Chapter 2

THE BUSINESS ENVIRONMENT FOR COMPETITIVE STRATEGY

THE BUSINESS ENVIRONMENT

An integral understanding of the business environment will make the executives
understand the present and future of the firm's direction and growth. the general business
environment is composed of dimensions in the broader society that influence and industry and
the firms within it. the industry environment is a set of factors that directly influence the
company and its competitive actions. the profit potential of the company is determined by the
different factors in the environment that influence its operational competitive advantage. the
corporate challenge is to identify the present firms position against the environmental factors
and develop strategies that will successfully overcome their competitive influence. the success
of the business operation is dependent on the capacity to favorably influence the business
environment and earn the desired profit.
Competitive analyses refer to the gathering and interpreting of information and data
about the business environment and how the other competitors are doing in the wide landscape
of business. understanding the playing field complements the insights and study of the firm's
position within the total environment that will generate possible alternatives in the conduct of
business operation. the focus of analyses is on three important factors;

1. The general environment

the general environment focus is seeing the industry in the future And how it will
affect present and future operations. the general business landscape is wide and open
for exploration, and seeing the business condition miles ahead is an important factor in
the survival of business.
2. the industry environment
it refers to the analysis of the firm's conditions of profitability within the industry.
the analysis will generate data on the firm's capability to compete within the business
industrial community on his products and services based on the program vision and
mission
3. the competitor
Analyses of the competitors are focused on predicting the dynamics of
competition are related to their operational actions, responses and intentions. seeing
how the competitors operate will give insights on what Strategies will most likely
overcome the market competition.

combining the results of the analysis of the three elements, the fear movie able to understand
the external environment that will influence its strategic intent, vision and mission in the strategic
actions. the firm's performance in the field of business from into the three elements are
integrated as they see the total effect of the external environment in their corporate operations.
ANALYSIS OF THE EXTERNAL ENVIRONMENT

The environment as business in the words landscape is highly turbulent, complex and
uncertain. the firm must have the complete data and information by which to base their
forecasts and program of operation in order to stay afloat in their business operation. An
important objective is to study the general environment in terms of the corporate opportunities
and threats. opportunities or conditions in the general environment that make the company
competitive while treach are conditions that hinder the company to overcome strategic
competencies of the various competitors.

external environment analysis include four important activities;

1. Scanning
the process entails the study of all segments in the general environment. it is
identifying the signals of potential changes in the environment that pose threats or
opportunities that needed immediate actions. scanning is generally important in highly
volatile business environment. it is important to analyze the data carefully as the source
of information is usually incomplete and unconnected.
2. Monitoring
it is the process of carefully observing the changes in the environment and
seeing the effects from the scanning of information. it is important to detect meanings in
the changes of events and trends. the trends and events or opportunities that should be
explored by the firm and determine the degree of corporate adjustments. monitoring the
changes in technological innovations is important as today's business changes so
rapidly with new technology in the production of products and services.
3. Forecasting
forecasting is the result of scanning and monitoring. for derived analysis
analysis of the changes in the environment. for is the process of developing projections
of what might happen in how quickly the company develop strategies to be competitive
in the changing business landscape. timely actions and immediate response is
necessary as innovations change rapidly in the market competition. it may deal in the
changes and training of the workforce, and development of new marketing strategies to
reach the consumers before the competitors get the market niche.
4. Assessing
it is the process of determining the timing and significance of the effects of the
environmental changes and trends on the strategic management of the company. the
objective is to the general environment and to specify the actions that will be
implemented to adjust to the changes in the environment. the absence of assessment
will leave the data useless as the unknown competitive relevance is not properly taken
advantage by the firm.

SEGMENTATION OF THE GENERAL ENVIRONMENT

The general environment is composed of segments that are external to the firm. the
degree of impact varies in different industry and The firm has to scan, monitor, forecast and
assess The levels and degrees of its effect on the company's operational profitability. the
company must be able to recognize the environmental changes, trends, of opportunity and and
firm's core competencies to take advantage of the changing environment.
There are six segments that affect the operation of the firm;
1. The demographic segment
It is concerned with a population size age structure geographic distribution
system ethnic groups and economic index . For strategic competency the demographic
segment should be analyzed on the global basis as it has potential effects across
countries. globalization becomes the workings not only of big corporations but also
small companies with borderless operations.
a. Population size
the world's population is still in the rise except in the united states and in
some european countries where couples are averaging with two children. india
and china have the biggest population index but by the year 2050, the grow in
population is expected to narrow down as population control begins to take
effect. Countries are beginning to realize that the land area to produce food is
not enough to feed the growing population. the grow and decline a corporate to
production of goods at levels that will supply the Needs of the population in the
years to come.
b. Age structure
there are more babies born in developing countries like the philippines.
the great raid in population is still between 2.5% to more than 3% driving growth
to 100 million people in 2014. the middle age group the dominate the population
of most countries and this are challenges To the corporate business to provide
them not only their basic needs but also some of their wants. While in some can,
the population lifespan Increases due to advancement in medical care and better
lifestyle the challenges our focus on providing senior citizens with lower price
products.
c. geographic distribution
the devil development of more urban centres and the migration of people
from the rural areas to urban centers are both opportunities for corporate
strategies. The employment opportunities for most people in the urban Areas are
signals for increase production of more goods and services. the growof
communication linkages due to increase in speed of technology in the computer
age would enable the people to work at home. The world's Become attached of
the finger and movement becomes lessor as linkages become faster.
d. the ethnic mix
in the philippine business community some muslim business
businessmen dominates the retail trade in some small shopping centers. the
educated ethnic group begins to move from their mountain residence to the
more populated centers to a make living. Workforce diversity is a sociological
issue. The migration of filipinos to work abroad is a corporate challenge for a
more effective management system that will integrate the heterogeneous talents
 of mix group of workers. Technical filipino workers abroad are admired for their
talents and dedication at work.
e. Income distribution
The income distribution Across population is of interest to firms as it is not
determinants of purchasing power for products and services. the living of mo
people in the world have increase over time due to dual career of husband and
wife, and effect there buying habits more goods and services. Of interest to the
firms are the average income of households and individuals. The economic
condition of the population determines the development of business opportunities
for the firms.

2. The economic segment

the economic segment refers to the nature and directions of the country in their
economic development. Companies operate profitably in a country with economic stability.
the globalization of business considers the economic stability of the host country. the other a
nation aircon spurs economics perspectives are the other firms consideration as the barriers
to business communication became within the touch of the finger.
There is the domino effect when the economy of one country slows down. nations
depend on other countries for material inputs in the production of good. nations depend on
other countries for material inputs in the production of good. the recession in one country
affects the other country In general as businesses in the global market become stagnant. while
the united states economic recession did not hurt much the economies of the Asian region, the
other business communities are in a standstill position.

3. The political and legal segments

It is the arena in which business organization operates and interest groups compete for
attention and resources. It also deals with the voice of overseeing the implementation of the
laws of the country which has something to do with trade and commerce. This segment
represents how a business organization Tries to influence the government and how the
government influences the flow of trade and commerce. this segment constantly change as
government passed laws that protect the interest of their local industries and the flow of
revenue for imported products.
The world bank and international monetary fund (IMF) that grant loans to developing
nations also play a great role in the imposition of tariff laws. they favor the imposition of lower
tariffs as it poses Barrier to free trade between nations. on the other hand, Developing nations
who are not represented in this world organizations believe that it is the protection of the
developing nations against the small players who cannot compete with highly develop industries
of the rich countries. in related development, some countries believe that the e-commerce
should be regulated by the government as the world of business transactions are done through
the internet. this issue is under study by most government as competition plays a great role.

4. the social and cultural segments

this area is concerned with the society's attitudes and cultural values. Attitudes and
values differ among Nation, and these play as the cornerstone of the society as they drive the
demographic, economic and technological condition and change. In rich countries the
government allocates 10 to 15 percent of gross domestic product (GDP) for health care and
retirement benefits. In the present, the national of the philippines for the cash transfer program
allocates about 60 billion for the poorest of the poor to encourage better education and help
alleviate the living condition. Some countries allocate their retirement program as high as 10 to
45 percent in order for the government to generate savings for the growing elderly population.
Employment that is usually dominated by male workers is now being done by female
workers. This work diversity in the increase of female workers in the industries is an important
indicator. They are highly valuable source of productive workforce as they increase the
economic potential of the household. The growing cultural diversity to the working environment
creates challenges and opportunities by combining the mens and womens traditional styles of
leadership for the firms benefits. This will also identify ways to facilitate employees contributuion
to the firm. Women entrepreneurs are awaken that their line of expertise could contribute to the
econommic growth not only of their family but also to the economic development of the country.
This cultural and social diversity poses a challenge to startegic management.

5. The advancement in technology segments

Our social and business activities have been pervasive and diversified in scope due to
the advancement in technology. The advent of new technology has great effects in the
development of new products, processes and materials required to produce new kinds of goods.
This involved the development of new knowledge base that institutions and higher learning
institutions must cope weed in order to strategically answer the demand of the industry for new
kind of workforce. it is vital for business organization to study the changes in technology to
develop competitive advantage.
and business organizations that develop new technology and new products have the
greater advantage in higher market share & earn considerable advantage. the role of top
executives is to scan and monitor the development of new technology and endeavor to identify
the possible substitute for new system and products that will give them the higher competitive
market share. the emerging fast faces of communication through the internet open up the
business highway for the marketing of product and service. companies and individual customers
could have an easy access to information and make easy transactions using the information
highway. this has greatly changed the medium of business communication and this poses a
great challenge in the creation of greater competitive advantage.

6. The world of business segments

The globalization of the business market creates both opportunities and challenges. The
present scenario in trade and commerece is the creation of borderless floe of product and
services. In the asian region countries are grouping together to create a free flow not only of
information But the product and services with less barriers on tariffs and fees. the same is true
in european union and other regions of the globe as they believe globalization will help in the
development of the world economy. it is a great challenge not only for the firm but also for the
country in general, as globalization needs the development of infrastructure. transport facilities
must be developed and the necessary investment in the development of economic structures
must be put in place.
 the nations development of industries and creation of investments for The production of
goods are challenges not only for the firm but also for the government. the investment climate
must be conducive to investors through transparent transactions and this needs government
incentives while protecting the interests of its nationals. effective governance and political well
pose the challenges to national leadership as well as those in the rural sectors where new
industries could be developed. industrialization and globalization are two important components
of development as the creation of more job opportunities and increase income of the labor force
create new tax base for the important government social services in health and education.

ANALYSIS OF THE INDUSTRIAL ENVIRONMENT

The industry is a group of firms producing products that are similar or close substitutes.
they are competing for the share of the market pie, and have influence on The strategy of the
firm's. industries include a rich mix of competitive strategies in pursuing their own goals of
greater returns. advancement in technology plays a greater role in the competitive advantage of
the firm not only in terms of product innovation but also in the use of internet communication to
penetrate the more affluent market. the industry environment has a more direct effect on the
firm's strategic competencies and the above average return on investments.
the intensity of market competition in the industry profit potential could be measured in
terms of long-run return of investment. in the traditional strategy, the firm concentrated on the
competitors in the same product line or category. does the strategy competence have changed
the landscape of competitions as the firm search more broadly to identify current and potential
competitors and the customers that the firm is serving them. in the market microstructure to
customers are influenced by the location of firm and its capabilities to serve their needs.

THE FIVE FORCES THAT AFFECT FIRM’S COMPETITIVENESS

1.THE THREAT OF NEW ENTRANTS

Firms must always be on watch with possible new entrants in the industry as it will
affects their market share and at the same time their profitability. New entrants usually bring in
additional production capacity and make modifies products that may be the same or more
superior to the existing product of the firm. New entrants usually have a keen interest in gaining
a larger market share and force competitors to e more efficient and effective in the delivery of
goods to their customers.

The threat of new entrants could be avoided with the following strategies;

a. Economies of scale
i. It refers to the marginal improvement in efficiency that the firm experiences as it
incrementally increases in size. When the quantity of product produced overtime
increases, the cost of production per unit decreases, hence the firm can lower the
price or maintain a higher return on investment. This will drive new entrants to
penetrate the market as competition will make it difficult for them to make the
desired profit. Competitive retaliation will make big or small scale entrants face
the risk of the economies of scale.
 b. Product defferentiation
It is the customers perception that the product entering the market first is unique
and thus captures customers loyalty and patronage. An example is jollibee chicken joy
that has captures the taste of children. In cars, the honda brand was perceived to be
superior in quality and workmanship and has the higher resale value than any other
brand. Customers valuing product uniqueness tend to become loyal to the product and
the company that produces it. Intensive advertising and promotion has inculcated in the
mind of the customers the product attributes and this will make new entrants difficult to
erase the customers perception.

c. Capital requirements
Capital requirements is needed for the firm to enter A new market. investments
in term resources, manpower skills and new technology needed huge investments and
the risk of overcoming those in the market is great. The market opportunity may be
attractive but the risk is greater as it will require new system of marketing promotional
strategies and newness in product features and innovation. to compete with an existing
industry some organization by out existing fears and develop new strategies to compete
competitively by introducing new production system and more efficient manufacturing
and marketing strategy.

d. access to distribution channel

access to distribution channels can be a strong entry barrier for new entrants as
the old firm has established foothold on their distributors who have developed loyalty
over time. this could be particularly true with consumer products were some shelves and
facilities are provided by the firm and it will be difficult for new entrants to occupy you
spaces. for new entrants in this types of products new entrants have to make a price
brick or cooperative advertising which will in turn on expenses and reduce profit or even
incur losses.

e. government regulations
The government policy on license and permit requirement can also control new
entrants to an industry this could be true in industry where franchising regulations is
required like operating transport business especially in saturated routes. The
government regulations on quality service and the capital requirements would
discourage new entrants for new entrance to enter this market they need to buy existing
lines franchise and improve their facilities and service which you will require huge
invetsments.

2. THE POWER OF THE SUPPLIERS

The suppliers of material inputs in the production of goods are determinants of
quality products. suppliers can exert power to the industry to increase their prices that will affect
the firm's profitability. increase in material inputs would mean adjustments in price to dual affect
the competitiveness of the firm.

The power of the supplier is too powerful under the following;

a. when it is dominated by few large companies
b. when they are more concentrated than the industry itself
C. When there is no substitute available
D. when the industry is not a significant customer for the supplier
E. When the suppliers goods are critical to the firm's success
f. when it poses threat to integrate forward into the buyers industry

3 THE BUYER’S BARGAINING POWER

The firms objective is to maximize returns on their invested capital as business operates
for the desired profit. on the other hand buyers would like to maximize the value of their hard
earned money by bargaining for the lowest price possible. to maintain the equitable balance the
firm has to adjust do the buyers bargaining power and satisfy customer needs as substitute
products could be available in the market.
the consumers group has the bargaining power under the following;
a. When they purchase a large volume of the firm's output
b. when there are available substitute of similar quality
c. when the sales is a significant portion of the firm's sales volume
d. when the buyer or dealer can be a threat for backward integration
the consumer with the power of the internet can search within the touch of the finger 4
products substitutes and compare price and product specifications. they can make direct
orders from available dealers or suppliers without the aid of sales people who are paid
extra commission that makes the prices higher. buyers can order from their homes
without extra effort traveling and hustling in traffic congestion.

4. THE THREAT OF SUBSTITUTE PRODUCT

The industrial world is full of innovations and firms seek new opportunities. there are
many firms looking for new products to make business by studying substitutes to existing
products in the market. firms that do not innovate will lose their market as innovation is the by
word of the industry. Consumers are looking for new and innovative products and their level of
satisfaction is limitless.
this is true in cellular phones were competing brands have to update and innovate
overtime their product features. beverages and alcoholic drinks find a lot of substitutes that
consumers can switch preferences with the use of the Advertising media. in the field of medicine
generic products come into surface that compete with branded drugs manufactured by
multinational companies.
the threats for products substitute are based on the following;
a. when the substitute product is price lower
b. when the quality is better than the existing product
c. when the product is immediately available in the market
d. when service is available
5. THE POWER OF COMPETITION
The actions taken by one company invite counter reaction by the other firm. competitive
response is an active reaction that forces the company to make innovations. competitive rivalry
intensifies when a firm is challenged buy a competitors actions and an opportunity to improve its
market position is recognized. firms differ in resources and capabilities and seek the differentiate
themselves from their competitors as they rarely operate homogeneously. the visible
competitive strategy is on price quality innovation and service.

factors that intensify the power of competition;

1. the presence of balance competitors
2. the flow industrial growth in some sectors
3. higher fixed costs of some firms
4. high storage cost of some products
5. new product differentiation and switching cost

INDUSTRY ANALYSIS AND STRATEGIC ACTIONS

The five forces of competition or guidelines for firms to develop insights required to
determine the firm's attractiveness in terms of its potential to earn adequate return on their
investments. the environment of business conditions that interplay in the competitiveness of the
firm must be analyzed in terms of data available to the firm. globalization and the international
market for product and services change greatly the landscape of business. firms compete not
only with multinational corporations but also with new entrants and small players. the countries
barriers to longer restrict structures in the flow of goods and it enhances the chances of success
for new ventures as well as the well established firms.
firms with similar products and services develop strategic grouping and intense
competition exists. the extent of technological development product leadership, quality, pricing
policy, distribution channels, and customer service are some of the strategic dimensions for
each firms competitive advantage. Groups in the industry remain stable overtime in performance
and analysis of their competitive strategy could be made easier for the other groups within the
industry.

Implications for strategic analysis

1. Firms supply and service the same kind of customers
2. The strength of the five industry forces affecting the firm
3. the similarities of strategies develop greater rivalry among firms

In the car Industry for example, the competitive dimensions is the development of
highbred cars that both run on electric power or solar energy and a combination of the
traditional engines. electronics and other innovative features are added perks for buyers of svb’s
and small compact cars that are economically efficient and convenient for city driving. other
factors in this dimensions our pricing decisions product quality efficiency and performance and
the distribution channels. while brand loyalty and patronage interplay customers are now aware
of other dimensions that they switch to in other brands for a change.
ANALYSIS OF THE INDUSTRY COMPETITION
the competitors environment is the final stage in the analysis as it directly affects the
firm's position in the industry. the intense rivalry creates a strong need to understand the moves
of the competitors. the firm must be able to develop counter action and strategy in order to
remain afloat in the industry. critical to an effective analysis of the competitors moves is the
gathering of data and information that can help the firm understand its competitors intention and
strategic actions. to gather the needed information the firm setup competitor intelligence
network that will provide data and information as baseline for counter actions.

The firm must be able to seek the following information;

1. the competitors future objectives
2. the competitors current strategic actions
3. The competitors assumptions about the industry
4. The competitors strength and capabilities or their weaknesses
5. The government policy for the global market

Competing against rivals in the industry needs these insights to create the quality of
strategic decisions. Competitors intelligence network will play an important role in the firms effort
to reach reasonable objectives of becoming the top within the industry. Strategic actions need
top leadership discussions with operating managers for them to fully understand the actions of
the firm and seek their cooperation and concerted effort for strategic implementation.