Universitas Muhammadiyah Jakarta

The External Environment: Opportunities,

Threats, Competition, and Competitor Analysis

Dr. DJONIERI, SE, Ak, MBA, CA

The General, Industry, and Competitor Environments

 The General environment is composed of dimensions in the broader society that influence
an industry and the firms within it.
 The industry environment is the set of factors that directly influences a firm and its compet
itive responses: the threat of new entrants, the power of suppliers, the power of buyers, th
e threat of product substitutes, and the intensity of rivalry among competitors.
 An opportunity is a condition in the general environment that if exploited effectively, helps
a company achieve strategic competitiveness.
 A threat is a condition in the general environment that may hinder a company’s efforts to
achieve strategic competitiveness.
 The External Environment
Economic Physical

Industry
Demographic Environment Sociocultural
Threat of New Entrants
Power of Suppliers
Power of Buyers
Product Subtitutes
Intensity of Rivalry

Competitor
Political/Legal Environment Global

Technological
The General Environment, Segments and Elements
Demographic Segment
Economic Segment
Political/Legal Segment
Sociocultural Segment
Technological Segment
Global Segment
Physical Environment Segment
• Population size
• Age Structure
• Geographical distribution
• Inflation rates
• Interest rates
• Trade deficit or surpluses
• Budget deficit or surpluses
• Antitrust laws
• Taxation laws
• Deregulation philosophies
• Women in the workforce
• Workforce diversity
• Attitudes about the quality of work life
• Product innovations
• Application of knowledge
• Important political events
• Critical global markets
• Energy consumption
• Practices used to develop energy sources
• Renewable energy efforts
• Minimizing a firm’s environmental footprint
• Ethnic mix
• Income distribution
• Personal savings rate
• Business savings rate
• Gross domestic product
• Labor training laws
• Educational philosophies and policies
• Shift in work and career preferences
• Shift in preferences regarding product
and service characteristics
• Focus of private and government-
supported R&D expenditures
• New communication technologies
• Newly industrialized countries
• Different cultural and institutional
attributes
• Availability of water as a resource
• Producing environmentally friendly
products
Component 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 firm’s strategies and their
management
Segment of the General Environment
• The demographic segment is concerned with:
- a population’s size
- age structure
- geographic distribution
- ethnic mix, and
- Income distribution.
• The economic segment
- The economic environment refers to the nature and direction of the economy in which a firm competes
or may compete.
• The Political/Legal segment
- The political/legal segment is the arena in which organizations and interest groups compete fro attenti
on, resources, and a voice in overseeing the body of laws and regulations guiding interactions among
nations as well as between firms and various local government agencies.
• The sociocultural segment
- is concerned with society’s attitudes and cultural values.
• The Technological segment
- includes the institutions and activities involved with creating new knowledge and translating that knowled
ge into new outputs, products, processes, and materials.
• The Global segment
- The global segment includes relevant new global markets, existing markets that are changing, important i
nternational political events, and institutional characteristics of global markets.
• The physical environment segment
- The physical environment segment refers to potential and actual changes in the physical environment an
d business practices that intended to positively respond to and deal with those changes.
Future Objectives
• How do our goals compare with our
competitors’ goals? Competitor
• Where will emphasis be placed in
the future?
• What is the attitude toward risk?
Analysis
Components
Current Strategy
• How are we currently competing?
• Does their strategy support changes
in the competitive structure?
Response
• What will our competitors do in the
Assumptions future?
• Do we assume the future will be • Where do we hold an advantage over
volatile? our competitiors?
• Are we operating under a status • How will this change our relationship
quo? with our competitors?
• What Assumptions do our
competitors hold about the
industry and themselves?

Capabilities
• What are our strengths and
weaknesses?
• How do we rate compared to our
competitors?
 Industry Environment Analysis
The Five Forces of Competition Model

Rivalry Threat of
among competing firms:
Numerous or equally balanced new entrants: barriers
competitors, slow industry to entry, economic of scale,
growth, high fixed costs of high product differentiation, capital
storage costs, lack of requirements, switching costs,
differentiation or low switching access to distribution channels,
costs cost disadvantages independent
of scale, government policy

Threat of subtitute Bargaining

products: Sugar substituted power of suppliers:
Domination, substitution not
by NutraSweet
available, not significant
customer

Bargaining
power of buyers: purchase
large portion, switching to
another product
Aspects to be considered

• A strategic group is a set of firms emphasizing similar strategic dimensions to use a similar
strategy.
• Ethical Consideration:
- Practices considered both legal and ethical include:
- obtaining publicly available information (law, regulation, court system).