(PAPER 2) 3.1.4 impact of external influences Flashcards
PESTLE analysis definition
an effective way to analyse key features of the external environment. its an extension of SWOT analysis as it looks at the opportunities and threats that a business is exposed to
PESTLE acronym
Political Economic Social Technology Legal Environmental
POLITICAL
- competition policy
- industry regulation
- government spending and tax policies
- business policy and incentives
ECONOMIC
- interest rates
- consumer spending and income
- exchange rates
- economic growth (GDP)
SOCIAL
- demographic change
- impact of pressure groups
- consumer tastes and fashion
- changing lifestyles
TECHNOLOGICAL
- disruptive technologies
- adoption of mobile technology
- new production processes
- big data and dynamic pricing
LEGAL
- employment law
- minimum/living wage
- health and safety laws
- environmental legislation
ENVIRONMENTAL
- sustainability
- recycling
- ethical sourcing (supply chain)
- pollution and carbon emissions
the structure of the market:
competition definition
the rivalry that exists between businesses when trying to sell goods in a particular market
the structure of the market:
competitive market definition
a large number of buyers and sellers and the products are close substitutes
the structure of the market:
uncompetitive markets definition
dominated by a single producer (monopoly) or just a few large businesses (oligopoly)
competitive market
- low barriers to entry
- little control over price
- lots of information e.g. price comparison sites, freedom of introduction
- difficult to exploit customers
uncompetitive markets
- high barriers to entry
- high control over price
- less information
- easy to exploit customers
the impact on businesses of a new changing environment
- new entrants: existing businesses will need to consider their position e.g. offering online services
- new products: existing businesses will need to make changes to their own products, lower their prices or invest in a marketing campaign
- consolidation: if competitors are buying up the competition, existing businesses may need to do the same or look to develop their products, diversify or cut their costs
porters strategic matrix for competitive advantage definition
this matrix is a model that looks at strategies that can be adopted by a business to gain competitive advantage
competitive advantage definition
an advantage over competitors gained by offering consumers greater value, either by the means of lower prices or by providing greater benefits and and services that justifies higher prices
porters 5 forces that determine industry’s attractiveness and long-run industry profitability e.g. “the 5 forces”
- threat of entry of new competitors
- the threats of substitutes
- the bargaining power of buyers
- the bargaining power of supplies
- the degree of rivalry between existing competitors
threat of new entrants
- rise level of competition- so reducing businesses attractiveness
- threat of new entrants depends on the barriers to entry
key barriers to entry:
- economies of scale
- capital/investment requirements
- access to the industries distribution channels
- retaliation from existing businesses
threat of substitutes
- can lower industry’s attractiveness and profitability because they limit price levels
threat of substitute products depends on:
- buyers willingness to substitutes
- the relative price and performance of substitutes
- the cost of switching to substitutes
bargaining power of suppliers
suppliers are the businesses that supply materials and other products into the industry- cost of items bought from suppliers e.g. raw materials- have significant impact on companies profitability- if suppliers have high bargaining power over a company, then in theory the companies industry is less attractive
bargaining power of suppliers will be high when:
- there are many buyers but only a few dominant suppliers
- there are few resources that they supply
- suppliers threaten to integrate forward into the industry
Bargaining power of buyers
Buyers are the people or organisations that creare demand in an industry
The bargaining power of buyers is greater when
- there are a few dominant buyers and many sellers in the industry
- products are standardised
- buyers threaten to integrare backwards into the industry
- suppliers do not threaten to integrate forward into the buyer’s industry
- the size of the order is high
Intensity of rivalry
The intensity of rivalry between competitors in an industry will depend on
- the structure of competition e.g. more rivalry when there are many equally sized competitors, rivalry is less when there is a market leader
- the structure of industry costs: industries with high fixed costs encourage competitors to to fill unused capacity by price cutting
- degree of differentiation: competitors who differentiate= less rivalry
- switching costs: by something form one place, another from the other, diff prices..
- strategic objectives: aggressive growth strategies= rivalry more intense
- exit barriers: when barriers to oeaving an industry are high= competitors exhibit greater rivalry
When the collective strength of those 5 forces are favourable
A business will be able to maximise profitibility in an attractive industry
When the collective strengths of the 5 forces are unfavourable
A business will make littel profit in an attractive industry
