The External Environment Opportunities, Threats, Industry Competition & Competitor Analysis

8/10/2019 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

The External Environment Opportunities, Threats, Industry Competition & Competitor Analysis

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