Businesses all fit into an environment

External Analysis & Strategy

• External environment can be mapped as four areas:– Market forces

• Segments & profitability• Demands & trends, • Customer acquisition costs (business) • Switching costs (customer)• Issues affecting market

External Analysis & Strategy• Industry forces (Porters Five Forces)

• Threat of substitutes (competing products)• Threat of new entrants (high/low barriers to entry ?)• Threat of existing competition (concentration within

industry)• Power of suppliers (many = low /few = high)• Power of buyers (many = low /few = high)

External Analysis & Strategy• Key trends (PEST)

• Political – legislation that is planned/in process/ overseas.• Economic s – demographics, income distribution, disposable

incomes, tastes, spending patterns.• Society – Cultural changes affecting society, shifts in values

which will affect buyer behaviour.• Technological – Impacts on business

– Market maker/market breaker (vinyl/ tape/ DAT/ CD/ downloads)– Improve operational efficiency– Opportunities/disruptions.

PEST analysis is usual toolAnd might be applied from any of the following standpoints:(Example Moa Breweries) .

• a company looking at its market - (Moa Brewery and NZ)• a product looking at its market - (‘Breakfast beer’ in morning market)• a brand in relation to its market - (Moa as a boutique beer brand)• a local business unit - (Moa (AK) compared to Moa(WN) ?)• a strategic option, such as entering a new market or launching a new product - (Moa into Australia)• a potential acquisition - (Moa buys Phoenix Organic softdrinks)• a potential partnership - (Moa and Atomic coffee –licensed cafes chain)• an investment opportunity - (Moa buys a digital brewery)

PEST variations( Choose the one that fits your business best)

STEP = PEST in more positive approach.PESTEL = PEST + Environmental + LegalPESTELI = PESTEL + Industry analysisSTEEP = PEST + EthicalSLEPT = PEST + LegalSTEEPLE = PEST + Environmental + Legal + EthicalSTEEPLED = STEEPLE + DemographicPESTLIED = PEST + Legal + International + Environmental + DemographicLONGPEST = Local + National + Global factors + PEST

External Analysis & Strategy• Macroeconomic forces– Global market sentiment – boom or bust?– Interest rates

• affecting capital cost for business• affecting spending by buyers• (NZ) affecting exchange rates

– High interest rates/ high exchange rates/ import(+) export(-)– Low interest rates /low exchange rate/ import (-) export (+)

– Unemployment rate• affecting general spending level• ease of hiring &firing

“The economy”

National Economy

• Infrastructure (road/rail/power/ I.T.)• Services (banking/insurance/logistics/utilities)• Education(cost/output/languages/numeracy)• Business (tax/employment & environmental law)• Government Policy (R&D, business support)• Prevailing philosophy (socialism<->capitalism)

Regional Economy

• As for national economy, plus any other factors

• Auckland examples– Housing cost (attracting staff / effect on spending)– Traffic gridlock (time & cost problem for deliveries)– Cosmopolitan city – 40% not born here

How will these factors affect our strategy?• Depends on sensitivity of the business

– Purchase price • large (house/car) or small (batteries)

– Product type (income elasticity effect (YED))• Luxury (tracks & exaggerates income level changes)

– Restaurant meals, overseas travel.

• Necessity (tracks steadily – minor income effect)– Flour, sugar, domestic travel.

• Inferior (tracks opposite to income)– Casual labour, shoe repairs.

How will these factors affect our strategy?• Technology ?

– Threats / opportunities

• Demographics?– Immigration / aging / households (single persons,

blended families, multiple incomes)

• Legislation? – What laws appliy now? / what might change?

• Society ?– Church goers / same sex couples / sustainability

Checklist : Political

• Government has passed legislation which requires further reductions of CO2, HC and NC emissions for vehicles until 2015

• New political forces, which are against tax reductions, may be elected in the next years’ elections

• Import restrictions will increase in 2013• Government is increasing its funding to ‘specific’ industry• Government is easing regulations for employment• Increasing tensions between our government and our major

export partner’s government• Legal & security issues on international data

Checklist : Economic• GDP will grow by 3% in 2015• Availability of credit for businesses will slightly grow or

remain unchanged in 2015. Cost of credit will decrease slightly in the 2nd half of the year

• Unemployment is expected to decrease.• Inflation will remain low – some imported through exchange

rate moves.• Dollar exchange rates are expected to decrease compared to

euro /AUD /USD• Disposable income level will decrease

Checklist :Socio-cultural

• Positive attitude towards “green” vehicles• Number of individuals and companies buying through the

Internet is 67% and 45% respectively and is expected to grow• Immigration is increasing• Increasing attitude toward jobs with shorter work hours• People tend to buy more domestic rather than foreign

products• People change their eating habits and now tend to eat

healthier food

Checklist: Technological

• New machinery that could reduce production costs by 20% is in development

• Country’s major telecom company announced its plans to expand its internet infrastructure and install new optic fiber cables

• Driverless cars may be introduced in the near future• “New” type of table will be introduced into the market next

year• Additive manufacturing• Cloud computing & SAAS (software as a service)• Internet & cybersecurity

• political• ecological/environmental issues• current legislation home market• future legislation• international legislation• regulatory bodies and processes• government policies• government term and change• trading policies• funding, grants and initiatives• home market lobbying/pressure

groups• international pressure groups• wars and conflicts

• economic• home economy situation• home economy trends• overseas economies and trends• general taxation issues• taxation specific to

product/services• seasonality/weather issues• market and trade cycles• specific industry factors• market routes and distribution

trends• customer/end-user drivers• interest and exchange rates• international trade/monetary

issues

• social• lifestyle trends• demographics• consumer attitudes and opinions• media views• law changes affecting social

factors• brand, company, technology

image• consumer buying patterns• fashion and role models• major events and influences• buying access and trends• ethnic/religious factors• advertising and publicity• ethical issues

• technological• competing technology development• research funding• associated/dependent technologies• replacement technology/solutions• maturity of technology• manufacturing maturity and capacity• information and communications• consumer buying

mechanisms/technology• technology legislation• innovation potential• technology access, licencing, patents• intellectual property issues• global communications