. Selling through department stores, independent specialty retailers, sporting goods stores, boutiques, and wholesalers as well as web-based e-commerce platforms is the primary way for selling channel.
The products in this industry are differentiated and unique. Specifically, in the casual segment, companies competed on the basis of style, price, and quality. In the athletic segment, competition revolved around brand image, specialized engineering for performance, and price.
The great majority of North American and European footwear companies used independent contract manufacturers to produce theirs, most of these independent manufacturers were located in China.
The Value Chain
Sources of Operating Synergy
Operating synergies are those synergies that allow firms to increase their operating income, increase growth or both. We would categorize operating synergies into four types:
3. Combination of different functional strengths, as would be the case when a firm with strong marketing skills acquires a firm with a good product line
Operating synergies can affect margins and growth
Sources of Financial Synergy
With financial synergies, the payoff can take the form of either higher cash flows or a lower cost of capital (discount rate). Included are the following:
· Debt capacity can increase, because when two firms combine, their earnings and cash flows may become more stable and