bg strategic management chapter 3 2847

CHAPTER 3 EXTERNAL ENVIRONMENT ANALYSIS Strategic Management Department 9/16/202250 http //images google com vn/imgres?imgurl=http //www johnwiley com au/highered/stratmgt2e/0470809299 jpg&imgrefurl=h[.]

CHAPTER 3 EXTERNAL ENVIRONMENT ANALYSIS

“To assure victory, always carefully survey the field

before battle.”

- Sun Tzu

3.1.1 Definition

 Definition: External environment is defined as a complex and continuous set

of factors, forces and constraints that have a decisive influence on the

existence, operation and effectiveness of a business in its market

3.1.2 Structure

External environment structure:

 Macro environment: includes macro forces that influence the strategic

decisions in the long-term of businesses For example: economic forces,

political forces, social forces, etc

 Industry environment (micro-environment): is the environment in which

includes a set of factors that directly affect the business and is alsoinfluenced by the business For example: suppliers, competitors; customers,

etc

POLITICAL, GOVERNMENTAL, LEGAL FORCES

ECONOMIC FACTORS

CULTURAL FACTORS

SOCIO-TECHNOLOGICAL FACTORS

ENTERPRISE

Stake-holders Customers

General public

Special interest goups

Macro analysis

 Economic forces

 Political and legal forces

 Socio-cultural forces

 Technological forces

3.2.2 Political and legal forces

 Political stability

 Role and attitude of the Government toward international business

 The law system

 The court system

3.2.3 Socio-cultural forces

 Number of special interest groups

 Standards and value

 Language and religion

 Population and childbearing rates

 Aging population

 Number of births and deaths

 Number of marriages and divorces

 Speed of urbanization

 Business practice and behavior

3.2.4 Technological forces

 Be aware of technological changes

 Technological forecasting

 Impacts of Industrial Revolution 4.0

 Opportunities and threats of Internet

3.3.1 Definition and classification

 Definition

 Industry is a group of companies offering the similar or substitutable

products that can meet customer’s needs

 Sector is a group of industries that closely related to each other.

Industry analysis begins with focusing on an overall industry before

looking at the issues at the business level or segmentations.

 Vertical integration level

3.3.1 Definition and classification (cont.)

3.3.2 Porter five-forces industry analysis

Industry analysis

 Industry’s life cycle analysis

 Strategic groups analysis

 Transfer barriers

 Types of strategy analysis

• The perfect competition model: the rate of profit adjustment according

to the risk level is equivalent between enterprises and industries

• However, most of the research has confirmed that: different industries can

maintain different levels of profitability

• Reason: Different industries have different structures.

a Competitive rivalry in the industry

Is the major determinant of how competitive and profitable

an industry is

In competitive industry, firms have to compete aggressively

for a market share  low profits

Rivalry among competitors is intense when:

 There are many competitors

 Exit barriers are high

 Industry growth is slow or negative

 Products are not differentiated and can be easily substituted

 Competitors are of equal size

b Bargaining power of suppliers

 Strong bargaining power of suppliers  Sell higher priced/

low quality raw materials  directly affect the buying firm’s profits (have to more for the materials)

 Suppliers have strong bargaining power when:

 There are few suppliers but many buyers

 Suppliers are large and threaten to forward integration

 Few substitutions

 Suppliers hold scare resources

 Considerably high cost of switching

Bargaining power of suppliers

The more bargaining power the suppliers have, the more profit

they get

The percentage of diamond suppliers in the market

DeBeers

Other suppliers

50

Diamond retailers

50

c Bargaining power of buyers

 Customers have strong bargaining power  buy at lower price/ higher product quality  lower revenue for the producers (sell at lower price/ production cost increase)

 Buyers have strong bargaining power when:

 Buying in large quantities or control many access points to the final customer

 Few existing customers

 Low switching costs to other suppliers

 They threaten to backward integrate

 There are many substitutions

 Customers are price sensitive

d Threat of new entrants

Determine how easy (or not) to enter a particular industry

More profitable and fewer barriers to entry  easier and quicker to enter  reduce market share and profit 

essential to create barriers to enter (to prevent new entrants)

 Threat of new entrants is high when:

 Low amount of capital is required to enter the market

 Existing companies can do little to retaliate

 Existing firms have no patents, trademarks or established brand reputation

 There is no government regulation

 Customer loyalty is low

 Products are nearly identical

 Economies of scale can be easily achieved

e Threat of substitutes

 Substitutable products have lower price/ better quality + easy for buyers to find + low switching costs  high threat.

Determining factors:

 If the customer’s switching cost is low

 If the substitutes are cheaper

 If the substitutes product has higher quality

 If the functions, attributes, or performance of the substitute product are as good or better

3.4.1 Stages of establishing EFAS

Step 1 : Make a list of identified critical success factors (from 10 to 20

factors)

Step 2 : Assign a weight to each factor The sum of all weights must

equal 1.0

Step 3 : Assign a 1-4 rating to each critical factor to indicate how

effectively the firm’s currents strategies respond to the factor

Step 4 : Multiply each factor by its rating to determine a weighted score.

3.4.2 EFAS framework

Do you have any questions?