The Business

Environment for
Competitive Strategy
 The Business Environment
• An internal understanding of the business environment will make the
executives understand the present and future of the firm’s direction
and growth. The industry environment is a set of factors that directly
influence the company and its competitive actions. The profit
potential of the company is determined by the different factors in the
environment that influence its operational competitive advantage.
The corporate challenge is to identify the present firm’s position
against the environmental factors and develop strategies that will
successfully overcome their competitive influence. The success of the
business operation is dependent on the capacity to favorably
influence the business environment and earn the desired profit.
 Focus of Analysis is on the three
important factor:
• The General Environment
-seeing the industry in the future and how it
will affect present and future operations. The
general business landscape is wide and open for
exploration and seeing the business condition
miles ahead is an important factor in the survival
of business.
• The Industry Environment
- it refers to the analyses of the firm’s conditions of
profitability within the industry. The analyses will generate data
on the firm’s capability to compete within the business industrial
community on it’s products and services based on the
programmed vision and mission.

• The Competitor
-analyses of the competitors are focused on predicting the
dynamics of competition that are related to their operational
actions, responses and intentions. Seeing how the competitors
operate will give insights on what strategies will most likely
overcome the market competitions.
Analysis of the External Environment
- The environment of business in the world’s landscape is highly
turbulent, complex and uncertain. The firm must have the complete
data and information by which to base their forecast and program of
operation in order to stay afloat in their business operation. An
important objective is to study the general environment in terms of the
corporate opportunities and threats. Opportunities are consitions in the
general environment that make the company competitive while threats
are conditions that hinder the company to overcome strategic
competencies of the various competition.

*external environment analysis include 4 important activities:

 1. SCANNING
• The process entails the study of all segments in the
general environment. It is identifying the signals of
potential changes in the environment that pose
threats or opportunities that needed immediate
actions. Scanning is generally important in highly
volatile business environment. It is important to
analyze the data carefully as the source of information
is usually incomplete and unconnected.
 2. MONITORING
• It is the process of carefully observing the changes in the environment
and seeing the effects from the scanning of information. It is
important to detect meanings in the changes of events and trends.
The trends and events are opportunities that should br explored by
the firm and determine the degree of corporate adjustments.
Monitoring the changes in technological innovations is important as
today’s business changes so rapidly with new technology in the
production of products and services.
 3. FORECASTING
• Is the result of scanning and monitoring. Forecasting are
derived from results of the analysis of the changes in the
environment. Forecasting is the process of developing
projections of what might happen and how quickly the
company developed strategies to be competitive in the
changing business landscape. Timely actions and immediate
response are necessary as innovations change rapidly in the
market competition. It may deal in the changes and training
of the workforce, and development of new marketing
strategies to reach the consumers before the competitors get
the market niche.
 4. ASSESSING
• It is the process of determining the timing and
significance of the effects of the environmental
changes and trends on the strategic management of
the company. The objective of assessment is to
understand the general environment and to specify
the actions that will be implemented to adjust to the
changes in the environment. The absence of
assessment will leave the data useless as the
unknown competitive relevance id not properly taken
advantage by the firm.
Segmentation of the General
Environment
• The general environment is composed of segments that are
external to the firm. The degree of impact varies in different
industry and the firm must scan, monitor, forecast and assess
the levels and degrees of its effect on the company’s
operational profitability. The company must be able to
recognize the environmental changes, trends, opportunities
and threats and apply the firm’s core competencies to take
advantage of the changing environment.

• There are 6 Segments that affect the operation of the firm:

• The Demographic Segment
it is concerned with the population’s size, age structure,
geographic distribution system, ethnic groups and economic
index. For strategic competencies the demographic segments
should be analyzed on the global basis as it has potential
effects across countries. Globalization becomes the workings
not only of big corporation but also to small companies with
borderless operations.
• Population size
• Age structure
• Geographic Distribution
• Ethnic mix
• The Economic Segment
• Refers to the nature and directions of the country in
their economic development. Companies operate
profitability in a country with the economic stability.
The globalization of business consider the economic
stability of the host country. The other surrounding
nations’ economic perspectives are the other firms’
consideration as the barriers to business
communication became within the touch of the finger.
• The Political and Legal Segments
It is the arena in which business organization operates and
interest groups compete for attention and resources. It also
deals with the voice of overseeing the implementation of the
laws of the country which has something to do with trade and
commerce. This segment represent how business organization
tries to influence the government and how the government
influences the flow of trade and commerce. These segments
constantly change as government passed laws that protect the
interest of local industries and the flow of revenue for
imported products.
• The Social and Cultural Segments
This are concerned with the society’s attitudes and
cultural values. Attitudes and values differ among
nations, and these play as the cornerstone of the
society as they drive the demographic, economic and
technological condition and change. The growing
cultural diversity in the working environment creates
challenges and opportunities by combining the men’s
and women’s traditional styles of leadership for the
firm’s benefits.
 • The advancement on Technology
Segments
Firms and business organizations that develop new technology
and new products have the greater advantage in higher market
share and earn considerable advantage. The role of top
executives is to scan and monitor the development of new
technology and endeavor to identify the possible substitute for
new system and products that will them higher competitive
market share. The emerging fast faces of communication through
the Internet open up the business highway for the marketing of
product and service. This has greatly changed the medium of
business communication and this poses a great challenge in the
creation of greater competitive advantage.
 • The World of Business Segments
The globalization of the business market creates both
opportunities and challenges. The present scenario in trade
and commerce is the creation of borderless flow of product
and services. In the Asian region countries are grouping
together to create a free flow not only of information but the
products and services with less barriers on tariff and fees. The
same is true in European Union and other regions of the globe
as they believe globalization will help on the development of
infrastructure. Transport facilities must be developed and the
necessary investment in the development of economic
structures must be put in place.
 Analysis of the Industrial
Environment
• The industry is a group of firms producing products that are
similar or close substitutes. They are competing for the share
of the market pie and have influence on the strategy of the
other firms. Industries include a rich mix of competitive
strategies in pursuing their own goals of greater returns.
Advancement in technology plays a greater role in the
competitive advantage of the firm not only in terms of product
innovation but also in the use of internet communication to
penetrate the more affluent market. The industry environment
has more direct effect on the firms strategic competencies and
the above average return on investments.
The Five Forces that Affect Firm’s
Competitiveness
1. The Threats of New Entrants – the firm must always be
on watch with possible new entrants in the industry as it
will affect their market share and at the same time their
profitability. New entrants usually bring in the additional
production capacity and make modifies products that
may be the same or more superior to the existing product
of the firm. New entrants usually have a keen interest in
gaining a larger market share and force competitors to be
more efficient in the delivery of goods to their customers.
THE THREAT OF NEW ENTRANT COULD BE AVOIDED WITH THE
FOLLOWING STRATEGIES:
• Economies of Scale –it refers to the marginal improvement in
efficiency that the firm experiences as it incrementally increase in
size. When the quantity of product produces overtime increases, the
cost of production per unit decreases, hence the firm can lower the
price or maintain a higher return on investment.
• Product Differentiation- it is customers perception that the product
entering the market first is unique and this capture’s loyalty and
patronage.
• Capital Requirements –this is needed for the firm to enter a new
market. Investments in terms if resources, manpower skills and new
technology needed huge investments and the risk of overcoming
those in the market is great.
• Access to Distribution Channel –Access to distribution channels can
be a strong entry barrier for new entrants as the old firm has
established foothold on their distributors who have developed loyalty
over time.
• Government Regulations – the government policy on licensing and
permit requirement can also control new entrants to an industry. This
could be true in industry where franchising regulations is required like
operating transport business especially in saturated routes. the
government regulations on quality service and the capital
requirements would discourage new entrants. For new entrant to
enter this market, they need to but existing line, franchise and
improve facilities and service which will require huge investments.
2. The Power of the Suppliers- the supplies of material inputs in the
production of goods are determinants of quality products. Suppliers
can exert power to the industry to increase their prices that will affect
the firm’s profitability. Increase in material inputs would mean
adjustments in price that will affect the competitiveness of the firm.

The power of the supplier is powerful under the following:

• When it is dominated by few large companies.
• When they are more concentrated than the industry it sells.
• When there is no substitute available.
• When the industry is not a significant customer for the supplier.
• When the suppliers’ goods are critical to the firm’s success.
• When it poses threat to integrate forward into the buyers’ industry.
3. The Buyer’s Bargaining Power- the firm’s objective is to
maximize returns on their invested capital as business
operates for the desired profit.
The consumer group has the bargaining power under the
following:
• When they purchase a large volume of the firms output.
• When there is available substitute of similar quality.
• When the scales are significant portion of the firm’s sales
volume.
• When the buyer or dealer can be threat for backward
integration.
4. The Threat of Substitute Product –the industrial world is full of
innovations and firms seek new opportunities. There are many firms
looking for new products to make business by studying substitute to
existing product in the market. Firm that do not innovate will lose
their market as innovation is the byword of the industry. Consumers
are looking for new and innovative products and their level of
satisfaction is limitless.

The threat for product substitutes is based on the following:

• When the substitute us priced lower
• When the quality is better than the existing product
• When the product is immediately available in the market
• When service id available.
5. The Power of Competition –the actions taken by one company invite counter
reaction by the other firm. Competitive response is an active reaction that forces the
company to make innovations. Competitive rivalry intensifies when a firm is
challenged by a competitors action and an opportunity to improve its market
position is recognized. Firms differ in resources and capabilities and seek to
differentiate themselves from their competitors as they rarely, operate
homogenously. The visible competitive strategy is on price, quality, innovation and
service.

Factors that intensify the power of competition:

The presence of balance competitors
The slow industrial growth in some sectors
Higher storage cost of some products
Low product differentiation and switching cost.
 INDUSTRY ANALYSIS AND
STRATEGIC ACTIONS
• The five forces of competition are guidelines for firms to develop
insights required to determine the firm’s attractiveness in terms of its
potential to earn adequate return on their investments. The
environment of business conditions that interplay in the
competitiveness if the firm must analyzed one term of data available
to the firm. Globalization and the international market for product
and services have changed greatly the landscape of business. The firm
compete not only with multinational corporation but also with new
entrants and small players. The country’s barriers no longer restrict
structures in the flow of goods, and it enhances the chances of
success for new ventures as well as the well-established firms.
Firms with similar products and services develop strategic groupings
and intense competition exist. The extent of technological
development, product leaderships, quality, pricing policy, distribution
channels, and customer’s service are some of the strategic dimensions
that interplay for each firm’s competitive advantage. Groups in the
industry remain stable overtime in performance and analysis of their
competitive strategy could be made easier for other groups within the
industry.
Implication for strategic analysis:
• Firms supply and service the same kind of customers.
• The strength of the five industry forces affecting firm.
• The similarities of strategies develop greater rivalry among firms.
 Analysis of the Industry Competition
• The competitors environment is the final stage in the analysis as it
directly affect the firm’s position in the industry. The intense rivalry
creates a strong need to understand the moves of the competitors.
The firms must be able to develop counteraction and strategy in order
to remain afloat in the industry. Critical to an effective analysis of the
competitors moves is the gathering of data and information that can
help the firm understand its competitors intension and strategic
actions. To gather the needed information, the firm must set up
Competitor intelligence network that will provide data and
information as baseline for counter strategic actions.
 The firm must be able to seek the following
information:
• The competitors future objectives.
• The competitors current strategic actions
• The competitors assumptions about the industry
• The competitors strength and capabilities or their
weakness
• The government policy for the global market.