19
Topic 2 The External Environment

Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

  • View
    255

  • Download
    3

Embed Size (px)

Citation preview

Page 1: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Topic 2

The External Environment

Page 2: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

3 “Levels” to the External Environment

• Remote Environment– Domestic & International Environment

• Industry Environment– Industry Analysis and Competitive Analysis

• Operating Environment

Page 3: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

The Firm’s ExternalEnvironment

THE FIRM

Operating Environment (Global and Domestic)

•Labor•Suppliers•Customers

Industry Environment (Global and Domestic)

•Entry barriers•Supplier power

•Buyer power•Substitute availability

•Competitiverivalry

•Competitors•Creditors

Remote Environment (Global and Domestic)

•Economic•Social•Political

•Technological•Ecological

Page 4: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Remote …Economic Factors

• Concern the nature and direction of the economy in which a firm operates

• Types of factors• General availability of credit• Prime interest rates• Level of disposable income• Propensity of people to spend• Inflation rates• Trends in growth of gross national product

Page 5: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Remote … Social Factors

• Include beliefs, values, opinions, and lifestyles of people

• “Recent” social trends• Entry of large numbers of women into labor

market• Accelerating interest of consumers and

employees in quality-of-life issues• Shift in age distribution of population

Page 6: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Remote Political Factors

• … define legal and regulatory parameters within which firms must operate

• Types of factors– Fair-trade decisions

– Antitrust laws

– Tax programs

– Minimum wage legislation

– Pollution and pricing policies

Page 7: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

RemoteTechnological Factors

• … focus on technological changes affecting industry

• Types of changes• New products• Improvements in existing products• Manufacturing and marketing techniques

Page 8: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Remote Ecological Factors

• … involve relationships among human beings and other living things and air, soil, and water

• Current concerns• Global warming• Loss of habitat and biodiversity• Air, water, and land pollution

Page 9: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Remote Assessing the International Environment

• Assess each non-domestic market, on the same factors … though the importance of each may differ

• Notably …– Economic Environment– Political System– Legal Environment– Cultural Environment

» (we will talk more about these)

Page 10: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Forces Driving (#2) Industry Competition

SuppliersSuppliers

SubstitutesSubstitutes

Industry Competitors

Rivalry Among Existing Firms

PotentialEntrants

Buyers

Bargaining power

of suppliers

Threat of substituteproducts or services

Bargaining power

of buyers

Threat of new entrants

Porter’s 5 forces Model

Page 11: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Industry CompetitionThreat of Entry

• Seriousness of threat depends on

– Reaction from existing firms

– Barriers to entry• Economies of scale• Product differentiation• Capital requirements• Cost advantages independent of size• Access to distribution channels• Government policy

Page 12: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Industry Competition Suppliers

• A supplier group is powerful if:• It is dominated by a few companies and is more

concentrated than industry to which it sells

• Its product is unique, or differentiated, or has built up switching costs

• It poses a threat of integrating forward into industry’s business

• Industry is not an important customer of supplier group

Page 13: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Industry Competition Buyers

• A buyer group is powerful if:

• It is concentrated or purchases in large volume

• Products purchased from industry are standard or undifferentiated

• Industry’s product is unimportant to quality of buyers’ products or services

• Buyer poses credible threat of integrating backward

Page 14: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Industry Competition Substitute Products

• Relevance of substitutes• By placing a ceiling on prices charged, they limit profit

potential of an industry

• Substitutes deserving the most attention are those• Subject to trends improving their price-performance

trade-off with the industry’s product

• Produced by industries earning high profit

Page 15: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Industry Competition Rivalry

• Tactics of competitive rivalry

• Price competition

• Product introduction

• Advertising slugfests• What Causes Rivalry to be Intense?

– Size, slow growth, homogeneous products, high exit barriers ….

Page 16: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Characteristics of Industry Structure

• Structural attributes –Characteristics that give an industry its distinctive character

• Variations among industries involves examining• Concentration • Economies of Scale• Product Differentiation• Barriers to Entry

Page 17: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

***Common Mistakes in IdentifyingCompetitors

• Overemphasizing current and known competitors while ignoring potential entrants

• Overemphasizing large competitors while ignoring small ones

• Overlooking potential international competitors• Assuming competitors will continue to behave in

the same way

Page 18: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Operating Environment (#3)

The operating environment, also called the competitive or task environment, comprises factors in the competitive situation that affect a firm’s success in acquiring needed resources or in profitably marketing its goods and services

Page 19: Topic 2 The External Environment. 3 “Levels” to the External Environment Remote Environment –Domestic & International Environment Industry Environment

Factors in the Operating

Environment

• Firm’s competitive position …– Key success factors? ... market share, breadth of product

line, experience, financial position, product quality, technological position, community reputation, etc.

• The composition of its customers– Geographic, demographic, behavioral

• Reputation among suppliers and creditors

• Ability to attract capable employees