The branch risk is a probability of losses as a result of changes in an economic condition of the industry and extent of these changes both in the industry, and in comparison with other industries.
In the analysis of branch risk it is necessary to consider the following factors:
- activity of firms of this industry and also allied industries for the certain (chosen) time frame;
- as far as activity of firms of this industry is steady in comparison with national economy in general;
- what results of activity of various entrepreneurial firms in the same industry whether there is a considerable divergence in results.
With work of the enterprises of the industry and consequently, and the stage of industrial lifecycle of the industry and the intra-branch environment of the competition are directly connected with the level of branch risk. At the same time the level of intra-branch competition is a source of information on stability of entrepreneurial firms in this industry in relation to firms of other industries and, as a rule, serves as assessment of branch risk.
About the level of intra-branch competition it is possible to judge by the following information:
- degree price and non-price competition;
- ease or complexity of entry of the organization into the industry;
- availability or lack of substitutes, close and competitive at price;
- market capability of buyers;
- market capability of suppliers;
- political and social environment.
However the listed conditions in which the industry functions are subject unexpected, sometimes to sharp changes.
Therefore entrepreneurial firms need to consider constantly branch risks at any kinds of activity.