3 levels to External Analysis
- General Environment
- Industry Environment
- Competitor Environment
Informs firms about the threats and opportunities, i.e., what the firm might or should do.
Internal analysis determines what they can do.
You can evaluate the attractiveness of any industry using Porter’s five forces model. The analysis is done for an entire industry, not for a firm!
The industry environment interacts with the broader external environment.
General Environment components
7 segment analysis - Comparable to PESTEL - Physical, Economic, Demographic, Political/Legal, Tachnological, Global, Sociocultural
- Industry Environment and how to analyse it?
More direct effect on firms strategic competitiveness - evaluate industry competition intensity and profit potential (attractiveness of the industry)
- Use Porters 5 forces
Porters 5 forces
- Threat of new entrants
- Threat of substitutes
3.Bargaining power of suppliers - Bargaining power of buyers
- Rivalry Among existing competitors
Threat of New Entrants
=Barriers to enter + expected retaliation
Raise level of competition and reduces attractiveness
Bargaining power of suppliers
Suppliers are powerful when:
- Few large companies and more concentrated than the industry to which they sell
- No alternatives
- No significant customers to suppliers
- Goods critical to buyers success
- High switching costs
Bargaining Power of Buyers
Buyers Powerful when:
- Purchase large portion of industry total output
- Product sales account for significant part of sellers annual rev
- low switching costs
- Industries products undifferentiated or standardized
The higher the relative bargaining power of the buyer the larger its share of the total value that is created in the value chain
Threat of substitute products
Goods or services outside of a given industry perform the same or similar functions
Intensity of Rivalry Among Competitors
- Numerous or equally balanced competitors
- Slow industry growth
- High fixed costs
- Lack of differentiation or low switching costs
- High exit barriers
- Competitor Environment
Direct and Indirect Competitors
Competitor Environment Analysis
Analyse:
- What drives competition?
- Current strategies - what comp is doing?
- Competitors capabilities (Strengths and Weaknesses)
4 Components of analyzing the External Environment
- Scanning
- Monitoring
- Forecasting
- Assessing
