The External

Environment:
Opportunities, Threats,
Industry Competition,
and Competitor Analysis

Hassan Abbas – BS AnF (7)

Chapter Contents

• Opening Case – Rise & Fall of McDonalds

• External Environment
• The General
• Industry
• Competitor Environments
External Environment
The General Environment

• Demographic
• Economic
• Political/legal
• Sociocultural
• Technological
• Global
• Sustainable physical
The General Environment: Segments & Elements
General Environment

• Turbulent, complex, and global

• Analysis
• Scanning
• Monitoring
• Forecasting
• Assessing

• Identification of opportunities and threats

Scanning

• Identify early signals of potential changes in the general

environment
• Detect changes that are already under way
• Volatile environment – Stable Environment (Must be Same)
• Internet => Amazon => Netflix
Monitoring

• Observe environmental changes

• Trend is emerging from among those spotted through scanning
• Interlocking directorates
• High technological uncertainty
Forecasting

• Analysts develop feasible projections of what might happen

• Challenging
• Difficult
Assessing

• Determine the timing and significance of the effects of

environmental changes and trends that have been identified
The Demographic Segment

• Population’s size :
• Age structure
• Geographic
• Distribution
• Ethnic mix
• Income distribution
• https://www.worldometers.info/demographics/pakistan-demogr
aphics/
Economic Segment

• Nature and direction of the economy

• Global recession of 2008 and 2009
• Global recovery from the economic shock in 2008 and 2009
• High degrees of economic uncertainty coincide with periods of
lower growth
The Political/Legal Segment

• Organizations and interest groups compete for attention, resources,

and a voice in overseeing the body of laws and regulations guiding
interactions among nations as well as between firms and various
local governmental agencies
The Sociocultural Segment

• Society’s attitudes and cultural values

The Technological Segment

• New products, processes, and materials

• Institutions and activities involved in creating new knowledge and
translating that knowledge into new outputs, products, processes,
and materials.
The Global Segment

• Relevant new global markets,

• Existing markets that are changing,
• Important international political events, and
• Critical cultural and institutional characteristics of global markets
• Globalfocusing
• Korean – communitarianism
• China - guanxi—personal connections
• Japan – wa—group harmony and social cohesion
The Sustainable Physical Environment Segment

• Potential and actual changes in the physical environment and

business practices that are intended to positively respond to those
changes with the intent of creating a sustainable environment.
• Ecological, social, and economic systems
• “Sustainability” and “Corporate Social Responsibility.”
Industry Environment

• Group of firms producing products that are close substitutes

• Direct effect
Five Forces
Industry Environment

• Threat of new entrants

• The power of suppliers
• The power of buyers
• The threat of product substitutes
• Intensity of rivalry among competing firms
Threat of New Entrants - Barriers to Entry

• Economies of Scale
• Mitsubishi Heavy Industries Ltd. and Hitachi Ltd

• Product Differentiation
• Capital Requirements
• Switching Costs
• Semester 1st vs last Semester
• Depends on the product

• Access to distribution Channels

• Cost Disadvantages Independent of Scale
• Proprietary product technology,
• favorable access to raw materials, desirable locations, and government subsidies

• Government Policy
• Expected Retaliation
Bargaining Power of Suppliers

• Increasing prices
• Reducing the quality
• Dominated by a few large companies and is more concentrated than the
industry to which it sells.
• Satisfactory substitute products are not available to industry firms
• Industry firms are not a significant customer for the supplier group
• Suppliers’ goods are critical to buyers’ marketplace success
• The effectiveness of suppliers’ products has created high switching costs for
industry firms
• Credibility threat to integrate forward into the buyers’ industry
Bargaining Power of Buyers

• Higher quality
• Greater levels of service
• Lower prices
• They purchase a large portion of an industry’s total output
• The sales of the product being purchased account for a significant
portion of the seller’s annual revenues
• They could switch to another product at little, if any, cost
• The industry’s products are undifferentiated or standardized
Threat of Substitute Products

• Outside a given industry

• Perform similar or the same functions
• Switching costs
• Substitute product’s price is lower
• Quality and performance capabilities are equal to or greater
Intensity of Rivalry among Competitors

• Price
• Service after the sale
• Innovation

• https://www.youtube.com/watch?v=3nvfT4N9SC8
• https://www.youtube.com/watch?v=ekaHlWga5yA
• https://www.youtube.com/watch?v=DijFob8vxgI
What Triggers Rivalry

• Numerous or Equally Balanced Competitors

• Slow Industry Growth
• High Fixed Costs or High Storage Costs
• Lack of Differentiation or Low Switching Costs (Laptops)
• High Strategic Stakes
• High Exit Barriers
• Specialized assets (assets with values linked to a particular business or location)
• Fixed costs of exit (such as labor agreements)
• Strategic interrelationships
• Emotional barriers
• Government and social restrictions
Strategic Groups

• A set of firms emphasizing similar strategic dimensions and using a

similar strategy
• Intra-strategic group competition is more intense than is inter-
strategic group
• High mobility barriers, high rivalry, and low resources
Competitor Analysis

• Actions - Understand
• Responses – Interpret
• Intentions – Predict
• Globalization
• Competitor intelligence - competitive spying - corporate espionage
Competitor Analysis

• What drives the competitor, as shown by its future objectives

• What the competitor is doing and can do, as revealed by its current
strategy.
• What the competitor believes about the industry, as shown by its
assumptions.
• What the competitor’s capabilities are, as shown by its strengths
and weaknesses
Competitor Analysis
Complementors

• Companies or networks of companies that sell complementary

goods or services that are compatible with the focal firm’s good or
service
• Home Photo Printers – Digital Camera
Ethical Considerations

• Obtaining publicly available information (e.g., court records,

competitors’ help wanted advertisements, annual reports, financial
reports of publicly held corporations, and Uniform Commercial
Code filings)
• Attending trade fairs and shows to obtain competitors’ brochures,
view their exhibits, and listen to discussions about their products