BST - External Analysis (4)/(5)

Question 1

2 models that relate to the macro environment (the world)

Answer 1

PESTEL and Porter’s Diamond

Question 2

The macro environment consists of external factors that affect the

Answer 2

overall environment that the business operates in

Question 3

The industry environment consists of external factors affecting

Answer 3

the competitiveness of the industry

Question 4

1 model that relates to the industry environment

Answer 4

Porter’s 5 forces

Question 5

What does PESTEL stand for?

Answer 5

Political
Economic
Social and demographic
Technological
Ecological (environmental)
Legal

Question 6

PESTEL - potential political issues (3)

Answer 6

Taxation policy
Government spending
Foreign trade regulations

Question 7

PESTEL - potential economic issues (3)

Answer 7

Economic growth
exchange/interest rates
Inflation

Question 8

PESTEL - potential Social and demographic issues (3)

Answer 8

Attitudes, tastes and fashions
Population demographics
Income distribution

Question 9

PESTEL - potential Technological issues (3)

Answer 9

New products
Improved production methods
Rate of obsolescence

Question 10

PESTEL - potential Ecological / Environmental
issues (3)

Answer 10

Sustainability
Pollution / climate change
Green finance issues

Question 11

PESTEL - potential Legal issues (3)

Answer 11

Industry regulation
Competition legislation
Employment law

Question 12

What is PESTEL used for?

Answer 12

To analyse the macro environment (the entire world that the business operates in)

Question 13

What is Porter’s diamond used for?

Answer 13

to explain why some nations have a competitive advantage in certain industries

Question 14

What are the 4 things in porter’s diamond?

Answer 14

Demand conditions
Related and supporting industry
Factor conditions
Strategy, structure and rivalry

all four of these lead to a competitive advantage

Question 15

How do you use porter’s diamond?

Answer 15

Heading for each of the categories -
we need to be able to say what we think the demand conditions are - why is there such a demand for these products in this country? SUPPLY SIDE
we need to be able to say what the strategy, structure and rivalry is and why we think this helps towards the advantage they have. AKA japan have loads of car manufacturers, as a result of this each one has had to fight for customers… Fact compare because
What were the factor conditions? Aka the lack of natural resources made a gap in the market.. it led to the introduction of new manufacturing systems which led to reduced costs. Research and development points??
Related and supporting industries - what industries also made this successful? aka the tech industry in japan helped to accelerate the car making industry by …

Question 16

What are the 5 stages of an industry life cycle?

Answer 16

Introduction, Growth, Shakeout, Maturity, Decline

Question 17

What is the definition of an industry?

Answer 17

A group of organisations supplying a market offering similar products using similar technologies to provide customer benefits.

Question 18

Industry life cycle: Introduction

Answer 18

A new product or service is invented!
First mover advantage - for the first one to break the market in terms of rep and experience.

Question 19

Industry life cycle: Growth

Answer 19

Rapid growth of the industry. The market becomes attractive to new entrants and competitive rivalry is low as firms are experiencing growth without having to increase market share (as the entire industry is growing)

Question 20

Industry life cycle: Shakeout

Answer 20

The market growth begins to slow
Weaker players are forced out / mergers between companies

Question 21

Industry life cycle: Maturity

Answer 21

Stable period of low growth. Price competition will intensify and small competitors are shook out of the industry.

Question 22

Why are small competitors shook out of the industry?

Answer 22

Because they have low economies of scale therefore can not compete with price competition like big firms

Question 23

Industry life cycle: Decline

Answer 23

Sales volumes start to fall as demand falls
Firms leave the industry and eventually it will cease to exist

Question 24

What can industry life cycles be expanded by?

Answer 24

Product innovation - bringing new versions of products on to the market can keep the industry going.

Question 25

What does Porter’s five forces do?

Answer 25

assess the attractiveness of an industry in terms of long run profitability

Question 26

What do we find out from porter’s five forces?

Answer 26

Whether we should enter an industry or not

Question 27

What is in the centre of porter’s 5 forces?

Answer 27

Competitive rivalry (among existing firms)

Question 28

What is competitive rivalry considering?

Answer 28

How intense the competition is between existing players in the market

Question 29

What are the 4 arrows around porters 5 forces?

Answer 29

Threat of new entrants
Threat of substitutes
Power of customers
Power of suppliers

Question 30

What do we consider with the threat of new entrants? (P5F)

Answer 30

How likely is it that new players will enter the market? Is the market attractive? What are the barriers to entering?

Question 31

What do we consider with threat of substitutes? (P5F)

Answer 31

Are substitutes available and are consumers likely to switch to them?
This is about the product!
Are there substitutes available, what could draw consumers to them instead?

Question 32

What do we consider with Power of customers? (P5F)

Answer 32

Do customers have enough bargaining power to push down prices?

Yes if there are small numbers of larger customers (bulk)
Large numbers of competitors
Low levels of product differentiation
Low switching costs
the customers own profitability is low

Question 33

What do we consider with Power os suppliers? (P5F)

Answer 33

Do suppliers have enough bargaining power to increase their prices?
Aka providers of raw materials
service providers and outsourced services
Employees and hire workers