external environment analysis-s

7/24/2019 External Environment Analysis-s

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External Environment Analysis


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External Forces


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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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Economic Environment

Impact of the economy on business Size and change in gross domestic product

Per capita income levels

Inflation rate

Interest rates

Foreign trade deficit or surplus

Unemployment

Rates of saving and investment

Budget deficits or surpluses

Personal & Business Savings rate


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Socio Cultural Environment

Influence of values, beliefs, and lifestyles of a country onbusiness

Family relationships

Attitudes about work

Living arrangements Attitudes toward health

Women in the workplace

Workforce diversity

Attitudes about quality of worklife Concerns about environment

Changes in work and career preferences

Changes in product and service preferences


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Political & Legal Environment

Government policies toward business

Investment incentives

Antitrust laws

Taxation laws

Deregulation philosophies

Labor training laws Educational philosophies and policies


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Demographic Environment

Size of population and growth rate

Age distribution of population

Education levels

Income distribution

Ethnic diversity

Geographic distribution


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Technological Environment

Product innovations

Applications of knowledge

Focus of private and government-supportedR&D expenditures

New communication technologies


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Global Environment

International developments that can impact a

business

Rise of China as economic power

Rising global trade and WTO

Intellectual property protection

Important political events: Iraq war

Search for low cost suppliers


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Industry Environment

What is Industry?

Group of firms offering products or serviceswhich are close substitute to each other, i.e. the

products and services that satisfy the same basic

customer needs


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Industry and Sector

A Sector is a group of closely related industries


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Porters Five Forces

Model of Competition


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Rivalry among competing sellers

The intensity and nature of rivalry among

current industry participants


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Potential New Entrants

The perceived likelihood that new players will

enter an industry (successfully or not).


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Substitute Products

A substitute product is a different product

categorywhich can deliver the same end

benefit to the user as the industrys product


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Bargaining Power of Suppliers

The ability (and propensity) of Suppliers to

capture value from the sale of the end product

through their own pricing.


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Bargaining Power of Buyers

Ability (and propensity) of Buyers to bargain

away industry profits by demanding low

prices


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Interpreting Industry Analyses

Suppliers and buyers have strong positions

Low entry barriers

Strong threats from substitute products

Intense rivalry among competitors

Low profit potential Ex-Personal Computers

Unattractive

Industry


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Interpreting Industry Analyses

High entry barriers

Suppliers and buyers have weak positions

Few threats from substitute products

Moderate rivalry among competitors

High profit potential

AttractiveIndustry


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Strategic Groups Within Industries

Companies do not compete against all companies in anindustry

Companies compete against selective other companies thatfollow similar strategies

A strategic group consists of those rivals with similarcompetitive approaches in an industry- Set of firmsemphasizing similar strategic dimensions and using a similarstrategy

Can be useful for analyzing an industrys competitivestructure

Can also be helpful in diagnosing competition, positioning,and the profitability of firms within an industry


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Firms in same strategic grouphave two or morecompetitive characteristicsin common

Have comparable product line breadth

Sell in same price/quality rangeEmphasize same distribution channels

Use same product attributes to appealto similar types of buyers

Use identical technological approaches

Offer buyers similar services

Cover same geographic areas

Strategic Group Mapping


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Constructing Strategic Group Map

1. Identify competitive characteristics that differentiate

firms in an industry from one another

2. Plot firms on a two-variable map using pairs of these

differentiating characteristics3. Assign firms that fall in about the same strategy

space to same strategic group

4. Draw circles around each group, making circlesproportional to size of groups respective share of

total industry sales

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Strategic Groups in the Pharmaceutical

Industry


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Implications of strategic groups

The closest industry competitors are those in thegroup.

The various industry groups are differentially andcompetitively advantaged and positioned.

Mobility barriers may inhibit the movement ofcompetitors from one strategic group to another.

Strengths of the 5 forces can differ across strategic

groups The closer the strategic groups, in terms of strategy,

the greater the likelihood of rivalry


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The Competitor Environment

and Competitor Analysis

Competitor EnvironmentGives details about

A firms direct and indirect competitors

The competitive dynamics expected to impact a firm's efforts togenerate above-average returns

Competitor analysisFocused on predicting the dynamics of competitor's actions,

responses, and intentions

Focuses on each company which a firm directly competes

Seeks to understand each competitors future objectives,current strategy, assumptions, and capabilities


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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 (current

strategy)

A competitors beliefs about the industry (its

assumptions)

A competitors capabilities


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Competitor AnalysisComponents


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Limitations of the Five Forces and

Strategic Group Models

Both models are static and ignore innovation.

Their focus is on industry and group structuresrather than individual companies. Innovation creates change in industry structures,

altering the competitive environment.

Industry structure cannot fully explain theperformance differences between industrycompetitors.

Source: Based on Figure 2 4 in Hill and


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Industry Life Cycle ModelSource: Based on Figure 2.4 in Hill and

Source: Based on Figure 2.4 in Hill and Jones (2008).Source: Based on Figure 2.4 in Hill and Jones (2008).

external environment analysis-s

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