Chapter 4 - The external environment

Question 1

What is the macro-environment?

Answer 1

Broad factors that can affect all businesses

Question 2

What does PESTEL analysis do?

Answer 2

Analyses the external business environment

• Political - government decisions
• Economical - economic cycle
• Social - demographics, trends
• Technological
• Environmental
• Legal - laws and regulation

Question 3

What does Porter’s diamond do?

Answer 3

Identifies that some nations’ industries are more successful than others due to four key factors that determine attractiveness.

• Factor conditions (basic and advanced)
• Demand conditions
• Related and supported industries
• Strategy, structure and competitive rivalry

Question 4

What are factor conditions?

Answer 4

Relates to a country’s resources

• Basic factors are basic pre-conditions which are needed for industry to be successful e.g. natural resources, climate, unskilled labour
• Advanced factors create a competitive advantage e.g. infrastructure and communications, higher education, skilled employees

Question 5

What are demand conditions?

Answer 5

A tough domestic market encourages competitiveness and high-quality, cost-efficient goods.

Question 6

What are related and supporting industries?

Answer 6

A good local supply chain contributing to quality and cost advantages

Question 7

what is firm strategy, structure and rivalry?

Answer 7

Cultural factors, social attitudes and management styles. Intense rivalry means they need to perform well to survive.

Question 8

What does Porter’s five forces do?

Answer 8

Argues that the level of profit that can be sustained in an industry is influenced by the competition. The stronger the forces, the lower the level of profit.

Question 9

What are Porter’s five forces?

Answer 9

• Threat of new entrants - barriers to entry
• Power of suppliers - strong power = higher prices
• Power of buyers - strong power = lower prices
• Threat of substitutes
• Competition and rivalry - intense competition reduces profits
• Complementors can be considered - an organisation that enhances your business attractiveness

Question 10

What are the stages of the industry life cycle?

Answer 10

• Development
• Growth
• Shakeout
• Maturity
• Decline

Question 11

What are critical success factors?

Answer 11

Aspects of a product that are particularly valued by customers.

Question 12

What is scenario planning?

Answer 12

Constructing plausible views of how the business environment might develop in the future.

Question 13

What are the stages in scenario planning?

Answer 13

1. Identify key areas of uncertainty
2. Construct scenarios based on areas
3. Assess potential impact of different scenarios
4. Develop strategies to adopt in different scenarios.