CHAPTER FOUR
External Environment
By: Dr. Chalchissa A. Associate Prof. chalchissa@[Link] 1
Purpose of External Analysis
o To understand the external environment as it affects the enterprise
o To identify opportunities and threats of environment
• Opportunity
o A condition in the general environment that helps a company achieve
strategic competitiveness
• Threat
o A condition in the general environment that may hinder a company’s
efforts to achieve strategic competitiveness
By: Dr. Chalchissa A. Associate Prof. chalchissa@[Link] 3
Analysis of the External Environments
3 levels of analysis:
General changes in business(Macro) environment
• Focused on the future
Changes within the industry
• Focused on factors and conditions influencing a firm’s
profitability within an industry
Activities of competitors and other specifics
• Focused on predicting the dynamics of competitors’ actions,
responses and intentions
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 4
Importance of External Environmental Analysis
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
Strategic Intent
Strategic Mission
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 5
General Environment
The Economic Segment
Inflation rates
Interest rates
Trade deficits or
surpluses
Budget deficits or
surpluses
Personal savings rate
Business savings rates
Gross domestic product
By: Dr. Chalchissa A. Associate Prof. chalchissa@[Link] 10
General Environment (cont’d)
The Sociocultural Segment
Women in the workplace
Workforce diversity
Attitudes about quality of
worklife
Concerns about
environment
Shifts in work and career
preferences
Shifts in product and
service preferences
By: Dr. Chalchissa A. Associate Prof. chalchissa@[Link] 11
General Environment (cont’d)
The Global Segment
New global markets
Changing existing
markets
Important
international events
Critical cultural and
institutional
characteristics of
global markets
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 12
General Environment (cont’d)
The Technological Segment
Product innovations
Applications of knowledge
Focus of private and
government-supported
R&D expenditures
New communication
technologies
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 13
General Environment (cont’d)
The Political/Legal Segment
Antitrust laws
Called competition law :ensuring that fair
competition exists in an open-market economy
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and
policies
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 14
General Environment
The Demographic
Segment
Population size
Age structure
Geographic
distribution
Ethnic mix
Income distribution
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 15
Industry Environment
Set of factors directly influencing a firm and its
competitive actions and competitive responses
Threat of new entrants
Power of suppliers
Power of buyers
Threat of product substitutes
Intensity of rivalry among competitors
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 16
Threat of New Entrants
If barriers of industry is low. it is threat for the present firm
Barriers to entry
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected retaliation By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 19
Bargaining Power of Suppliers
A supplier group is powerful when:
it is dominated by a few large companies
satisfactory substitute products are not available to industry
firms
industry firms are not a significant customer for the supplier group
suppliers’ goods are critical to buyers’ marketplace success
effectiveness of suppliers’ products has created high switching
costs
suppliers are a credible threat to integrate forward into the buyers’
industry
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 20
Bargaining Power of Buyers
Buyers (customers) are powerful when:
they purchase a large portion of an industry’s total output
the sales of the product being purchased account for a significant
portion of the seller’s annual revenues
they could easily switch to another product
the industry’s products are undifferentiated or standardized, and buyers
pose a credible threat if they were to integrate backward into the seller’s
industry
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 21
Threat of Substitute Products
Product substitutes are strong threat when:
customers face few switching costs
substitute product’s price is lower
substitute product’s quality and performance capabilities are equal to
or greater than those of the competing product
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 22
Intensity of Rivalry
Intensity of rivalry is stronger when competitors:
are numerous or equally balanced
experience slow industry growth
have high fixed costs or high storage costs
lack differentiation or low switching costs
experience high strategic stakes
have high exit barriers
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 23
Competitor Environment
All of the companies that the firm competes
against.
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 26
Competitor Environment
Competitor intelligence is the ethical gathering of needed information and
data about competitors’ objectives, strategies, assumptions, and capabilities
What drives the competitor as shown by its future objectives
What the competitor is doing and can do as revealed by its current strategy
What the competitor believes about itself and the industry, as shown by its
assumptions
What the competitor may be able to do, as shown by its capabilities
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 27
END
CHAPTER FOUR
By: Dr. Chalchissa A. Associate Prof.
chalchissa@[Link] 28
Homework
Case analysis
(Hill ,p-74 )pharmaceutical industry
By: Dr. Chalchissa A. Associate Prof. chalchissa@[Link] 29