BST - External Analysis (4)/(5) Flashcards
2 models that relate to the macro environment (the world)
PESTEL and Porter’s Diamond
The macro environment consists of external factors that affect the
overall environment that the business operates in
The industry environment consists of external factors affecting
the competitiveness of the industry
1 model that relates to the industry environment
Porter’s 5 forces
What does PESTEL stand for?
Political
Economic
Social and demographic
Technological
Ecological (environmental)
Legal
PESTEL - potential political issues (3)
Taxation policy
Government spending
Foreign trade regulations
PESTEL - potential economic issues (3)
Economic growth
exchange/interest rates
Inflation
PESTEL - potential Social and demographic issues (3)
Attitudes, tastes and fashions
Population demographics
Income distribution
PESTEL - potential Technological issues (3)
New products
Improved production methods
Rate of obsolescence
PESTEL - potential Ecological / Environmental
issues (3)
Sustainability
Pollution / climate change
Green finance issues
PESTEL - potential Legal issues (3)
Industry regulation
Competition legislation
Employment law
What is PESTEL used for?
To analyse the macro environment (the entire world that the business operates in)
What is Porter’s diamond used for?
to explain why some nations have a competitive advantage in certain industries
What are the 4 things in porter’s diamond?
Demand conditions
Related and supporting industry
Factor conditions
Strategy, structure and rivalry
all four of these lead to a competitive advantage
How do you use porter’s diamond?
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 …
What are the 5 stages of an industry life cycle?
Introduction, Growth, Shakeout, Maturity, Decline
What is the definition of an industry?
A group of organisations supplying a market offering similar products using similar technologies to provide customer benefits.
Industry life cycle: Introduction
A new product or service is invented!
First mover advantage - for the first one to break the market in terms of rep and experience.
Industry life cycle: Growth
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)
Industry life cycle: Shakeout
The market growth begins to slow
Weaker players are forced out / mergers between companies
Industry life cycle: Maturity
Stable period of low growth. Price competition will intensify and small competitors are shook out of the industry.
Why are small competitors shook out of the industry?
Because they have low economies of scale therefore can not compete with price competition like big firms
Industry life cycle: Decline
Sales volumes start to fall as demand falls
Firms leave the industry and eventually it will cease to exist
What can industry life cycles be expanded by?
Product innovation - bringing new versions of products on to the market can keep the industry going.