Instructor: Doan Van Ha

Email: hadv@hvnh.edu.vn
Mobile: 098 688 8371
§ Read Case study: p.g 40

§ Check: www. Embraer.com

§ Find information about aviation industry
§ Understand the significance of the external business environment for the strategies
of multinational firms
§ Generate a PESTEL analysis to evaluate the impact of external factors on the firm.

§ Conduct a External Factor Evaluation (EFE) matrix for a multinational firm

§ Examine how competitive industry structure shapes rivalry among competitors.

§ Apply Porter’s Diamond model and Five Force model

§ The business environment consists of all factors inside and outside the company,
which influence the firm’s competitive success.
§ The business environment can be divided into:
§ the external macro environment,
§ the external industry environment
§ the internal firm environment
§ Reading Opening case study (pg. 40): 20 mins

§ Identify the external events or factors mentioned in the case and classify them into
the category: macro level and industry level accordingly
§ Identifying threats and opportunities

§ Opportunities: events/process that help the company to

achieve its competitive success
§ Threats events/ process that prevent the company from
achieving competitive success
§ The perception of threats and opportunities can vary
between different managers and firms.
§ Hofstede model:
§ the Uncertainty Avoidance index (UAI)
§ PEST, PESTL analysis
§ An acronym for Political, Economic, Social and Technological – external factors
that commonly affect business activities and performance
§ find out current external factors affecting an organization
§ identify the external factors that may change in future
§ Exploit the changes or defend against them
§ PEST analysis
§ The Diamond model
§ Assumes that the national home base of firm plays a key role in
shaping that firms’ competitive advantage in global markets.
§ Explain why some nations tend to produce firms with sustained
competitive advantage in some industries more than others: the
national competitive advantage
§ The degree of national advantage varies from industry to industry
§ The Diamond model

Firm strategy,
structure and rivalry

Factor Demand
conditions conditions

Related and
supporting industries
§ The Diamond model- Factor condition
§ describe a country’s endowments in terms of natural, human, and
other resources.
§ Basics factor of production:
§ Advanced factor:
§ Basic factors can provide only an initial advantage. They must be
supported by advanced factors to maintain success
§ The Diamond factor- Demand conditions
§ Describe the specific characteristics of demand in a firm’s
domestic market.
§ plays an important role in producing competitiveness
§ Enables better understand the needs and desires of the customers
§ It shapes the attributes of domestically made products and creates
pressure for innovation and quality
§ (?) Why do Germany and Japan get reputation for domestic products?
§ The Diamond factor- Related and supporting industry
§ Benefits of investment in advanced factors by Suppliers and related
industries is significant
§ Creates clusters of supporting industries, thereby achieving a
strong competitive position internationally

§ Eg. Silicon Valley

§ The Diamond model- Firm strategy, industry structure and
rivalry
§ Competitive environments lead to better performance.
§ determined by a multitude of social, political, and legal
factors

§ E.g. The Automobile industry in UK, US vs Japan, Korea

§ The Diamond model: the Criticism
§ Not a practical tool for specific firm to compete successfully
§ Cannot explain the success of many global industries
§ Diamond model for small nations:
§ Diamond model and Globalization:
§ Use Diamond model to explain
§ Germany’s company have competitive advantage over other to make
luxury high power car
§ Japanese automobile companies have have competitive advantage over
other to make fuel-efficient automobile.
§ In your opinion, what factor(s) mostly contributed to their competitive
advantage?
§ Understanding and adapting to industrial environment
§ An industry may be too broad to provide for a detailed
understanding of competition
§ Firms need to identify a precise market, which can be achieved by
conducting a market segmentation analysis and strategic group
analysis
§ Market segmentation analysis
§ a market segmentation group of customers who have the same similar
needs that are different from customer needs in other part of the market
§ Aims to identify similarities and differences between group of people
who buy and use your firm’s goods and services
§ Market segmentation analysis
§ to identify the relevant market in a way to develop strategy, firm
concentrate on three questions
§ customer segmentation: which customer segments are to be served by
the strategy?
§ customer needs: what is the range of customer needs to be met?
§ technology: which technologies are required in order to pursue
customers? …
§ Strategic group analysis
§ Strategic group: are organizations within an industry or sector with
similar strategic characteristic, following similar strategies or competing
on similar bases
§ Strategic group analysis is about identifying firms with similar strategies
or those competing on similar bases
§ Strategic group analysis
§ Who are your main competitors
§ what strategies your main
competitors likely to pursue
§ The grocery retailing industry in Vietnam: Who
competes who????
§ The Five-force model
§ To determine the intensity of competition in an industry and its
profitability level
Threat of substitutes

Bargaining power Rivalry Bargaining power

of suppliers of buyers

Barriers to enter
§ Barrier to entry
§ are obstacles which potentially newcomers could encounter when
entering the market
§ capital requirement
§ economies of scales
§ product differentiation
§ Access to distribution channels
§ Government policy
§ Expected retaliation
§ High barriers to entry help maintain a firm’s profitability
§ Barging power of buyer and suppliers
§ Buyer/ seller concentration
§ Buyer switching cost
§ Product differentiation
§ price/total purchases
§ threat of vertical integration
§ Buyer information
§ Impact on quality
§ international expansion
§ (?)When the power of buyer/ seller is high?
§ Threat of substitute:
§ A substitute product is a good or service, which is regarded as
interchangeable by buyers
§ The threat of substitute depends on:
§ relative price performance of a substitute
§ switching costs for the buyer
§ buyer’s propensity to substitute
§ Rivalry
§ Rivalry encourages innovation, but it also reduces profits
§ The intensity of rivalry is influenced by:
§ Concentration
§ Diversity of Rivals
§ Product Differentiation and Switching Costs
§ Industry Growth
§ Fixed Costs and Storage Costs
§ Exit Barriers
§ Excess Capacity
§ Criticism of the Five forces model
§ static vs. dynamic competition: hyper competition
§ industry profitability

§ The 6th force: Complement

§ A product, service, or competency that adds value when used with the
original product.
§ Complements increase demand for the primary product.
§ Enhances the profit potential for the industry and the firm.
§ Industry evolution
§ Product life cycle (PLC):
suggests that every basic
product evolves through a
cycle of roughly four stages
which correspond to the rate
of growth of industry sales.
§ Product life cycle provide
major for international
strategies of firms as
industries change force firm
to relocate part of their
business to other countries
§ Industry evolution
§ International Product life cycle
§ Developed by Prof. Raymon Vernon of the Harvard Business School
§ Suggest that many products go through a cycle during which high income,
mass consumption countries are initially exporter, then lose their export
market and finally become importer
+ Phase 1: Introduction to the
Home market (initial)
+ Phase 2: Export to the
developed country
+ Phase 3: Export by
developed countries to
developing countries
+ Phase 4: Export by
developed countries to the
home countries
+ Phase 5: Export by
developing countries to the
developed countries
§ External Factor Evaluation is strategy tool used to examine company’s
external environment and to identify the available opportunities and
threats
§ Understanding the factors used in the EFE Matrix is more important than
the actual weights and ratings assigned.
§ Constructing an EFE Matrix
§ Identify events/ factors opportunity/threat
§ Assign a weight to each factor (opportunity/threat) increase in relation to
importance.
§ Assign a rating to each factor: 1 (little response); 2 response below
average; 3 response above average; 4 very good response.
§ Multiply the weight by the rating and add all the weighed scores
 § Constructing an EFE Matrix

Key external factors Weight Rating Weighted

Score
Opportunities
1. New trade agreement that lifts the ban of imported food 0.11 3 0.33
is singed with a neighborhood countries

2. Signing contract with new supplier 0.09 1 0.99

3. Processed food market growing by 15% next year in 0.24 2 0.42
our largest market
4. Incorporating a new company in neighboring country, 0.10 1 0.10
where the tax rate is decreasing by 3% next year
 § External Factor Evaluation Matrix (EFE)- Constructing an EFE Matrix
Key external factors Weight Rating Weighted Score

Opportunities
Threat
5.Contract with main customers expires in 2 months 0.17 4 0.68

6. Extreme cases of natural disaster occurring next year 0.03 2 0.06

7. New law, requirements to decrease the amount of 0.14 3 0.42

sugar in the food by 20%, could be passed next year

8. Competitors opening 3 new stores in town 0.12 2 0.24

Total (Opportunities and threat) 1 - 2.4

§ External Factor Evaluation Matrix (EFE)

Total weighted score of 4.0

÷ Organization response is outstanding to threats and taking
advantage of opportunities

Total weighted score of 1.0

• Firm’s strategies not capitalizing on opportunities or
avoiding threats

A value of 2.4 or 2.5 is an indicator that

a firm response is fairy acceptable
END OF CHAPTER 2