ST.

JOSEPH’S COLLEGE OF ENGINEERING AND

TECHNOLOGY, PALAI

ST. JOSEPH'S BUSINESS SCHOOL

ASSIGNMENT - 1

20MBA202 – STRATEGIC MANAGEMENT

TOPIC: FACTORS AFFECTING EXTERNAL ANALYSIS AND

LEVELS OF EXTERNAL ANALYSIS

SUBMITTED TO,
DR. SOUMYA VARGHESE
ASSOCIATE PROFESSOR
SJBS

SUBMITTED BY,
DELLA T JOHN
S4 MBA
22/MBA/043
 FACTORS AFFECTING EXTERNAL ANALYSIS AND LEVELS OF
EXTERNAL ANALYSIS
Introduction:
External analysis is a fundamental component of strategic management, encompassing the
systematic evaluation of factors outside an organisation's control that may impact its
performance and decision-making processes. It involves the examination of the external
environment to identify opportunities, threats, and trends that may influence the organization's
strategic direction and competitive position. By understanding the external landscape,
businesses can anticipate changes, capitalise on emerging opportunities, and mitigate potential
risks more effectively.
The importance of external analysis in strategic management cannot be overstated. In today's
dynamic and interconnected business environment, organizations face a multitude of external
forces, including economic fluctuations, technological advancements, regulatory changes, and
shifting consumer preferences. Failing to conduct thorough external analysis can leave
businesses vulnerable to unforeseen challenges and hinder their ability to adapt and thrive in
competitive markets.
Environmental scanning serves as a foundational process within external analysis, providing a
structured approach for gathering, analyzing, and interpreting information about the external
environment. It involves monitoring various sources of data, such as market trends, competitor
actions, and socio-political developments, to identify both opportunities and threats that may
impact the organization's strategic objectives. By embracing environmental scanning as a
proactive tool, organizations can enhance their strategic agility and make informed decisions
that align with their long-term goals and objectives.

Factors Affecting External Analysis:

External analysis involves the systematic examination of various factors outside an
organisation's control that can influence its performance and strategic decisions. These factors
can be broadly categorized into macro environment factors and micro environment factors.
1. Macro Environment Factors:

 Economic Factors: Economic conditions such as GDP growth rates, inflation,

interest rates, and exchange rates significantly impact businesses. These factors
affect consumer purchasing power, demand for goods and services, and overall
market stability.
 Socio-Cultural Factors: Socio-cultural trends, values, beliefs, and lifestyles
influence consumer behaviour and preferences. Understanding socio-cultural
factors helps organizations tailor their products, services, and marketing
strategies to meet the needs and expectations of diverse customer segments.
 Political and Legal Factors: Political stability, government policies, regulations,
and legal frameworks shape the business environment. Changes in legislation,
trade policies, or geopolitical tensions can create opportunities or threats for
businesses operating in different markets.
 Technological Factors: Rapid advancements in technology drive innovation,
disrupt industries, and create new market opportunities. Organizations must
monitor technological trends such as automation, artificial intelligence, and
digitalisation to stay competitive and adapt to changing market dynamics.
 Environmental Factors: Environmental concerns, sustainability issues, and
climate change regulations impact business operations across industries.
Organizations need to consider environmental factors in their strategic decision-
making processes to minimize risks, comply with regulations, and promote
corporate responsibility.
 Demographic Factors: Demographic trends such as population growth, age
distribution, urbanization, and ethnic diversity influence market demand and
consumer behaviour. Understanding demographic shifts helps businesses
segment their target markets and develop targeted marketing strategies.
 2. Micro Environment Factors:

 Industry Competition: The intensity of competition within an industry affects

profitability, market share, and strategic positioning. Factors such as the number
of competitors, industry structure, and competitive dynamics influence a
company's competitive strategy.
 Supplier Power: The bargaining power of suppliers can impact the availability,
quality, and cost of inputs for businesses. Strong supplier bargaining power can
limit a company's profitability and strategic flexibility.
 Buyer Power: The bargaining power of buyers influences pricing, product
differentiation, and customer relationships. High buyer power can erode
profitability and compel businesses to enhance value propositions and customer
experiences.
 Threat of Substitutes: Substitutes refer to alternative products or services that
fulfil similar customer needs. The availability of substitutes can weaken a
company's market position and force it to differentiate its offerings to maintain
competitiveness.
 Threat of New Entrants: The threat of new entrants represents the potential for
new competitors to enter an industry. Barriers to entry such as capital
requirements, economies of scale, regulatory hurdles, and brand loyalty
determine the likelihood of new entrants disrupting existing market dynamics.

Levels of External Analysis:

Environmental Analysis:
At the core of external analysis lies environmental scanning, wherein broad
environmental factors are evaluated and studied. These factors, distinct from the
internal environment of the organization, significantly impact businesses but are
beyond their control. Environmental analysis encompasses macro-environmental
factors such as economic trends, political landscapes, legal frameworks, technological
 advancements, and societal norms. Understanding these factors provides valuable
insights into the broader context within which the organization operates, enabling
strategic leaders to anticipate changes and adapt their strategies accordingly.
Industry Analysis:
Industry analysis serves as a critical tool for assessing the competitive landscape and
complexities within a specific industry. Marketers utilize industry analysis to scrutinize
macroenvironmental factors influencing their respective industries. This process aids
strategic leaders in formulating strategies to mitigate threats and leverage opportunities.
Key environmental forces examined in industry analysis include the bargaining power
of buyers and suppliers, competitive positioning, threats of new entrants, and the
availability of substitutes. By delving into these dynamics, organizations can devise
strategies to enhance their competitive advantage and thrive in their respective
industries.
Competitive Analysis:
A thorough appraisal of the external environment necessitates analyzing the strengths
and weaknesses of both current and potential competitors. Competitive analysis enables
organizations to understand the competitive landscape and formulate strategies to
survive and excel in a fiercely competitive environment. By evaluating the strategies
adopted by competitors and assessing the degree of industry concentration,
organizations can identify threats and opportunities. This analysis facilitates the
development of defensive and offensive strategic manoeuvres, empowering
organizations to proactively respond to market dynamics and maintain their competitive
edge.

Conclusion:
External analysis stands as a cornerstone in strategic management, offering organizations a
panoramic view of the factors that shape their operational landscape. In today's dynamic
business environment, characterized by rapid technological advancements, regulatory shifts,
and evolving consumer preferences, the significance of external analysis cannot be overstated.
By diligently examining macro and micro environmental factors, organizations can proactively
identify opportunities, anticipate threats, and adapt their strategies to stay ahead of the curve.
Environmental scanning, industry analysis, and competitive analysis emerge as indispensable
tools in the arsenal of strategic leaders. Environmental analysis provides a holistic
understanding of the broader context within which the organization operates, while industry
analysis sheds light on the competitive dynamics specific to its sector. Meanwhile, competitive
analysis offers insights into the strategies and capabilities of rivals, enabling organizations to
craft effective responses and maintain their competitive edge.
A comprehensive approach to external analysis empowers organizations to navigate
uncertainties, capitalize on emerging trends, and mitigate risks effectively. By embracing
external analysis as a strategic imperative, businesses can chart a course towards sustainable
growth, resilience, and competitive advantage in an ever-evolving marketplace.