Chapter 2 The External Environment – Opportunities, Threats, ECONOMIC

Industry Competition, and Competitor Analysis Economic factors are determinants of a certain economy’s
performance.
Analysis of the External Environments  Currency strength
General Environment (PESTLE)  Interest rates
– Focused on the future  Inflation rates
 Growth rates (GNP, GDP)
Industry environment (Porter’s Five Forces)  Access to debt
– Focused on factors and conditions influencing a firm’s profitability  Consumer confidence
within an industry  Unemployment levels
 Disposable income
Competitor Environment  Stock exchange and markets
– Focused on predicting the dynamics of competitors’ actions,  Cryptocurrency impact
responses, and intentions
SOCIO-CULTURAL
Opportunities and Threats This dimension of the general environment represents the
Opportunity demographic characteristics, norms, customs, and values of the population
– A condition in the general environment that, if exploited, helps a within which the organization operates.
company achieve strategic competitiveness.  Age range
Threat  Attitude to health
– A condition in the general environment that may hinder a
 Social classes
company’s efforts to achieve strategic competitiveness.
 Birth and death rates
Environmental Analysis: PESTLE  Social Preferences / Trends
– A PESTLE analysis is a framework to analyse the key factors influencing  Immigration and emigration
an organisation from the outside.  Cultural values
– It offers people professionals insight into the external factors impacting their
organisation. TECHNOLOGICAL
These factors pertain to innovations in technology that may affect the
POLITICAL operations of the industry and the market favorably or unfavorably.
These factors are all about how and to what degree a government  Artificial Intelligence
intervenes in the economy or a certain industry. Basically, all the influences  Automation
that a government has on your business could be classified here.  R&D focus
 Stability of governments  Data analysis
 Political leaning  Internet infrastructure
 Regulation and deregulation  Access to connectivity
 Government influence  Adoption of technology
 Political system  Communication advances
 Political activism  Augmented and Virtual Reality
 Lobbying
 Corruption LEGAL
 Government subsides Although these factors may have some overlap with the political
 Preferred industries factors, they include more specific laws – enacted laws by the Congress,
 Political aims jurisprudence of the Supreme Court, or Ordinances of provincial boards or
LGUs.
 Bilateral relationships
 Constitution
  Republic Acts Bargaining Power of Suppliers
 Jurisprudences • Supplier power increases when:
 Ordinances – Suppliers are large and few in number.
 Health and safety laws – Suitable substitute products are not available.
 Employment laws – Individual buyers are not large customers of suppliers and
 Privacy laws there are many of them.
– Suppliers’ goods are critical to the buyers’ marketplace
 Consumer protection laws
success.
 Copyright and patent laws
– Suppliers’ products create high switching costs.
 Education laws – Suppliers pose a threat to integrate forward into buyers’
 Discrimination laws industry.
 Safeguarding laws • Buyer power increases when:
– Buyers are large and few in number.
ENVIRONMENTAL – Buyers purchase a large portion of an industry’s total
These factors include ecological and environmental aspects such output.
as weather, climate, environmental offsets, and climate change which may – Buyers’ purchases are a significant portion of a supplier’s
especially affect industries such as tourism, farming, agriculture, and annual revenues.
insurance. – Buyers’ switching costs are low.
 Climate and weather – Buyers can pose threat to integrate backward into the
 Climate change sellers’ industry.
 Attitude to green technology
 Pollution levels Threat of Substitute Products
 Carbon footprint • The threat of substitute products increases when:
 Deforestation – Buyers face few switching costs.
 Typhoons and Flooding – The substitute product’s price is lower.
 Volcanic Eruption – Substitute product’s quality and performance are equal to
 Extinction of Flora and Fauna or greater than the existing product.
• Differentiated industry products that are valued by customers
Porter’s Five Forces [Industry Environment] reduce this threat.
The set of factors directly influencing a firm and its competitive
actions and competitive responses Intensity of Rivalry Among Competitors
• Threat of new entrants • Industry rivalry increases when:
• Power of suppliers – There are numerous or equally balanced competitors.
• Power of buyers – Industry growth slows or declines.
• Threat of product substitutes – There are high fixed costs or high storage costs.
• Intensity of rivalry among competitors – There is a lack of differentiation opportunities or low
switching costs.
Threat of New Entrants: Barriers to Entry – When the strategic stakes are high.
• Economies of scale – When high exit barriers prevent competitors from leaving
• Product differentiation the industry.
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government policy
• Expected retaliation
Competitor Analysis Ethical Considerations
• Gathering and interpreting information about all of the companies that the • Practices considered both legal and ethical:
firm competes against. – Obtaining publicly available information
• Understanding the firm’s competitor environment complements the insights – Attending trade fairs and shows to obtain competitors’ brochures,
provided by studying the general and industry environments. view their exhibits, and listen to discussions about their products
• Practices considered both unethical and illegal:
Competitor Intelligence – Blackmail
– The ethical gathering of needed information and data that provides – Trespassing
insight into: – Eavesdropping
• A competitor’s direction (future objectives) – Stealing drawings, samples, or documents
• A competitor’s capabilities and intentions (current strategy)
• A competitor’s beliefs about the industry (its assumptions)
• A competitor’s capabilities

Strategic Groups
Strategic Group
– 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.
• There is more heterogeneity in the performance of firms within
strategic groups.
–Similar market positions
–Similar products
–Similar strategic actions

Strategic Dimensions
– Extent of technological leadership
– Product quality
– Pricing Policies
– Distribution channels
– Customer service

Complementors
–The network of companies that sell complementary products or
services or are compatible with the focal firm’s own product or
service.
• If a complementor’s product or service adds value to the sale of
the focal firm’s product or service, it is likely to create value for the
focal firm.
• However, if a complementor’s product or service is in a market into
which the focal firm intends to expand, the complementor can
represent a formidable competitor.