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Module 2 - The External Environment

The document discusses analyzing a company's external environment. It describes 6 segments that make up the general environment - demographic, economic, political/legal, sociocultural, technological, and global - that can influence an industry. It also discusses analyzing the industry environment, including threats from new entrants, bargaining power of suppliers and buyers, substitute products, and intensity of rivalry among competitors. The document concludes that competitor analysis focuses on understanding a competitor's objectives, strategy, assumptions, and capabilities.

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ian92193
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32 views

Module 2 - The External Environment

The document discusses analyzing a company's external environment. It describes 6 segments that make up the general environment - demographic, economic, political/legal, sociocultural, technological, and global - that can influence an industry. It also discusses analyzing the industry environment, including threats from new entrants, bargaining power of suppliers and buyers, substitute products, and intensity of rivalry among competitors. The document concludes that competitor analysis focuses on understanding a competitor's objectives, strategy, assumptions, and capabilities.

Uploaded by

ian92193
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MODULE 2

THE EXTERNAL
ENVIRONMENT:
OPPORTUNITIES,
THREATS,
INDUSTRY
COMPETITION,AND
COMPETITOR
ANALYSIS
EXTERNAL ENVIRONMENT ANALYSIS
SEGMENTS OF THE GENERAL ENVIRONMENT

The general environment is composed of


dimensions in the broader society that influence an
industry and the firms within it.
Firms cannot directly control the general
environment’s segments and elements.
SEGMENTS OF THE GENERAL ENVIRONMENT
A. DEMOGRAPHIC
SEGMENTS OF THE GENERAL ENVIRONMENT
B. ECONOMIC
SEGMENTS OF THE GENERAL ENVIRONMENT
C. POLITICAL/LEGAL
SEGMENTS OF THE GENERAL ENVIRONMENT
D. SOCIOCULTURAL
SEGMENTS OF THE GENERAL ENVIRONMENT
E. TECHNOLOGICAL
SEGMENTS OF THE GENERAL ENVIRONMENT
F. GLOBAL
INDUSTRY  An industry is a group of firms producing
ENVIRONME products that are close substitutes.
NT ANALYSIS
Identifying new entrants is important because they can threaten the market
share of existing competitors.
Barriers to Entry - entry barriers make it difficult for new firms to enter an
industry and often place them at a competitive disadvantage even when
they are able to enter.
Economies of scale - derived from incremental efficiency improvements
A. THREAT through experience as a firm gets larger.

OF NEW
Product Differentiation - customers may come to believe that a firm’s
product is unique.
Capital Requirements - even when competing in a new industry is
ENTRANTS attractive, the capital required for successful market entry may not be
available to pursue an apparent market opportunity.
Access to Distribution Channels - new entrants have to persuade
distributors to carry their products, either in addition to or in place of those
currently distributed.
Government Policy - Through licensing and permit requirements,
governments can also control entry into an industry.

Expected Retaliation - An expectation of swift and vigorous competitive


responses reduces the likelihood of entry.
B. BARGAINING Increasing prices and
reducing the quality of
POWER OF their products are
SUPPLIERS potential means used by
suppliers to exert power
over firms competing
within an industry.
C. BARGAINING  Buyers (customers of an
industry or a firm) want to
POWER OF buy products at the lowest
possible price—the point at
BUYERS which the industry earns
the lowest acceptable rate
of return on its invested
capital.
D. THREAT OF Substitute products are
goods or services from
SUBSTITUTE outside a given industry
that perform similar or
PRODUCTS the same functions as a
product that the
industry produces.
Numerous or Equally Balanced Competitors -
evidence suggests that other firms generally are aware
of competitors’ actions, often choosing to respond to
E. INTENSITY them.

OF RIVALRY Slow Industry Growth - rivalry in no-growth or slow-


growth markets becomes more intense as firms battle to
increase their market shares by attracting competitors’
AMONG customers.

COMPETITOR High Fixed Costs or High Storage Costs - when fixed


costs account for a large part of total costs, companies
try to maximize the use of their productive capacity.
S
High Strategic Stakes - competitive rivalry is likely to
be high when it is important for several of the
competitors to perform well in the market.
COMPETITOR
 The competitor
environment is the final
ANALYSIS part of the external
environment requiring
study. Competitor analysis
focuses on each company
against which a firm
directly competes.
IN A What drives the competitor, as shown by its future
objectives.
COMPETITOR
ANALYSIS, What the competitor is doing and can do, as
revealed by its current strategy.
THE FIRM
SEEKS TO What the competitor believes about the industry,
as shown by its assumptions.
UNDERSTAND
: What the competitor’s capabilities are, as shown
by its strengths and weaknesses.

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