3.1.4 Impact of external influences Flashcards
PESTLE
POLITICAL
ECONOMIC
SOCIAL
TECHNOLOGICAL
LEGAL
ENVIRONMENTAL/ETHICAL
- Sustainability
- Tax practices
- Ethnical sourcing
- Pollution and carbon emmisioms
Pestle =
A frame work for assessing key features of external environment facing a business
Political
POLITICAL
- Competition policy
- Industry regulation
- Govt spending + tax policies
Economic
ECONOMIC
- Interest rates
- Economic growth
- Consumer spending and income
- Exchange rates
Social
SOCIAL
- Demographic change
- Impact of pressure groups
- Consumer tastes and fashions
- Changing lifestyles
Technological
TECHNOLOGICAL
- Disruptive technologies
- Adaptation of mobile tech
- New production processes
- Big data and dynamic pricing
Legal
LEGAL
- Employment law
- Minimum wage
- Health and safety
- Environmental laws
Environmental
ENVIRONMENTAL/ETHICAL
- Sustainability
- Tax practices
- Ethnical sourcing
- Pollution and carbon emmisioms
Porters 5 Forces
Framework that analyses the nature of competition within an industry
Helps understand and assess industry profitability and attractiveness
High profit - soft drinks, pharmaceuticals
Low profit - airlines, cafes
5 FORCES - High and low industry profits associated with:
Low industry profits associated with
- strong suppliers
- strong customers
- low entry buyers
- many opportunities for substitutes
- intense rivalry
Why do airlines make so little profits - very intensive competitor rivalry, low barriers to entry, high fixed costs
High industry profits associated with
- weak suppliers
- weak customers
- high entry barriers
- few substitutes
- little rivalry
Why are profits so high in the soft drinks market - customers and suppliers have little power, high brand awareness, high barriers to entry (coca-cola, Pepsi etc)
5 FORCES - Nature of industry competition
Size Structure Distribution channels Customer needs and wants Growth Product life cycle Alternatives for consumer
The five forces
Porter identifies 5 factors that act together to determine the nature of competition within an industry :
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of customers
- Threat of substitutes
- Intensity of competitive rivalry
5 Forces - threat of entrants
New entrants - gain market share and rivalry will intensify
The position of existing firms is stronger if there are barriers to entering the market
If barriers to entry are low then the threat of new entrants will be high
Examples of successful barriers Investment cost Economies of scale to existing firms Regulatory and legal restrictions USP Access ti suppliers/ distribution channels Retaliation by established products
Easy to enter Common tech Easy access to distribution channels Low capital requirements No need to have high capacity Absence of strong brands
5 Forces - power of suppliers
If suppliers have power they will
- exercise that power
- sell products at a higher price
- squeeze industry profits
powerful when
- there are only a few large suppliers
- resource they supply is scarce
- cost os switching to alternative is high
- product is easy to distinguish
- there are no/few substitute resources
Power determined by Uniqueness Number and size Competition Cost of switching to alternative
5 Forces - Power of customers
Able to drive down prices or increase quality therefore reduce profits
Power of customers determined by
- number of customers (smaller=more power)
- size of their orders (larger = more power)
- Number of firms supplying product
- the threat of integrating backwards
- cost of switching
