2. The External Environment Flashcards

1
Q

What is a general environment?

A

The broader society that influences industries.

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2
Q

What are the seven environmental segments?

A

1) Demographic
2) Economic
3) Political/legal
4) Sociocultural
5) Technological
6) Global
7) Physical environment

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3
Q

What does a demographic segment entail?

A
  • population size
  • age
  • geographic distribution
  • income distribution
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4
Q

What does an economic segment entail?

A
  • inflation rates
  • interest rates
  • trade deficits/surplus
  • budget deficits/surplus
  • gross domestic product
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5
Q

Define gross domestic product.

A

The total value of goods and services produced by a country in one year.

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6
Q

What does the political/legal segment entail?

A

How firms and governments influence each other.

  • antitrust laws
  • taxes
  • labor training laws
  • policies
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7
Q

What does the sociocultural segment entail?

A

Society’s attitudes and cultural values (e.g. workforce diversity).

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8
Q

What does the technological segment entail?

A

Institutions and activities involved in knowledge processes (e.g. innovation, R&D).

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9
Q

What does the global segment entail?

A
  • critical global markets
  • newly industrialised countries
  • different culture and institutions
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10
Q

How do firms increase internationalisation?

A

Focusing on global niche market.

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11
Q

What does the physical environment segment entail?

A
  • natural resources
  • sustainable technology
  • environmental risk management
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12
Q

Define opportunity.

A

Conditions in the general environment to exploit for competitive advantages.

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13
Q

Define threat.

A

Conditions in the general environment that hinder firm’s competitive advantages.

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14
Q

What are the four parts of the external environment analysis? Elaborate on each part.

A

Scanning: studying all environmental segments

Monitoring: observing environmental changes

Forecasting: future projections of what might happen and how fast

Assessing: determining the time and effects of environmental changes and trends

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15
Q

What is an industry?

A

A group of firms producing products that are close substitutes.

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16
Q

What is an industry environment?

A

Factors that influence a firm - Porter’s five forces.

17
Q

What do Porter’s five forces analyse?

A

Facotrs that influence a firm’s profitability potential.

18
Q

What are Porter’s five forces?

A
  • competitive rivalry
  • bargaining power of buyers
  • bargaining power of suppliers
  • threat of new entrants
  • threat of substitutes
19
Q

What is the likelihood of new entrants based on? Give two answers.

A

1) Barriers to entry

2) Retaliation expected

20
Q

What are the barriers to entry?

A
  • economies of scale
  • product differentiation
  • capital requirements
  • switching costs
  • access to distribution channels
  • incumbents have more cost advantage
  • government policy
21
Q

Describe expected retaliation.

A
  • vigorous retaliation from firms with high stakes in the industry
  • reduced retaliation by locating niche markets without incumbents
22
Q

Supplier power is strong when:

A
  • more concentrated than industry it sells to
  • no substitutes
  • firms are not significant customers
  • high switching costs for firms to other suppliers
  • threat to forward integrate into firm’s industry
23
Q

Buyer power is strong when:

A
  • purchase large portions of industry output
  • product sales are large part of seller’s venue
  • face no switching costs
  • undifferentiated products
  • threat to integrate backwards into supplier industry
24
Q

What factors affect the intensity of rivalry between competitors? Elaborate on them.

A
  • Numerous or balanced competitors: firms fighting for the same customers
  • Slow industry growth: no new customers so attract rival’s customers
  • High fixed costs or high storage costs: maximising productivity leads to excess products which firms get rid of through discounts
  • Lack of differentiation or low switching costs
  • High strategic stakes: sales is vital to a firm
  • High exit barriers: firms continue to invest even though profit is below-average
25
Q

What are exit barriers?

A
  • fixed costs of exit (labor agreements)
  • specialised assets (linked to a business or location)
  • strategic interrelationships (mutual dependence)
  • emotional barriers (loyalty to employees)
  • government and social restrictions (government concern for job losses)
26
Q

Define a strategic group.

A

A group of firms using similar strategies. (high rivalry)

27
Q

What is a competitor analysis?

A

A firm’s interpretation of information on a rival.

28
Q

What do firms seek to understand about their rivals?

A
  • future objectives
  • current strategy
  • their assumptions about the industry
  • capabilities (as seen from strengths, weaknesses)
29
Q

Define competitor intelligence.

A

Data firms gather to understand a rival’s objectives, strategies, assumptions and capabilities.

30
Q

Define complementors.

A

Firms that sell complementary products.