External Environment 2

8/3/2019 External Environment 2

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External Environment


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The External

Environment


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General Environment

Dimensions in the broader society that

influence and industry and the firms within it

Economic

Sociocultural

Global

Technological

Political/legal

Demographic


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Industry Environment

Set of factors directly influencing a firm andits competitive actions and competitiveresponses

Threat of new entrants

Power of suppliers

Power of buyers

Threat of product

substitutes

Intensity of rivalryamong competitors


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Competitor Environment

All of the companies that the firm competes

against.


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Analysis of the External Environments

General environment

Focused on the future

Industry environment

Focused on factors and conditions influencing afirms profitability within an industry

Competitor environment

Focused on predicting the dynamics of

competitors actions, responses and intentions


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Opportunities and Threats

Opportunity

A condition in the general environment that if

exploited, helps a company achieve strategic

competitiveness

Threat

A condition in the general environment that may

hinder a companys efforts to achieve strategic

competitiveness


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External Environmental Analysis

A continuous process which includes

Scanningfor early signals of potentialchanges and trends in the general environment

Monitoringchanges to see if a trend emergesfrom among those spotted by scanning

Forecastingprojections of outcomes based onmonitored changes and trends

Assessingthe timing and significance ofchanges and trends on the strategic

management of the firm


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Components of the External Environmental Analysis


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General Environment (contd)

The Economic Segment

Inflation rates

Interest rates

Trade deficits orsurpluses

Budget deficits orsurpluses

Personal savings rate

Business savings rates

Gross domesticproduct


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The Sociocultural Segment

Women in the workplace

Workforce diversity

Attitudes about qualityof worklife

Concerns aboutenvironment

Shifts in work andcareer preferences

Shifts in product andservice preferences


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The Global Segment

Product innovations

Applications of

knowledgeFocus of private and

government-supported

R&D expenditures

New communicationtechnologies


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The Technological

Segment

Product innovations

Applications ofknowledge

Focus of private and

government-supported

R&D expenditures

New communication

technologies


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The Political/Legal

Segment

Antitrust laws

Taxation laws

Deregulation

philosophies

Labor training laws

Educationalphilosophies and

policies


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General Environment

The Demographic

Segment

Population size

Age structure

Geographic

distribution

Ethnic mix

Income distribution


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Industry Environment

Industry Defined

A group of firms producing products that are

close substitutes

Firms that influence one another

Includes a rich mix of competitive strategies that

companies use in pursuing strategic

competitiveness and above-average returns


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The Five Forces ofCompetition Model


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Threat of New Entrants: Barriers to Entry

Economies of scale

Product differentiation

Capital requirements

Switching costs

Access to distribution channels

Cost disadvantages independent of scale

Government policy Expected retaliation


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Barriers to Entry

Economies of Scale

Marginal improvements in efficiency that a firm

experiences as it incrementally increases its size

Advantages and disadvantages of large-scale and small-scale entry


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Barriers to Entry (contd)

Product

differentiation

Unique products

Customer loyalty

Products at

competitive prices

Capital

Requirements

Physical facilities

Inventories

Marketing activities

Availability of capital


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Switching Costs

One-time costs customers incur when they buy

from a different supplier

New equipmentRetraining employees

Psychic costs of ending a relationship


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Access to Distribution Channels

Stocking or shelf space

Price breaks

Cooperative advertising allowances

Cost Disadvantages Independent of Scale

Proprietary product technology

Favorable access to raw materials

Desirable locations


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Cost disadvantages independent of scale

Proprietary product technology

Favorable access to raw materials

Desirable locations

Government policy

Licensing and permit requirements

Deregulation of industries


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Expected retaliation

Responses by existing competitors may depend

on a firms present stake in the industry

(available business options)


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Bargaining Power of Suppliers

Supplier power increases when:Suppliers are large and few in

number

Suitable substitute products are

not availableIndividual buyers are not large

customers of suppliers and there are many ofthem

Suppliers goods are critical to buyers

marketplace success

Suppliers products create high switching costs.

Suppliers pose a threat to integrate forward intobuyers industry


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Bargaining Power of Buyers

Buyer power increase when:

Buyers are large and few innumber

Buyers purchase a large portion

of an industrys total output

Buyers purchases are a significantportion of a suppliers annual revenues

Buyers can switch to another product without

incurring high switching costsBuyers pose threat to integrate backward into the

sellers industry


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Intensity of Rivalry Among Competitors

Industry rivalry increases when:

There are numerous or equallybalanced competitors

Industry growth slows or

declinesThere are high fixed costs or high

storage costs

There is a lack of differentiation opportunities or

low switching costsWhen the strategic stakes are high

When high exit barriers prevent competitors fromleaving the industry


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Low entry barriers

Interpreting Industry Analyses

UnattractiveIndustry

Suppliers and buyers

have strong positions

Strong threats fromsubstitute products

Intense rivalryamong competitors

Low profitpotential


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AttractiveIndustry

High entry barriers

Interpreting Industry Analyses

Suppliers and buyers

have weak positions

Few threats fromsubstitute products

Moderate rivalryamong competitors

High profitpotential


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Strategic Groups Defined

A set of firms emphasizing similar strategic

dimensions and using similar strategies

Internal competition between strategic group

firms is greater than between firms outside that

strategic group

There is more heterogeneity in the performance

of firms within strategic groups


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Strategic Groups

Strategic Dimensions

Extent of technological leadership

Product quality

Pricing Policies

Distribution channels

Customer service


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Competitor Analysis

Competitor Intelligence

The ethical gathering of needed information and

data that provides insight into:

A competitors direction (future objectives)

A competitors capabilities and intentions

(currentstrategy)

A competitors beliefs about the industry (its

assumptions)A competitors capabilities


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Competitor AnalysisComponents

Documents

External Environment 2