External Analysis: The

Identification of Opportunities
and Threats

Industry
A group of companies
offering products or
services that are close
substitutes for each other.

sector
A group of closely related
industries.
Industry and Market Segments

Changing Industry Boundaries

Competitive Forces Model

 Risk of Entry by Potential Competitors

Potential competitors
Companies that are currently not competing in the industry but have the potential to do so. For example-
Samsung tab competing with Apple iPad.

Economies of scale
Reductions in unit costs attributed to a larger output. It means producing in large amount. For example-
Toyota produces in large amount and their unit cost decreases. New automobile gets difficult to enter
the market because their unit cost will be higher.

Brand loyalty
Preference of consumers for the products of established companies. For example- iPad. People got used
to apple environment. If any new company enters the market, people will still buy iPads. For example-
Gillette. If any new razor company enters, people will still use Gillette razors because of their pricing
and preference.
Absolute cost advantage
A cost advantage that is enjoyed by incumbents in an industry and that new entrants cannot expect to
match. For example- Toyota buying tires in millions will give them at a lower cost. Often big
companies get this advantage.

Switching costs
Costs that consumers must bear to switch from the products offered by one established company to the
products offered by a new entrant. For example- Switching from android to iPhone.
 Rivalry Among Established Companies

Industry Competitive Structure

A fragmented industry consists of a large number of small or medium-sized companies, none of which is
in a position to determine industry price. A consolidated industry is dominated by a small number of
large companies (an oligopoly).

A heavily consolidated industry. Only few companies can produce. Only few companies can dictate the
price (oligopoly). For example- Aviation engines, Book. For example- Food, clothes. It an industry
which is heavily fragmented. No one can dictate the price.

Industry Demand The level of industry demand is another determinant of the intensity of rivalry among
established companies. Growing demand from new customers or additional purchases by existing
customers tend to moderate competition by providing greater scope for companies to compete for
customers.

Customer demand and competition are inversely related. If demand increases, competition decreases. If
competition increases, demand decreases.
Cost Conditions The cost structure of firms in an industry is a third determinant of rivalry. In industries where
fixed costs are high, profitability tends to be highly leveraged to sales volume, and the desire to grow volume can
spark intense rivalry. For example- Medicine. Production high, sell high. Higher the cost, higher the competition.

Exit Barriers Exit barriers are economic, strategic, and emotional factors that prevent companies from leaving an
industry. For example- Clothing industry. They can exit easily. For example- Pharmaceuticals, Banks. Harder to
exit. Government will not allow them. For example- Walton. The first tech company in Bangladesh. If they are
willing to exit tomorrow, they cannot. People and resources are involved .Government will not allow them.

Investments in assets such as specific machines, equipment, or

operating facilities that
are of little or no value in alternative uses,

High fixed costs of exit

Emotional attachments to an industry,

 Economic dependence on the industry because a company relies
on a single industry

Bankruptcy regulations,

The Bargaining Power of Buyers

When the buyers have choice of who to buy from. When the buyers purchase in large quantities. When the
supply industry depends upon buyers for a large percentage of its total orders. When switching costs are low.
When buyers can threaten to enter the industry. For example- Toyota purchasing tires in bulk and their
bargaining power increases.
 The Bargaining Power of Suppliers

The product that suppliers sell has few substitutes.

The profitability of suppliers is not significantly affected by the purchases of companies.

Companies in an industry would experience significant switching costs if they moved to the product of a
different supplier because a particular supplier’s products are unique or different.

Suppliers can threaten to enter their customers’ industry and use their inputs to produce products that
would compete directly with companies already in the industry.
Companies cannot threaten to enter their suppliers’ industry and make their own inputs as a tactic for
lowering the price of inputs.

Substitute Products

Complementor
Strategic Groups Within Industries
 The Role of Mobility Barriers

Industry Life-Cycle Analysis

Embryonic Industries: A new product is introduced in the market.  The level of demand, sales, and revenue is low,
potential consumers are not aware of it, the product may not be a complete version, and requires advertisements. 

Growth Industries: Consumers start to identify and show interest in the industry’s offerings. The supply and
demand increases.

Industry Shakeout: When companies in the market gain more strength over their competitors.

Maturity: Firms resort to strategies like mergers and acquisitions, economies of scale , cost reduction,
competitive pricing, etc.

Decline: The last stage of the life cycle, no growth-friendly environment, making it hard for companies to
sustain, eventually forcing the weaker participants out of the industry.
 Mature Industries

Declining Industries
The Macro environment
Macro Environment Factors

In April 2022, Tesla successfully overcame macro environment challenges. The company enjoyed a
healthy profit margin. With reduced sales costs, efficient production, and competitive pricing, Tesla
promises further growth.
1. Demographic Forces: Demographics refers to age, language, lifestyle, income distribution, cultural
differences, etc. Financial literacy depends on demographics. For example- Water proof headphone.
Suitable for western countries. Not suitable for Bangladesh.
2. Global forces: Business performance depends on various geographical and ecological forces—
availability of natural resources, climate change, weather conditions, biological balance, pollution,
etc. For example- Uber.
3. Political and Legal Forces: The government imposes various regulations on businesses—
employment laws, import/export laws, copyright laws, labor laws, health and safety laws, and
discrimination laws.
4. Economic Forces: Consumer buying decisions are significantly impacted by macroeconomic
factors—demand-supply, inflation, interest rates, taxes, exchange rates, and recession.
5. Technological Forces: Technological growth and advancement within a nation greatly influence
the production and sale of goods or services. Innovation, automation, and internet facilities are
some examples.
6. Social Forces: A business needs to be socially responsible and culturally aware. Socio-cultural
factors comprise education, population growth rate, life expectancy rate, social status, buying
habits, religion, etc.