PART II STRATEGIC ANALYSIS Chapter 3 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 1



Key Terms

 General environment Composed of dimensions in the broader society that influence an industry and the firms within it  Industry environment Set of factors that directly influence a firm and its competitive actions and competitive responses  Competitor environment Details about direct and indirect competitors and the competitive dynamics expected impact a firm's efforts to generate above-average returns



Key Terms

 Opportunity Condition in the external environment that, if exploited, helps a company achieve value creation  Threat Condition in the general environment that may hinder a company's efforts to achieve value creation



Key Terms

  Scanning Studying all segments in the general environment Monitoring  Observing scanned environmental changes to identify important emerging trends Forecasting  Developing feasible projections of potential events Assessing Determining the timing and significance of the effects of environmental changes and trends on the strategic management of the firm



Key Terms

 Demographic segment Segment of the environment concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution

 Population size  Age structure  Geographic distribution  Ethnic mix  Income distribution



Key Terms

 Economic segment Nature and direction of the economy in which a firm competes or may compete

 Gross National Product (GNP)  Interest rates  Inflation/Deflation  Foreign exchange rates  Trade balances



Key Terms

 Political/legal segment Arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations



Key Terms

 Sociocultural segment Segment of the environment concerned with a society's attitudes and cultural values

        Healthcare Workforce diversity Changing attitudes toward work Saving and retirement planning Concern for the environment Concern for quality of work life Residential decisions Shifts in product/service preferences



Key Terms

 Technological segment Segment of the environment that includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials

 Rapid pace of technological change  Impact of the Internet on business practices  Impact of wireless communications on business practices.

 Internal development versus external sources of new technology



Key Terms

 Global segment Segment of the environment that includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets

  Increase and ease in the flow of goods, services, financial capital, and knowledge across borders Opening of economically maturing markets  Extended reach and potential for firms

 The low cost of goods developed in countries with extremely low wage rates threatens industries in higher wage nations.

 There are risks are associated with investing in less economically mature markets.

 Different sociocultural and institutional attributes need to be recognized when expanding into global markets.



Key Terms

 Physical environment segment Segment of the environment that involves changes to the physical environment and business practices to respond to or prevent those changes



Key Terms

 Industry  Group of firms producing products that are close substitutes Market microstructure Term referring to competition for the a group of customers who value location and firm capabilities when making buying decisions

     Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Threat of substitute products Intensity of rivalry among competitors

  Threat to current competitors  Market share   Production capacity Earnings Likelihood of entry  Barriers  Expected retaliation

        Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost advantages independent of scale Government policy Expected retaliation

 Supplier concentration  No substitutes  Small customers  Critical product  High switching cost  Threat of forward integration

 Large buyers in industry  Large portion of firm’s sales  Low switching costs  Standardized product  Threat of backward integration

 Few switching costs  Lower price  Equal or higher quality and performance capabilities

Intensifies when a firm is challenged or recognizes an opportunity to improve its market position Visible dimensions: - Price - Quality - Innovation

      Numerous or equally-balanced competitors Slow industry growth High fixed costs or high storage costs Lack of differentiation or low switching costs High strategic stakes High exit barriers



Key Terms

 Complementors Companies that sell complementary goods or services that are compatible with the focal firm's own product or services

Unattractive Industry Low entry barriers Powerful buyers Powerful suppliers Good product substitutes Intense rivalry Attractive Industry High entry barriers Limited buyer power Limited supplier power Poor product substitutes Moderate rivalry

The five forces competitive analysis suggests the attractiveness of an industry and determines the potential for above-average returns over the long-term based on the level of competition observed.



Key Terms

 Strategic group Set of firms emphasizing similar strategic dimensions which result in the use of similar strategies  Strategic dimensions Areas that firms in a strategic group treat similarly

    The strengths of the five industry forces differ across strategic groups. Strategic groups differ in performance.

Strategic group membership remains relatively stable over time, enhancing analysis.

Patterns of competition are evident within strategic groups.

   Intra-strategic group rivalry is more intense than inter-strategic group rivalry.

Organizations in a strategic group:    Occupy similar positions in the market Offer similar goods to a similar set of customers Often use similar production technology and organizational processes The more similar strategies are across strategic groups, the greater the level of expected rivalry.



Key Terms

 Competitor intelligence Set of data and information the firm gathers to better understand and better anticipate competitors' objectives, strategies, assumptions, and capabilities

How can a firm use its “code of ethics” as it analyzes the external environment?

What ethical issues, if any, may be relevant to a firm’s monitoring of its external environment? Does use of the Internet to monitor the environment lead to additional ethical issues? If so, what are they?

What is an ethical issue associated with each segment of a firm’s general environment? Are firms across the globe doing enough to deal with this issue?

Why are ethical practices critical in the relationships between a firm and its suppliers?

In an intense rivalry, especially one that involves competition in the global marketplace, how can the firm gather competitor intelligence ethically while maintaining its competitiveness?

What do you believe determines whether an intelligence-gathering practice is or is not ethical? Do you see this changing as the world’s economies become more interdependent? If so, why? Do you see this changing because of the Internet? If so, how?