The External Environment Opportunities, Threats,Industry Com
The External Environment Opportunities, Threats, Industry Competition & Competitor Analysis
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Transcript of The External Environment Opportunities, Threats, Industry Competition & Competitor Analysis
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The External
Environment:
opportunities, Threats,Industry Competition &
Competitor Analysis
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Learning Objective
Explain the importance of studying & Understudying thefirms external environment.
Define & Describe the general Environment
Activities of external environmental analysis process
General environment of six segments
Define strategic groups & their influences on firmscompetitive action
Different methods used to collect intelligence on theircompetitors
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SOME QUOTES
Planning:doing things today to make us bettertomorrow. Because the future belongs to those whomake the hard decisions today (Eaton corporation)
Tomorrow always arrives. It is always different.and even the mightiest company is in trouble ifit has not worked on the future. Being surprised
by what happens is risk that even the largestand richest company can not afford, and eventhe smallest business need not run.
(Peter Drucker)
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General Environment:
The environment is composed of
elements in the broader society thatinfluence an industry & the firms
within it.
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Forces in the Organizational Environment
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Focal
Firm
Demographic
Trends
Technological
Change
Cultural
Trends
Economic
Climate
Legal/Political
Conditions
Specific
International
Events
General External Environment
PDAs &
Cell Phones
Hispanic Population Growth
Changing Image of SUVs
RisingInterest
Rates
Changing Policy toward Oil
Exploration on Public Lands
European Union Ban on
Hormone-Treated U.S. Beef
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Industry Environment:
Industry environment is the set of factors-thethreat of new entrants, suppliers, buyers,product substitute and intensity of rivalry
among competitors.
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External/SocietalEnvironmental Analysis
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Opportunity:
An opportunity is a condition in the general environment that
may help a company achieve strategic competitiveness.
Threat:
Threat is a condition in the general environment that may
hinder a companys efforts to achieve strategiccompetitiveness.
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Components of External Analysis
Scanning Identifying early signals of environmental changes &threats.
Monitoring Deducting meaning through ongoing observation of
environmental changes & trends.
Forecasting Developing projections of anticipated outcomes based on
monitored changes & trends.
Assessing Determining the timing & importance of environmental
changes & trends for firms strategy & management.
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Segments of the general environment
1.The demographic segment
(a) population size
(b) Age Structure
(c) geographic distribution
(d) Ethnic Mix
(e) Income distribution
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a. Population Size:In October 2001, the world population reached 7
billion. Combined , china & India accounted for
one third of 7 billion .
By the 2050, the population of India and China
would be reaching 1.6 billion & 1.5 billion people,
respectively.
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b. Age Structure:
in some countries the population average
age is increasing. In US , for example, thepercentage of the population aged 55 and
older is expected to increase from roughly
6 percentage in 1955 to approximately 37.5
% in 2019.
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c. Geographic Distribution
For decades, the US population has beenshifting from the north & east to the west &
south. Similarly the trend of relocating from
metropolitan to non metropolitan areascontinues.
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d. Ethnic Mix
The ethnic mix of countries population continues to
change.
For example, the population & labor force will continueto diversify as immigration accounts for sizeable part
growth e.g Hispanics in the US.
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e. Income Distribution:Understanding how income is distributed with in
& across population.
e.g. living standard ,per-capita income.
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The Economic Segment
The economic segment refer to the
economy in the which a firmcompetes or may compete.
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The Political & Legal Segment
This segment represents how
organizations try to influencegovernment & how governments
influence them.
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The socio-culture segment
It is concern with social attitudes& cultural values
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Determinants of Culture
Social structure Religion
Language
Education Economic philosophy
Political philosophy
There are other factors than Values and Norms that help inmaking a Culture. Those factors are as follows:
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The Technological Segment
It includes the institutions & activities
involved with creating new knowledge &translating that knowledge in to new
outputs, products, processes &materials.
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The Global Segment
It includes relevant new globalmarkets, existing ones that are
changing, importantinternational political events,
and critical culture &institutional characteristics ofglobal markets.
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Industry Environment &
Analysis
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Task EnvironmentIt includes those elements or groups that directly affect
the corporation and in turn, are affected by it. These are
governments, local communities, suppliers,
competitors, customers, creditors, employees /labor
unions etc.
(Wheelen & Hunger)
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Industry Analysis
It refers to an in depth examination of key
factors with in a corporations taskenvironment.
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Focal
Firm
Higher Threat Lower Average Profits
Porters Five Forces Model
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The Five Forces
Competitive Forces
Level of Rivalry Increased competition results in lowerprofits.
Potential for Entry Easy entry leads to lower prices and profits.
Power of Suppliers If there are only a few suppliers of importantitems, supply costs rise.
Power of Customers If there are only a few large buyers, they canbargain down prices.
Substitutes More available substitutes tend to drivedown prices and profits.
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1. Threat of New Entrants
a. Barrier to entry
1. Product differentiation
2. Capital requirements3. Switching costs
4. Access to distribution channels
5. Cost disadvantages independent of
scale
6. Government policy
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2. Capital Requirements:
Competing in a new industry requires resources toinvent.
3 .Switching Cost:Switching cost are the one time cost customers incur
when buying from a different suppliers.
e.g once a software program like MS office establishedin an office, office managers are very reluctant to
switch to a new program because of high training cost.
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4. Access to Distribution channels:
Small entrepreneurs often have difficulty obtainingsupermarkets shelf's space for their goods because
large retailers charge for space on their shelves and
give priority to established firms who can pay for the
advertising needed to generate high customer demand.
5. Cost disadvantage Independent of Scale:
Technology, favorable access to raw materials,
favorable locations and governments subsidies etc.
6. Government Policy:
Licensing, permits, requirements, governments can
control entry in to an industry.
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Threat of Suppliers
powerful suppliers can squeeze (lower profits)
the focal firm
Industry conditions that facilitate supplier power:
small number of firms in suppliers industry
highly differentiated product
lack of close substitutes for suppliers products
focal firm is an insignificant customer of supplier
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Threat of Buyers
powerful buyers can squeeze (lower profits)
the focal firm by demanding lower prices and/or
higher levels of quality and service
Industry conditions that facilitate buyer power:
small number of buyers for focal firms output
lack of a differentiated product
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Threat of Substitutes
substitutes fill the same need but in a different way
- Coke and Pepsi are rivals, milk is a
substitute for both
substitutes create a price ceiling because consumers
switch to the substitute if prices rise
substitutes will likely come from outside the
industrybe sure to look
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Threat of Rivalry
high rivalry means firms compete vigorouslyand
compete away above average profits
Industry conditions that facilitate rivalry:
large numbers of competitors
slow or declining growth
low product differentiation
industry capacity can only be added inlarge increments
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Porters Five Forces Model
Focal
Firm
Buyers
Suppliers
Entry
Rivalry
Substitutes
Industry
Threat
If all threats are high expect normal profits
If all threats are low expect above normal profits
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Competitor Analysis
Competitor analysis focuses on each
company against whom a firm
competes directly.
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Competitor Intelligence
It is the ethical gathering of needed
information & data about competitor'sobjectives, strategies, assumptions &
capabilities.
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Thank You