Introduction to Management and Business Questions: 1. Please describe internal and external business environment affected to business organization 2. Learn and describe '5 Forces Porter' Model Answers: 1. Internal: Capital resources Money is crucial in running a business. Starting from buying capital equipment, paying rent for premises and giving payment to employees, all of them are using money. Thus, access to funding should be prepared from the beginning, whether to take loans in short, medium or long term and how to manage its resources and the selling process to pay those loans to prevent liquidation in the future. Organizational structure It is important for a company to have a clear organizational structure that is not confusing the employees. Through this, employees know whom they need to pass on their work to be checked and to be confirmed and whether it is centralized or decentralized. Thus, the work system can be applied efficiently and effectively to prevent chaos. Human resources This involves the attitude of employees towards work. The more they are motivated to work, productive and have the skills required, the more they are valued as biggest assets for the company. Therefore, more quality of output can be done that will bring excellent reputation to customers. Mission, vision and objectives Having a clear mission, vision and corporate objectives is crucial to a company so all members could plan future activities directly towards the goal, develop the most suitable strategy to gain competitive advantage. External: Legal constraints It is the use of force by government to prevent, restrict and controlling business activities within a country. Legal constraints include the law of employment practices, health and safety law, consumer rights and the law of business competitions. This external business environment is important to follow to prevent any sanctions given by government that contributes to bad image and loss of the business. Changes in technology The use of tools and machinery for productions has changed over the years through the innovation of technology. These changes affect the business in such a way that new technology contributes to efficiency and effectiveness that can replace the need of human resources in a production. Therefore, it helps reduce the cost of paying wages to workers. Social and demographic impact As we can see, the structure of a society is constantly changing which could affect business activity. Such ageing population in a country that has larger portion of the retirement age compared to the young age may cause the changing patterns in demand. This means, a company should make offering goods that suit to its “grey” consumers if this company usually sell goods for the young age. Environmental constraints It is necessary for a business to stay green and being responsible to the environment to develop excellent image to customers. Especially for the manufacturing company, problems such air and noise pollution from manufacturing process, emissions of gases that contributes to global warming and road congestion caused by heavy trucks should be solved right away as it is concerning people and government from all over the world. Consequently, this company should take the consideration of using the latest ‘green’ equipment or recycled material which could gain marketing and promotional advantage. 2. Porter’s Five Forces is a model associated by Michael E. Porter in 1979 that illustrates how industry being influenced by five forces to gain competitive advantage from its rivalry. These five forces are: 1) Barriers to entry This means analysing the ease of entering a market or industry and how the company could survive by competing with those existing businesses that might be well-known by customers. Through this model, usual consideration includes the rate of the economies of scale, government policy, capital requirements, access to inputs and distribution and brand identity. If these factors show negativity that considered as a threat, it is better for the company not to entering those market or industry; vice versa. 2) The power of buyers This means customers’ purchases represent a major portion of a company’s total revenue. What it means is how customers are able to drive down prices through its bargaining power to show their value. For a company, buyer power is high when the number of buyers is high and product is undifferentiated that make cost for customers to switch from competitors is low. 3) The power of suppliers Suppliers surely have power to decide on price offered to a company that determines how much cost needed to purchase materials. The power of suppliers can be said high if their goods been supplied to well-known brand company, the cost of switching is high and few substitute goods for raw materials or suppliers available. 4) The threat of substitutes A substitute good is a good offered by another industry that can be an alternative to a product due to its similar benefit. New development in technology, price competition and increase in consumer spending to a specific significant product are some of the causes the threats of substitution. This threat increases the industry competitiveness in price and making it difficult for a company to achieve higher profitability. 5) Competitive rivalry This force often illustrated as the center of this model as it determined the level of competition in an industry based on the other four forces. Therefore, competitive rivalry is most likely high when suppliers and buyers have great power, there is threat for substitute and the ease of entering an industry. However, the proportion of shares in the market can also lead to competitive rivalry, for example companies in same industry that have more or less similar market share.
