the external environment: opportunities, threats, industry competition, and competitor analysis the...
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The External Environment:
Opportunities, Threats, Industry Competition,
and Competitor Analysis
The External Environment:
Opportunities, Threats, Industry Competition,
and Competitor Analysis
SWOT is the starting point It provides an overview of the strategic situation.
It provides the “raw material” to do more extensive internal and external analysis.
An OPPORTUNITY is a chance for firm growth or progress due to a favorable
juncture of circumstances in the business environment.
A THREAT is a factor in your company’s external environment that poses a danger
to its well-being.
Possible Opportunities: Emerging customer needs Product Innovations Expanding global markets Declining Interest Rates
Possible Threats: New entry by competitors Changing demographics/shifting demand Emergence of cheaper technologies Regulatory requirements
Components of the General EnvironmentComponents of the General Environment
General Environment
Demographic Population size, Age structure,
Geographic distribution, Ethnic mix, Income distribution...
Sociocultural Workforce diversity,Attitudes
about quality of worklife,Concerns about environment, Shifts in product and service preferences...
Economic Inflation rates, Interest rates,
Personal savings rate, Exchange Rates, GDP...
Technological Product innovations, Increase in
R&D expenditures, New communication technologies...
Political / Legal Antitrust laws, Taxation laws,
Environmental Protection Law...
Global Critical global markets, Newly
industrialized countries, Different cultural and institutional attributes...
The general environment usually holds both opportunities for and threats to expansion.
(+) for (-) for
DEMOGRAPHIC
Aging Population
Medical Services
TECHNOLOGICAL
Advances in Laser Technology
Long-playing records
Developments in general environment change competitive battle lines.
Tekel sold Yeni Rakı for a long time before the privatization
Market is opened to the competition
The same environmental trend can have different effects on different industries
(+) for (-) for
SOCIO-CULTURAL
Greater health awareness
Exercise equipments Meat products
The impact of an environmental trend often differs significantly for differnt firms within the same industry
Many developments in general environment are difficult to predict, while orhers are predictable.
The affects of general environment may differ from one country to another
Restructring of the U.S. economy in the 1980s.
Reduced numbers of managers
Decrease in travel budget
Full-service airlines are affected negatively
Low-cost, low-service airlines gained adv.
!! But even when a trend is easy to predict, it is not always clear what is strategic implications will be.
Porter’s Five-Forces of Competition
A set of factors that directly influences a company and its
competitive actions and responses.
Interaction among these factors determine an industry’s
profit potential and location of “profit pools”.
Need to understand which competitive factors have
power, why they have power, and what you might be able
to do about it to improve your own position.
Threat of New
Entrants
Threat of New
Entrants
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Threat of New EntrantsThreat of New Entrants
Barriers to EntryBarriers to Entry
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Government Policy
Expected Retaliation
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Threat of New Entrants
Threat of New Entrants
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Bargaining Power of SuppliersBargaining Power of Suppliers
Suppliers exert power Suppliers exert power in the industry by:in the industry by:Suppliers exert power Suppliers exert power in the industry by:in the industry by:
* * Threatening to raiseThreatening to raise* * Threatening to raiseThreatening to raiseprices or to reduce qualityprices or to reduce qualityprices or to reduce qualityprices or to reduce quality
Powerful suppliers Powerful suppliers can squeeze industry can squeeze industry profitability if firms profitability if firms are unable to recover are unable to recover cost increasescost increases
Powerful suppliers Powerful suppliers can squeeze industry can squeeze industry profitability if firms profitability if firms are unable to recover are unable to recover cost increasescost increases
Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firmsSupplier industry is dominated by a few firms
SSuppliers’ products have few substitutesuppliers’ products have few substitutes
Buyer is not an important customer to supplierBuyer is not an important customer to supplier
Suppliers’ product is an important input to Suppliers’ product is an important input to
buyers’ productbuyers’ product
Suppliers’ products are differentiatedSuppliers’ products are differentiated
Suppliers’ products have high switching costsSuppliers’ products have high switching costs
Supplier poses credible threat of forward Supplier poses credible threat of forward
integrationintegration
Bargaining Power of Buyers
Bargaining Power of Buyers
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Bargaining Power of BuyersBargaining Power of Buyers
Buyers compete with the supplying
industry by:
Buyers compete with the supplying
industry by:
* * Bargaining down pricesBargaining down prices* * Bargaining down pricesBargaining down prices
* Forcing higher quality* Forcing higher quality* Forcing higher quality* Forcing higher quality
* Playing firms off of* Playing firms off of* Playing firms off of* Playing firms off ofeach othereach othereach othereach other
Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases are large Buyers are concentrated or purchases are large
relative to seller’s salesrelative to seller’s sales
Products are undifferentiatedProducts are undifferentiated
Buyers face few switching costsBuyers face few switching costs
Buyers’ industry earns low profitsBuyers’ industry earns low profits
Buyer presents a credible threat of backward Buyer presents a credible threat of backward
integrationintegration
Product unimportant to qualityProduct unimportant to quality
Buyer has full informationBuyer has full information
Threat of Substitute Products
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Threat of Substitute ProductsThreat of Substitute Products
Products with similar function limit the prices firms can charge
Products with similar function limit the prices firms can charge
Keys to evaluate substitute products:Keys to evaluate substitute products:
Products with improving Products with improving price/performance tradeoffs price/performance tradeoffs relative to present industry relative to present industry productsproducts
Example:Example:
Electronic security systems in Electronic security systems in place of security guardsplace of security guards
Fax machines in place of Fax machines in place of overnight mail deliveryovernight mail delivery
Threat of Substitute Products
Threat of Substitute Products
Threat of New Entrants
Threat of New Entrants
Rivalry Among Competing Firms in
Industry
Rivalry Among Competing Firms in
Industry
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
CutthroatCutthroat competitioncompetition is more likely to occur when: is more likely to occur when:
Rivalry Among Existing CompetitorsRivalry Among Existing Competitors
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
High strategic stakes
High exit barriers
Five-Forces Analysis -- SO WHAT?
Consider how opportunities and threats may result from the
five competitive forces.
Understand the strength of each competitive force, and
underlying reasons for strength.
Select niches where forces are weaker, and profit pools are
higher.
Build strategies that defend yourself against strong
competitive forces.
Build strategies that influence the forces in your favor.
Strategic Groups Defined
A set of firms emphasizing similar strategic dimensions
and using similar strategies
Internal competition between strategic group firms is
greater than between firms outside that strategic group
Strategic Groups Strategic Dimensions
Extent of technological leadership
Product quality
Pricing policies
Distribution channels
Customer service
Target markets
Product breadth
Geographical coverage
Extent of diversification or vertical integration . . .
Strategic Group Maps
A graphical depiction of rival firms,
using two dimensions that
reflect important aspects of their strategy and
array the firms into groups.
Work best in fragmented industries.
Help show close (within group) rivals, crowded and open strategic positions; assist opportunity and threat
interpretation (not all groups are affected equally).
Steps to Create a Strategic Group Map
1. Identify two important dimensions that help distinguish the
competing firms from each other.
2. Draw a two-dimensional “map” that places each firm in the
appropriate position given the two dimensions you are using.
3. Draw circles around firms that cluster together in a similar
position.
4. Include arrows to indicate any movement of firms from one
position to another.
Competitive and Cooperative Dimensions
Threat of Substitute Products
Threat of Substitute Products
Threat of New Entrants
Threat of New Entrants
Rivalry Among Competing Firms in
Industry
Rivalry Among Competing Firms in
Industry
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Substitute Products
Substitute Products
New EntrantsNew Entrants
Yo
ur D
irect
Riv
als
The Primarily Competitive Dimensions
Your BuyersYour
BuyersYour
SuppliersYour
Suppliers Your Firm
The Primarily Cooperative Dimensions
Analyzing the External Environment
Environmental Scanning
Gathering Intelligence
Sources of Competitive Intelligence
Scenario Planning
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Environmental Scanning
The monitoring, evaluating, and disseminating of information from
the external and internal environments to key people within the
corporation
AIM to avoid strategic surprise and ensure the long-term health of
the firm.
Competitive Intelligence
Several Uses of Competitive Intelligence Providing descriptions of the competitive environment (Guide
for strategy formulation) Challenging assumptions about the competitive environment Forecasting future developments Identifying and compensating the competitive weaknesses Determinig the unsustainable strategies Indentifying the guideline for adjustment to changing
environment
Information that is relavant to strategy formulation regarding the
environmental context within which a firm competes
Sources of Useful Competitive Intelligence
Local newspapers Government Databases Customers and suppliers Competitors
The Environment-Strategy Relationship
How the external environment shapes strategy?
How strategy can influence the external environment?