Chapter 4 - Exploring the External Environment: Macro and Industry Dynamics Flashcards
Why do an external assessment?
Systematically identify & evaluate factors beyond the control of a single firm.
Classify and prioritize Opportunities and Threats.
Assess your firm’s response factors to these factors.
What are the Key External Forces?
PESTEL - Politicall, Economic, Sociocultural, Technological, Environmental, Legal
Industry Environment - Porter’s Five Forces, Value Stream (Supply Chain)
Strategic Group - Competitive Analysis
Political Factors
Stability of the political environment is particularly for companies entering new markets.
Government policies with respects to taxation vary across provincial and national boundaries.
Considerations encompass - treaties NAFTA, ASEAN, EU. Non-members will have less favourable trade terms.
Economic Factors
Inflation rates, interest rates, tariffs, the growth of the local and foreign national economies, and exchange rates are critical
Sociocultural Factors
Vary from country to country.
Local languages, dominant religion, and leisure time, as well as age and lifespan demographics critical.
Attitudes towards consumerism, environmentalism, and the roles of men and woman in local society critical.
Technological Factors
Major bearing on threats and opportunities that companies encounter.
Does tech allow for products and services to be made more cheaply with the same quality?
Does it provide innovation of products and services?
Increased remote use, reduction in communication costs.
How will distribution be impacted?
Environmental Factors
Important to the standpoint of raw materials.
Direct and indirect cost for company, as well as the footprint left on the ecology. Pollution & Waste.
Legal Factors
Reflect the laws and regulations relevant to the region and org.
Government regulates who can operate in certain industries.
Regulates competition.
What is Globalization?
The evolution of distinct geographic product markets into state of globally interdependent product markets.
Porter’s Five Forces
Threat of New Entrants Buying Power Threat of Substitutes Supplier Power Degree of Rivalry Complementors
Degree of Rivalry Force
The act of companies in an industry competing for profit.
Critical determinants is the number of companies and relative size.
Concentration ratio measures this.
Ratio combines revenues of the largest industry participants expressed as a total industry sales.
Threat to New Entrants Barriers
Degree to which new competitors can enter an industry. Barriers are conditions in which it is more difficult to join or compete in an industry.
Barriers 1. economies of scale are found, those companies have greater volume and lower cost per unit than new entrants.
- when products are differentiated, new entrants have to overcome existing brands and customer loyalty.
- when the capital required to enter is high, especially when its high risk, investment in R&D and advertising, hard to raise capital.
- Switching customer is difficult.
- Distribution channels are restricted, cost escalate, not effective.
- Location, learning curve, and proprietary technology, gives the current competition the advantage.
Supplier Power Force
Degree to which companies in the supply industry are able to dictate terms to contracts and thereby extract some of the profit that would otherwise be available to competitors in the focal industry.
Buyer Power Force
Degree to which companies in the buying industry are able to dictate terms on purchase agreements that extract some of the profits that would otherwise go to competitors in the focal industry.
Threat of Substitutes Force
Degree to which products of one industry can satisfy the same demand as those of another.
The prevalence of viable substitute products form other industries places pressures on the prices that the industry can charge, limiting industry profits. When there are no viable substitutes, there is less pressure.
Complementors Force
An industry that provides products or services which tend to increase sales in another industry.
Value Curve
A graphical depiction of how a company and major groups of its competitors are competing across its industry’s factors of completion.
Strategic Group
Subset of companies that, because of similar strategies, resources, and capabilities, compete against one another more intensely than with other companies in an industry.
Embryonic (life cycle)
Niche market - selected products for selected markets.
Participants emphasize problem solving - product as “solution”
Technology uncertains
Growing (life cycle)
Market expands beyond niche
More competitors
Customers become better informed
Mature (life cycle)
Proliferation of products and markets served
Market volatility and beginnings of industry consolidation
Aggressive customers
In Decline (life cycle)
Product/market contraction
Further consolidation and industry regeneration
Industry life cycle
Pattern of evolution followed by an industry inception to current and future states.
Commoditization
Process during industry evolution by which sales eventually come to depend less on unique product features and more on price.
Disruptive technology
Break-through product - or process-related technology that destroys the competencies of incumbent companies industry.
Innovator’s Dilemma
When incumbents avoid investing in innovative and disruptive technologies because those innovations do not satisfy the needs of their mainstream and most profitable clients.
