External Analysis: The Identification Of Opportunities And Threats

Question 1

List the competitive forces (4)

Answer 1

• risk of entry
• bargaining power of suppliers
• threat of substitution
• power of complement providers
• bargaining power of buyers

Question 2

List factors that contribute too risk of entry by competitors (4)

Answer 2

• potential competitors
• economies of scale
• brand loyalty
• absolute cost advantage
• switching costs
• government regulations

Question 3

Discuss the rivalry among established companies

Answer 3

• Competitive struggle between organisations in an industry for the purpose of gaining market share
• Factors that influence established organisations
• the industry’s competitive structure
• demand conditions
• cost conditions
• exit barriers

Question 4

Compare the bargaining power of buyers and suppliers

Answer 4

• bargaining power of Buyers
• choose the sellers from which they will purchase in large quantities
• supplier industry dependent on buyers for a significant amount of the profit
• availability of several companies and low switching costs allows buyers to put companies against each other
• buyers pose a threat of entering the industry based on their involvement and view on the industry, product, or service
• bargaining power ofSuppliers
• may produce product with no substitute
• no dependance on one particular industry for their sales
• companies would incur high switching costs if they moved to different supplier
• threat of entering customers’ industry and knowledge that companies cannot enter the suppliers’ industry.

Question 5

Define substitute products and complementors

Answer 5

• substitute products: products from different businesses that satisfy similar customer needs
• essential step is limiting the price that an industry can charge for their product
• complementors: companies that sell products that are able to add value to other/main products
• strong complementors provide increased opportunity for creating value
• weak complementor

Question 6

What is product positioning determined by?

Answer 6

• product quality
• distribution channels and market segments served
• technological leadership
• pricing and advertising policy
• promotions offered

Question 7

What are the implications of strategic groups

Answer 7

• Since all companies in a strategic group pursue a similar strategy:
• customers view them as direct substitutes for each other
• immediate threats are rivals in company’s own strategic group
• Different strategic groups have different relationships to each of the competitive forces

Question 8

Describe mobility barriers

Answer 8

• Internal barriers that inhibit the movement of companies between strategic groups
• Managers must:
• determine if program cost-effective enough to overcome mobility barriers
• other companies become competition if they overcome mobility barriers

Question 9

List the stages an Industry life-cycle analysis (4)

Answer 9

Embryonic industry
Growth industry
Industry shakeout 
Mature industry
Declining industry

Question 10

What are the limitations of models for industry analysis

Answer 10

• life cycle issues

* industries do

Question 11

List the macro economic forces that the external analysis takes into account (4)

Answer 11

• Growth rate of economy
• Interest rates
• Currency exchange rates
• Inflation or deflation rates

Question 12

What are the global and technological forces

Answer 12

• global forces: falling barriers of international trade have enabled
• domestic markets enter into foreign markets
• foreign enterprises enter domestic markets
• technological change can:
• make products obsolete
• create a range of new product possibilities
• reshape industry structure
• impact the level of barrier entry

Question 13

Describe the demographic, social and political forces

Answer 13

• demographic forces: the result of changes in the characteristics of a population
• social forces: change in social morals and values that affect industry
• political and legal forces: outcomes of changes in policies and regulations

Question 14

Define an industry, sector, and market segment

Answer 14

• industry: a specific group of companies offering products and services that are close substitute for each other
• sector: group of closely related companies
• market segment: a specific group of customers in the market that can be set apart based on their INDIVIDUAL ATTRIBUTES and SPECIFIC DEMANDS