External Environment:
General, Industry and Competitor
• Three External Environments include:
– General
– Industry
– Competitor
2
External Environment:
General, Industry and Competitor (Cont’d)
• The General Environment
– The broader society dimensions that influence an industry and the firms within it
– Grouped into 7 dimensions OR ‘environmental segments’ Each segment composed of elements
3
The External Environment
4
External Environment:
General, Industry and Competitor (Cont’d)
• Industry Environment
– Set of factors directly influencing
• A firm’s competitive actions/responses
• Relates to Porter’s 5 Forces – see upcoming slides
• Competitor analysis: gather and interpret competitor information • Competitor Environment
– Gives details about
• A firm’s direct and indirect competitors
• The competitive dynamics expected to impact a firm's efforts to generate above-average returns
5
External Environment Analysis
• Opportunity
– General environment condition that, if exploited, helps a company achieve strategic competitiveness • Threat
– General environment condition that may hinder a company's efforts to achieve strategic competitiveness 6
Segments of the General
Environment
• 7 Segments
– Demographic
– Economic
– Political/Legal
– Sociocultural
– Technological
– Global
– Physical Environment
7
Industry Environment Analysis
• Industry
– Definition: Group of firms producing products that are close substitutes
– Industry environment, in comparison to the general environment, has more direct effect of firm’s
• Strategic competitiveness and
• Above-average returns
– Intensity of industry competition and industry’s profit potential are a function of 5 forces (See next slide) 8
The Five Forces of Competition
Model
9
Industry Environment Analysis
(Cont’d)
• Porter’s 5 Forces
– 1/5: New entrants
• Can threaten market share of existing competitors
• May bring additional production capacity
• Function of two factors
– 1: Barriers to entry
» Economies of scale
» Product differentiation
» Capital requirements
» Switching costs
» Access to distribution channels
» Cost disadvantages independent of scale
» Gov’t policy
– 2: Expected retaliation
10
Industry Environment Analysis
(Cont’d)
• Porter’s 5 Forces
– 2/5: Bargaining power of suppliers
• They are powerful when …
–
–
–
–
–
–
1. Few large companies and more concentrated than the industry to which they sell
2. No substitutes
3. Industry firms not significant customer to supplier gp
4. Supplier’s goods are critical to buyer’s success
5. High switching costs due to effectiveness of supplier’s products – 6. Threat of forward integration
11
Industry Environment Analysis
(Cont’d)
• Porter’s 5 Forces
– 3/5: Bargaining power of buyers
• They are powerful when …
– 1. Purchase large portion of industry’s total output
– 2. Product sales accounts for significant seller annual revenue – 3. Low switching costs (to other industry product)
– 4. Industry products are undifferentiated or standardized and – threat of backward integration
–
12
Industry Environment Analysis
(Cont’d)
• Porter’s 5 Forces
– 4/5: Threat of substitute products
• Goods or services outside of given industry perform same or similar functions at a competitive price (i.e., plastic has replaced steel in many applications)
– 5/5: Intensity of Rivalry Among Competitors
•
•
•
•
•
•
