Global Business Environment and International

Strategy MOD007191

Lecture 2
The Micro Environment

Dr Andre Samuel
[email protected]
Recap
Global Business
• It means moving from
local/domestic to international

• Involves the trade of goods

and services, capital,
knowledge and technology
across borders on a global
scale

• The production or distribution

of goods or services in many
countries
Popular Regional Trade Blocs in The World
Layers of the Business Environment
Layers of the business environment

Johnson, Whittington and Scholes (2011) Exploring Corporate Strategy

Market
Market
• A market is a group of customers for specific products or
services that are essentially the same

• For example; the market for luxury cars in Germany

Key Factors of the Market
Market Market Size
Definition Total sales or revenue
Broadly identifying the for a period of time. It
boundaries of a quantifies demand by
market, both in terms looking and volume and
of the products or value of sales
services being offered
and the geographical
area in which
competition takes
place
Market Market Growth
Segmentation Rate
Divides the broader How fast the overall
market into distinct market for a product or
groups of consumers service is expanding (or
with similar contracting) over time.
characteristics or Measured using
needs.. Compounded Annual
Growth Rate (CAGR)
The Market for Luxury cars in Germany
•Revenue in the Luxury
Cars market is
projected to reach
US$3,678m in 2024.

•Revenue is expected to
show an annual growth
rate (CAGR 2024-2029)
of 0.45%, resulting in a
projected market
volume of US$3,762m
by 2029.

•Luxury Cars market

unit sales are
expected to reach
19,780.0 vehicles in
2029.
https://www.statista.com/outlook/mmo/passenger-cars/luxury-cars/germany
Activity- Find Market Insights for your
Chosen Product
• Go to Statista through ARU
Library ----->

• Login using ARU Credentials

• On Statista, Go to INSIGHTS
• Then Choose Explore Market
Insights
• Search!!!
Industry
Industry
• An industry is a group of firms producing products and
services that are essentially the same.

• For example, automobile industry and airline industry.

What we will investigate?

Industry Competitive
Lifecycle Forces
Industry Lifecycle
Stages of the Industry Lifecycle
• The industry life cycle is the
series of phases that a
product will go through in its
“lifetime” in relation to the
profit and sales that it will
collect (Kotler & Armstrong,
2012)

• The life cycle is broken into

four stages:
• Development/Introduction
• Growth
• Maturity
• Decline.
Levitt (1965) https://hbr.org/1965/11/exploit-the-product-life-cycle
Stage 1. Market development
• This is when a new product
is first brought to market
• Substantial investment in
advertising and a marketing
campaign focused on
making consumers aware
• There is often little-to-no
competition
• Sales are low and creep
along slowly.
Stage 2. Market Growth
• Product becomes more
popular and recognizable
• Demand accelerate leading
to increased sales and
higher revenue
• The size of the total market
expands rapidly
• Marketing campaigns
geared towards
differentiating product
from competitors
Stage 3. Market Maturity
• Sales volume is "maxed
out"
• Market saturated with the
product
• Costs of marketing decline
• Competition is higher
• Profit margins starting to
shrink
Stage 4. Market Decline
• The product begins to lose
consumer appeal
• Sales drift downward
• The product may lose
market share
Death of Film Cameras
Apple’s Mobile Product Lifecycle
Activity- Product Lifecycle for Apple iPhone
• Using:
• Statista

• Search:
• Unit sales of the Apple iPhone worldwide from 2007 to 2023

• Observations:
• What stages of the lifecycle is the iPhone at?
Competitive Environment
Industry Attractiveness
• Industries vary widely in terms of their attractiveness, in
terms of its profitability

• One key determinant of profitability is the extent of

competition, actual or potential

• Therefore, before entering new markets, a Competitive

analysis is required to identify Opportunities and threats

• Bottom line- Is the industry Attractive?

Mapping Competition
• Who are our competitors?
• What is the market share owned by each competitor ?
• What is the profit margin that my competitors make ?
• What are the threats that they pose ?
• Low Price?
• Better Quality ?
• Better service ?
• Customer loyalty?
• Brand name ?
• Resource rich?
 The five forces
framework

• Porter’s five forces

framework helps
identify the
attractiveness of an
industry in terms of
five competitive
forces:

by Michael E. Porter. Copyright © 1980, 1998

The 5 Forces That Make Companies
Successful

https://www.youtube.com/watch?v=XCWHSeDU-zk
The Threat of Entry & Barriers to Entry
• The threat of entry is low when the barriers to entry
are high and vice versa.
• The main barriers to entry are:
• Economies of scale/high fixed costs
• Experience and learning
• Access to supply and distribution channels
• Differentiation and market penetration costs
• Government restrictions (e.g. licensing)
• Entrants must also consider the expected retaliation
from organisations already in the market
Threat of Substitutes
• Substitutes are products or services that offer a similar benefit to
an industry’s products or services, but by a different process.

• Customers will switch to alternatives (and thus the threat

increases) if:
• The price/performance ratio of the substitute is superior (e.g. aluminium
maybe more expensive than steel but it is more cost efficient for some
car parts)

• The substitute benefits from an innovation that improves customer

satisfaction (e.g. high speed trains can be quicker than airlines from city
centre to city centre)
The bargaining power of buyers
• Buyers are the organisation’s immediate customers, not
necessarily the ultimate consumers.
• If buyers are powerful, then they can demand cheap prices or
product / service improvements to reduce profits

• Buyer power is likely to be high when:

➢ Buyers are concentrated
➢ Buyers have low switching costs
➢ Buyers can supply their own inputs (backward vertical integration)
The bargaining power of suppliers

• Suppliers are those who supply what organisations need to

produce the product or service. Powerful suppliers can eat into
an organisation’s profits.
• Supplier power is likely to be high when:
• The suppliers are concentrated (few of them).
• Suppliers provide a specialist or rare input.
• Switching costs are high (it is disruptive or expensive to change
suppliers).
• Suppliers can integrate forwards (e.g. low cost airlines have cut out the
use of travel agents).
Rivalry between competitors
• Competitive rivals are organisations with similar products and
services aimed at the same customer group and are direct
competitors in the same industry/market (they are distinct from
substitutes).

• The degree of rivalry is increased when :

• Competitors are of roughly equal size
• Competitors are aggressive in seeking leadership
• The market is mature or declining
• There are high fixed costs
• The exit barriers are high
• There is a low level of differentiation
Threat Indicators from the Five Forces
Threats Indicative of Strong Competitive Forces that Can Depress
Five Forces
Industry Profitability
Rivalry among • A large number of competing firms
competitors • Rivals are similar in size, influence, and product offerings
• High-price, low-frequency, “big ticket” purchases
• Capacity is added in large increments
• Industry slow growth or decline
• High exit costs
Threat of entrants • Little scale-based advantages (economies of scale)
• Little non-scale-based advantages
• Inadequate product proliferation
• Insufficient product differentiation
• Little fear of retaliation because of focal firm’s lack of excess capacity
• No government policy banning or discouraging entry
Bargaining power of • A small number of suppliers
suppliers • Suppliers provide unique, differentiated products
• Suppliers are willing and able to vertically integrate forward
Bargaining power of • A small number of buyers
Buyers • Buyers purchase standard, undifferentiated products from focal firm
• Buyers are willing and able to vertically integrate backward
Threat of substitutes • Substitutes are superior to existing products in quality and function
• Switching costs to use substitutes are low
Implications from Porter’s Five Forces
Analysis
• Bottom line- Identify the attractiveness of industries i.e.
which industries/markets to enter or leave

• Where the five forces are high- industries are not attractive

• Where the five forces are weak- industries are attractive

The industry life cycle and Five Forces
The Evolution of Industry andTrade
Activity- Find Industry Report for your
Chosen Product
• Go to IBIS World through ARU
Library ----->

• Login using ARU Credentials

• Search!!!
Global Soft Drink & Bottled Water
Manufacturing
Key Analysis
Summary of Five Forces- Carbonated Soft Drink
Databases
• EBSCOhost Business Source Premier:
• https://anglia.primo.exlibrisgroup.com/permalink/44APU_INST/1k
6g5vr/alma997503520102051

• IBISWorld
• https://anglia.primo.exlibrisgroup.com/permalink/44APU_INST/1k
6g5vr/alma997775560102051

• Statista
• https://anglia.primo.exlibrisgroup.com/permalink/44APU_INST/1k
6g5vr/alma999115040002051
Different types of market based on
competition
• Monopoly

• Duopoly

• Oligopoly

• Monopolistic competition

• A competitive market
Monopolistic industries
• An industry with one firm and therefore no competitive
rivalry.

• A firm has ‘monopoly power’ if it has a dominant position in

the market.

• For example, BT in the UK fixed line telephone market.

Oligopolistic industries
• An industry dominated by a few firms with limited rivalry and
in which firms have power over buyers and suppliers
Duopoly
• A type of oligopoly where two firms have dominant or
exclusive control over a market
• Most of the competition within that market occurs directly
between them.
Perfectly competitive industries
• Where barriers to entry are low

• There are many equal rivals each with very similar products,
and information about competitors is freely available.

• Few (if any) markets are ‘perfect’ but may have features of
highly competitive markets, for example, mini-cabs in
London.
Hypercompetitive industries
• Where the frequency, boldness and aggression of
competitor interactions accelerate to create a condition of
constant disequilibrium and change.

• Hypercompetition often breaks out in otherwise oligopolistic

industries (e.g. mobile phones).

• Organisations interact in a series of competitive moves in

hypercompetition which often becomes extremely rapid and
aggressive as firms vie for market leadership.