Figure 2.1 The External Environment © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–1 General Environment • Dimensions in the broader society that influence an industry and the firms within it: – Demographic – Economic – Political/legal – Sociocultural – Technological – Global – Physical © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–2 Table 2.1 The General Environment: Segments and Elements © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–3 Industry Environment • The 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 © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–4 Competitor Analysis • Gathering and interpreting information about all of the companies that the firm competes against • Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–5 External Environmental Analysis • General environment – • Focused on the future Industry environment – Focused on factors and conditions influencing a firm’s profitability within an industry • Competitor environment – Focused on predicting the dynamics of competitors’ actions, responses and intentions © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–6 Table 2.2 Components of the External Environmental Analysis Scanning • Identifying early signals of environmental changes and trends Monitoring • Detecting meaning through ongoing observations of environmental changes and trends Forecasting • Developing projections of anticipated outcomes based on monitored changes and trends Assessing • Determining the timing and importance of environmental changes and trends for firms’ strategies and their management © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–7 Opportunities and Threats • Opportunity – A condition in the general environment that, if exploited effectively, helps a firm achieve strategic competitiveness • Threat – A condition in the general environment that may hinder a firm’s efforts to achieve strategic competitiveness © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–8 Segments of the General Environment Geographic Geographic distribution distribution Age Age Ethnic Ethnic mix mix structure structure Population Population The Demographic size size Segment Income Income distribution distribution © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–9 Segments of the General Environment (cont’d) • The Economic Segment – Uncertainty in • Market growth rates • Consumer demand • Inflation and interest rates • Trade deficits or surpluses • Budget deficits or surpluses • Personal and business savings rates • Gross domestic product © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–10 Barriers to Entry (cont’d) • Cost Disadvantages Independent of Scale – – – • Proprietary product technology • Expected retaliation – Responses by existing competitors may Favorable access to depend on a firm’s present stake in the industry raw materials (available business options) Desirable locations Government policy – – Licensing and permit requirements Deregulation of industries © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–20 Bargaining Power of Suppliers • Supplier power increases when: – Suppliers are large and few in number – Suitable substitute products are not available – Individual buyers are not large customers of suppliers and there are many of them – Suppliers’ goods are critical to the buyers’ marketplace success – Suppliers’ products create high switching costs – Suppliers pose a threat to integrate forward into buyers’ industry © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–21 Bargaining Power of Buyers • Buyer power increases when: – Buyers are large and few in number – Buyers purchase a large portion of an industry’s total output – Buyers’ purchases are a significant portion of a supplier’s annual revenues – Buyers’ switching costs are low – Buyers can pose threat to integrate backward into the sellers’ industry © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–22 Threat of Substitute Products • The threat of substitute products increases when: – Buyers face few switching costs – The substitute product’s price is lower – Substitute product’s quality and performance are equal to or greater than the existing product • Differentiated industry products that are valued by customers reduce this threat © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–23 Intensity of Rivalry Among Competitors • Industry rivalry increases when: – There are numerous or equally balanced competitors – Industry growth slows or declines – There are high fixed costs or high storage costs – There is a lack of differentiation opportunities or low switching costs – When the strategic stakes are high – When high exit barriers prevent competitors from leaving the industry © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–24 Interpreting Industry Analyses Low entry barriers Suppliers and buyers have strong positions Unattractive Strong threats from substitute Industry products Intense rivalry among competitors (Low profit potential) © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–25 Interpreting Industry Analyses (cont’d) High entry barriers Suppliers and buyers have weak positions Attractive Industry Few threats from substitute products Moderate rivalry among competitors (High profit potential) © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–26 Competitor Analysis • Competitor Intelligence – The ethical gathering of needed information and data that provides understanding of: • 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 the industry, as shown by its assumptions • What the competitor’s capabilities are, as shown by its strengths and weaknesses © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–27 Competitor Analysis (cont’d) Future Objectives • How our goals compare with our competitors’ goals? • Where will the emphasis be placed in the future? • What is the attitude toward risk? © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–28 Competitor Analysis (cont’d) Future Objectives • • Current Strategy How are we currently competing? Does this strategy support changes in the competitive structure? © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–29 Competitor Analysis (cont’d) Future Objectives Current Strategy • • • Do we assume the future will be volatile? Are we operating under a status quo? What assumptions our competitors hold about the industry and themselves? Assumptions © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–30 Competitor Analysis (cont’d) Future Objectives Current Strategy Assumptions • • What are our strengths and weaknesses? How we rate compared to our competitors? Capabilities © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–31 Competitor Analysis (cont’d) Future Objectives Current Strategy Response • • What will our competitors in the future? Where we hold an advantage over our competitors? Assumptions • How will this change our relationship with our competitors? Capabilities © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–32 Figure 2.3 Competitor Analysis Components © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–33 Ethical Considerations • Practices considered both legal and ethical: Obtaining publicly available information Attending trade fairs and shows to obtain competitors’ brochures, viewing their exhibits, and listening to discussions about their products • Practices considered both unethical and illegal: – Blackmail – Trespassing – Eavesdropping – Stealing drawings, samples, or documents © 2015 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2–34 [...]... use 2 14 Segments of the General Environment (cont’d) • The Physical Environment Segment – Emerging trends oriented to sustaining the world’s physical environment – Recognition of the interactive influence of ecological, social, and economic systems – Growing concerns for sustainable industry development and increased corporate social responsibility for the future effects of globalized operations © 20 15... product or service or otherwise on a password-protected website for classroom use 2 12 Segments of the General Environment (cont’d) • The Technological Segment – Product innovations – Rapid technological change and the risk of disruption – Knowledge application – Growth of the Internet – New communication technologies © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated,... for classroom use 2 11 Segments of the General Environment (cont’d) • The Sociocultural Segment – Changing attitudes and cultural values • Attitudes and approaches to health care • Attitudes about quality of worklife • Diverse and aging workforce • Women in the workplace • Concerns about environment • Shifts in work and career preferences • Shifts in product and service preferences © 20 15 Cengage Learning... password-protected website for classroom use 2 15 Figure 2. 2 The Five Forces of Competition Model © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2 16 Threat of New Entrants: Barriers to Entry... relationship with our competitors? Capabilities © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2 32 Figure 2. 3 Competitor Analysis Components © 20 15 Cengage Learning All rights reserved May not... Buyers can pose threat to integrate backward into the sellers’ industry © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2 22 Threat of Substitute Products • The threat of substitute products increases... switching costs – When the strategic stakes are high – When high exit barriers prevent competitors from leaving the industry © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2 24 Interpreting Industry... certain product or service or otherwise on a password-protected website for classroom use 2 13 Segments of the General Environment (cont’d) trends geopolitical Important Critical global niche markets attributes Global Focusing Global Focusing cultural and institutional Different Growth of the informal economy © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole...Segments of the General Environment (cont’d) • The Political/Legal Segment – Regulations – Consumer privacy laws – Lobbying – Antitrust, deregulation laws – Taxation © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted... Differentiated industry products that are valued by customers reduce this threat © 20 15 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 2 23 Intensity of Rivalry Among Competitors • Industry rivalry increases when: ... service or otherwise on a password-protected website for classroom use 2 2 Table 2. 1 The General Environment: Segments and Elements © 20 15 Cengage Learning All rights reserved May not be copied, scanned,... on a password-protected website for classroom use 2 5 External Environmental Analysis • General environment – • Focused on the future Industry environment – Focused on factors and conditions influencing... password-protected website for classroom use 2 6 Table 2. 2 Components of the External Environmental Analysis Scanning • Identifying early signals of environmental changes and trends Monitoring