The External

Environment:
Opportunities,
Threats, Industry
Competition, and
Competitor Analysis
STRATEGIC MANAGEMENT
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 External Analysis

Analyzing the
External
Environment of the
Firm

STRATEGIC MANAGEMENT
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 Components of the General Environment
Economic

Demographic
Sociocultural
Industry
Environment

Competitive
Environment
Political/
Legal Global

Technological
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 The macro-environment

•is the assessment of the external forces that act upon the
firm and its customers, that create threats & opportunities

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 The General Environment

• General environmental
General
Environmen trends and events
t
• Little ability to predict them
• Even less ability to control
Demographic them
Sociocultural
Political/Legal • Can vary across industries
Technological
Economic
Global

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 Demographic Segment

• Aging population
General
• Rising affluence
Environmen
t • Changes in ethnic composition
• Geographic distribution of population

Demographic • Greater disparities in income levels

Sociocultural
Political/Legal
Technological
Economic
Global

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 Sociocultural Segment

• More women in the workforce

General
• Increase in temporary workers
Environmen
t • Greater concern for fitness
• Greater concern for environment

Demographic • Postponement of family formation

Sociocultural
Political/Legal
Technological
Economic
Global

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 Political/Legal Segment

• Reformations
General
Environmen
t
• Deregulation
• Taxation at local, state,
Demographic
central levels
Sociocultural • Legislation on corporate
Political/Legal
Technological governance reforms
Economic
Global

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 Technological Segment
• Genetic engineering
General • Emergence of Internet technology
Environmen
t • Computer-aided design/computer-
aided manufacturing systems
(CAD/CAM)
Demographic • Research in synthetic and exotic
Sociocultural materials
Political/Legal • Pollution/global warming
Technological • Miniaturization of computing
Economic technologies
Global
• Wireless technology

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 Economic Segment

• Interest rates
General
• Unemployment
Environmen
t • Consumer Price index
• Trends in GDP

Demographic • Changes in stock market valuations

Sociocultural
Political/Legal
Technological
Economic
Global

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 Global Segment

• Increasing global trade

General
• Currency exchange rates
Environmen
t • Emergence of the Indian and Chinese
economies
• Trade agreements among regional
Demographic blocs (NAFTA, EU, ASEAN)
Sociocultural
Political/Legal • Creation of WTO (decreasing
Technological tariffs/free trade in services)
Economic
Global

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 The Competitive Environment

• Sometimes called the task

Competitive
Environmen
or industry environment
t
• Includes
• Competitors (existing and
Competitors potential)
Customers • Customers
Suppliers
• Suppliers
• Porter’s five-forces model

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 In order to understand Marketing let us
begin with the Marketing Triangle

Customers

Company Competition

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 SWOT Analysis

• Managers need to analyze

• The general environment
• The firm’s industry and competitive environment
• SWOT analysis
• Strengths
• Weaknesses
• Opportunities
• Threats
• Basic technique for analyzing firm and industry
conditions

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 SWOT Analysis
• Strengths
• Weaknesses
• Opportunities
• Threats

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 The purpose of SWOT Analysis
• It is an easy-to-use tool for developing
an overview of a company’s strategic
situation
• It forms a basis for matching your
company’s strategy to its situation

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 SWOT is the starting point
• It provides an overview of the strategic
situation.
• It provides the “raw material” to do
more extensive internal and external
analysis.

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 Opportunities
• An OPPORTUNITY is a chance for firm
growth or progress due to a favorable
juncture of circumstances in the business
environment.
• Possible Opportunities:
• Emerging customer needs
• Quality Improvements
• Expanding global markets
• Vertical Integration
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 Threats
• A THREAT is a factor in your company’s
external environment that poses a
danger to its well-being.
• Possible Threats:
• New entry by competitors
• Changing demographics/shifting demand
• Emergence of cheaper technologies
• Regulatory requirements

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 Opportunities and Threats form a
basis for EXTERNAL analysis
• By examining opportunities, you can
discover untapped markets, and new
products or technologies, or identify
potential avenues for diversification.
• By examining threats, you can identify
unfavorable market shifts or changes in
technology, and create a defensive
posture aimed at preserving your
competitive position.
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 The purpose of
Five-Forces Analysis

• The five forces are environmental

forces that impact on a company’s
ability to compete in a given market.
• The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.

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 Porter’s Five Forces Model of Industry
Competition

Threat of
new entrants

Bargaining power Bargaining

of suppliers power of buyers

Threat of
Substitute products
and services

Adapted from Porter’s Five Forces Model of Industry Competition

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 The Threat of New Entrants

• Profits of established firms may be

eroded by new competitors
• High entry barriers lead to low
threat of new entries
• Economies of scale
• Product differentiation
• Capital requirements
• Cost disadvantages independent of size
• Access to distribution channels
• Government policy

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 The Bargaining Power of Suppliers

• Suppliers can exert power by

threatening to raise prices or
reduce the quality of purchased
goods and services

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 The Bargaining Power of Suppliers

• A supplier group will be powerful

when
• The supplier group is dominated
by a few companies and is more
concentrated than the industry
it sells to
• The supplier group’s products are differentiated or it
has built up switching costs for the buyer
• The supplier group is not obliged to contend with
substitute products for sale to the industry

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 The Bargaining Power of Suppliers

• A supplier group will be powerful

when
• The supplier’s product is an
important input to the buyer’s
business
• The supplier group poses a credible threat of
forward integration
• The industry is not an important customer of the
supplier group

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 The Bargaining Power of Buyers

• Buyers threaten an industry

• Force down prices
• Bargain for higher quality or more
services
• Play competitors against each
other

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 The Bargaining Power of Buyers

• A buyer group is powerful when

• It is concentrated or purchases
large volumes relative to seller sales
• The products it purchases from the
industry are standard or undifferentiated
• The products its purchases from the industry form a
component of its product and represent a significant
fraction of its cost
• It earns low profits

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 The Bargaining Power of Buyers

• A buyer group is powerful when

• The industry’s product is
unimportant to the quality of the
buyer’s products or services
• The industry’s product does not save
the buyer money
• The buyers pose a credible threat
of backward integration

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 The Threat of Substitutes
• Substitutes limit the potential
returns of an industry
• Ceiling on the prices that firms
in that industry can profitably charge
• Price/performance ratio

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 The Intensity of Rivalry
• Jockeying for position
• Price competition
• Advertising battles
• Product introductions
• Increased customer service or warranties

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 The Intensity of Rivalry
• Interacting factors lead to
intense rivalry
• Numerous or equally balanced
competitors
• Slow industry growth
• Lack of differentiation or switching costs
• High fixed or storage costs
• Capacity augmented in large increments
• High exit barriers
• Diverse strategies or “personalities” of rivals
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 Implications of Five-Forces Analysis

• The stronger the five forces collectively,

the weaker the industry’s profit potential.
• Business-level strategic responses:
• Positioning the company (defensive)
• Influencing the balance of the forces (offensive)
• Exploiting industry change

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 The Five Forces are Unique to
Your Industry

• Five-Forces Analysis is a framework for

analyzing a particular industry.
• Yet, the five forces affect all the other
businesses in that industry.

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 Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firm’s Competitors

Industry
Environment

Competitive
Environment

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 Competitor Analysis
Assumptions
What assumptions do our
competitors hold about the future Response
of industry and themselves?
What will our
Current Strategy competitors do in the
Does our current strategy support future?
changes in the competitive Where do we have a
environment? competitive
Future Objectives advantage?
How do our goals compare to our How will this change
competitors’ goals? our relationship with
our competition?
Capabilities
How do our capabilities compare
to our competitors?
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 Competitor Analysis
Future Objectives What Drives the
How do our goals competitor?
compare to our
competitors’
Where will emphasis
goals? be
placed in the future?
What is the attitude
toward risk?

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 Competitor Analysis
Future Objectives What is the competitor doing?
How do our goals What can the competitor do?
compare to our
Where Current
competitors’ goals?Strategy
will emphasis be
placed inHow
the future?
are we currently
What is the attitude
competing?
toward risk?
Does this strategy
support changes in the
competitive structure?

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 Competitor Analysis
Future Objectives What does the competitor believe
How do our goals about itself and the industry?
compare to our
Where Current
competitors’ goals?Strategy
will emphasis be
placed in the future?
How are we currently
What is the attitude
competing?
toward risk? Assumptions
Does thisDo
strategy
we assume the future
support changes in the
will be volatile?
competition
What structure?
assumptions do our
competitors hold about the
industry and themselves?
Are we assuming stable
competitive conditions?

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 Competitor Analysis
Future Objectives What are the competitor’s
How do our goals capabilities?
compare to our
competitors’
Where Current goals?Strategy
will emphasis be
placed in the future?
How are we currently
What is the attitude
competing?
toward risk? Assumptions
Does this Dostrategy
we assume the future
supportwill changes in the
be volatile?
competition Whatstructure?
assumptions do our
competitors Capabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating under
strengths and weaknesses?
a status quo?
How do our capabilities
compare to our
competitors?
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 Competitor Analysis
Future Objectives Response
How do our goals What will our competitors
compare to our do in the future?
competitors’
Where Current goals?Strategy
will emphasis be Where do we have a
placed in the future? competitive advantage?
How are we currently
What is the attitude
competing? How will this change our
toward risk? Assumptions relationship with our
Does this Dostrategy
we assume the future competition?
supportwill changes in the
be volatile?
competition Whatstructure?
assumptions do our
competitors Capabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating
strengths under and weaknesses?
a status quo?
How do our capabilities
compare to our
competitors?
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 Factors
Influencin
g
Company’
s
Marketing
Strategy

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 CONTENTS of MARKETING
PLAN
Business Mission Statement
•

• Objectives
• Situation Analysis (SWOT)
• Marketing Strategy
• Target Market Strategy
• Marketing Mix
 Positioning
 Product
 Promotion
 Price
 Place – Distribution
 People
 Process
• Implementation, Evaluation and Control

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The Marketing Process
Business
Mission
Stateme
nt

Objectiv
es

Situation
or SWOT
Analysis

Marketing Strategy
Target Market
Strategy

Marketing Mix
Product Place/Distribution

Promotion Price

Implementation
Evaluation,
Control
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 Business Strategic-Planning
Process
External environment
(Opportunity &
Threat analysis)

Business Mission Goal Formulation

Internal Environment

(Strength/ Weakness analysis)

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 Strategy Formulation
Environmental Analysis

Competitor Internal Analysis

Customer
Supplier Technology Know-How
Regulatory Manufacturing Know-How
Social/ Political Marketing Know-How
Distribution Know-How
Logistics
Opportunities & Threats
Strength & Weaknesses

Identity Core Competencies

Identify opportunity

Fit internal Competencies with external opportunities

Firm Strategies
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 Why Market Leaders
Suffered ?
 HMT vs. Titan
 HLL vs. Nirma
 Bajaj vs. Honda
 Market leadership today cannot be taken for
granted.New and more efficient companies are
able to upstage leaders in a much shorter period.

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