1 chapter 2: the external environment: opportunities, threats, industry competition and competitor...
TRANSCRIPT
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Chapter 2: The External Environment: Opportunities, Threats, Industry Competition and Competitor Analysis
Overview: The firm’s external environment External environmental analysis General environmental segments Industry environment (and analysis) Porter’s 5 Competitive Forces Strategic groups: Definition and influence Competitors and competitive intelligence
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External Environment Analysis
4 components Scanning – the study of all segments in the
general environment Monitoring – observing environmental changes
to see if an important trend is emerging Forecasting – the development of feasible
projections of what might happen and how quickly as a result of the changes and trends detected
Assessing – determining the timing and significance of the effects of environmental changes and trends on the firm
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External Environment Analysis
Major part of external analysis is the identification of opportunities and threats
Opportunity Environment condition that, if exploited effectively,
helps a company achieve strategic competitiveness Threat
Environment condition that may hinder a company's efforts to achieve strategic competitiveness
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The External Environment:General, Industry, and Competitor
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The General Environment
The General Environment The broader society dimensions that influence an industry and
the firms within it Grouped into 7 dimensions OR ‘environmental segments’
Demographic – population’s size, age structure, geographic distribution, ethnic mix, and income distribution
Economic – nature and direction of economy Political/Legal – laws and regulations Sociocultural – society’s attitudes and cultural values Technological – new technologies and firms that create them Global – new global markets, existing markets that are
changing, and their characteristics Physical – potential and actual changes in physical
environment and business practices
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The Industry Environment
Industry Environment Set of factors directly influencing a firm’s competitive
actions/responses Industry (Product Market)
Definition: Group of firms producing products that are close substitutes
Industry environment, in comparison to the general environment, has more direct effect on firm’s
Strategic competitiveness and Above-average returns
Intensity of industry competition and industry’s profit potential are a function of 5 forces
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The Five Forces of Competition Model
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Industry Environment Analysis
Threat of New Entrants Deals with the likelihood that new firms will enter an
industry or that an existing member of an industry will enter an additional segment within the larger industry
Can threaten the market share of existing competitors and may bring additional production capacity
New entry is often via an acquisition A stronger force when…
Barriers to entry are weak or nonexistent The expected retaliation by current industry participants is
low
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Industry Environment Analysis
Bargaining power of suppliers Usually other business organizations that provide the
industry with products and services A supplier group is powerful when …
It is dominated by a few large companies and is more concentrated than the industry to which they sell
No satisfactory substitutes exist Industry firms not significant customer to supplier group Supplier’s goods are critical to buyer’s success High switching costs due to effectiveness of supplier’s
products Poses credible threat of forward integration
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Industry Environment Analysis
Bargaining power of buyers Usually other business organizations that purchase
the outputs of an industry Buyer groups are powerful when …
They purchase a large portion of industry’s total output Product sales accounts for a significant portion of seller’s
annual revenue Low switching costs (to other industry product) Industry products are undifferentiated or standardized and
buyers pose a credible threat of backward integration
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Industry Environment Analysis
Threat of substitute products Goods or services from outside a given industry that
perform similar or the same functions as the product the industry produces
Examples Sugar vs. sugar substitutes Aspirin vs. Ibuprofen Aluminum cans vs. plastic bottles
A strong force when… Low switching costs The substitute product’s price is lower or its quality and
performance capabilities are equal to or greater than those of the competing product
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Industry Environment Analysis
Intensity of Rivalry Among Competitors Firms operating in the same market, offering similar
products, and targeting similar customers A stronger force when…
Numerous or equally balanced competitors Slow industry growth High fixed costs or high storage costs Lack of differentiation or low switching costs High strategic stakes High exit barriers
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Industry Environment Analysis
Interpreting Industry Analyses Five force analysis helps determine an industry’s
attractiveness for above average returns Stronger forces = Lower profit potential Weaker forces = Higher profit potential
Attractive industry characterized by Low threat of new entry Suppliers and buyers with weak bargaining positions Low threat from substitute products Less intense rivalry among competitors
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Industry Analysis: Strategic Groups
Strategic Group Mapping Strategic Group – a set of firms emphasizing similar
strategic dimensions and using a similar strategy Can be useful for analyzing an industry and an
industry’s competitive structure Can also be helpful in diagnosing competition,
positioning, and the profitability of firm’s within an industry
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Strategic Group Map of Selected Automobile Manufacturers
Strategic Group Map of Selected Retail Chains
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Industry Analysis: Strategic Groups
Implications Because firms within a group compete (offer similar
products) rivalry can be intense – the greater the rivalry the greater the threat to each firm’s profitability
Strengths of the 5 forces can differ across strategic groups
The closer the strategic groups, in terms of strategy, the greater the likelihood of rivalry
Helps with positioning and in the identification of direct and indirect competitors
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The Competitor Environment and Competitor Analysis
Competitor Environment Gives details about
A firm’s direct and indirect competitors The competitive dynamics (Ch. 5) expected to impact a
firm's efforts to generate above-average returns
Competitor analysis Focused on predicting the dynamics of competitor's
actions, responses, and intentions Focuses on a firms direct comptitors Seeks to understand each competitors future objectives,
current strategy, assumptions, and capabilities
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Competitor Analysis Components
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Competitor Intelligence
Competitor intelligence Set of data and information the firm gathers to better
understand and anticipate competitors' objectives, strategies, assumptions, and capabilities
Scanning, monitoring, forecasting, and assessing Follow ethical practices when gathering competitor
intelligence Obtain public information Attend trade fairs and shows and collect brochures, view exhibits,
listen to their discussions
Some practices may be legal, but unethical Unethical tactics can include
Blackmail, Trespassing, Eavesdropping, Stealing