External Analysis
Introduction
 Internal analysis helps to identify the core
competences of the business, while external
analysis, particularly of the
microenvironment, assists in identifying
those industries and markets where the
competences can be applied.
 Industries are centered on the supply of a product
 markets are concerned with the demand.
 Factors in the environment, the industry and
market, will drive the enterprise toward one type
of international strategy  either one that is fully
global or one that makes concessions to localized
customer needs.
 One way of conceptualizing the external
environment is as a network of macro and
microenvironments, all of which are related to
each other.
 Every international enterprise operates within one or
more industries and one or more markets which are
found in more than one country.
Macroenvironment
 Analysis of the macroenvironmemt is
concerned with changes and trends in social
and cultural, demographic, political, legal,
technological, economic and financial factors.
 The macroenvironment can be further
subdivided into both global and local (or
national) elements:
The global macroenvironment  concerned
with global trends.
The national macroenvironment 
concerned with trends and changes at the
level of the individual country
Microenvironment
 The microenvironment, the competitive
environment facing a business, consists of
the industries and markets in which the
organization conducts its business.
 It can be subdivided:
The global microenvironment  concerned
with global industry and market trends.
The national or regional microenvironment
 concerned with national industry and
market trends
 An industry consists of a
 A market comprises the
group of businesses
producing similar outputs
 They expect to share the
following related features:
demand side of an
economic system.
 It is defined in terms of
shared:
 Skills and competences
 Technology
 Products or services
 Process & value-adding
 Customers
activities
 Materials
 Supplier channels
 Distribution channels
 products
 Customer requirements
 Distribution channels
 competitors
 Businesses gain competitive advantage by
developing core competences within an
industry which are then deployed in
markets to satisfy customer demands.
 The success of a business will depend on
its competitive position in both areas of
operation  as a supplier of outputs and as
a buyer of inputs.
Globalization of Industries and Markets
 Industries and markets differ vastly in the extent
to which they are globalized.
 The consumer electronic industry and its markets are
largely globalized.
 Both the market for personal banking and associated
industry providing banking services are still largely
localized.
 Paint industry is largely globalized; packaging,
advertising and brand names are often adapted for
both linguistic and cultural reasons
Yip’s Globalization Drivers
 There are four categories of drivers which
must be analyzed in order to determine the
degree of globalization within an industry
Markets
Cost
Government
Competitive
 Market globalization
drivers
 Customer needs
 Customers and channels
 Marketing
 Leading countries
 Cost globalization drivers
 Economies of scale & scope
 Experience curve
 Sourcing
 Logistics
 Country costs, productivity
and skills
 Product life cycle and
product development costs
 Gov. globalization drivers
 Trade policies
 Technical standards
 Marketing regulations
 Gov.-owned competitors
 Gov.-owned customers
 Host Gov. concerns
 Competitive globalization
drivers
 Exports and imports
 Competitors
 Interdependence of countries
Cost
drivers
Potential
for
globalization
Competitive
drivers
Economic
and
financial
factors
Market
drivers
Technological
factors
Social and
demographic
factors
Government
drivers
Political
and legal
factors
The macroenvironment and globalization drivers
Advantage of using Yip’s framework
 It allows identification of those drivers that are
global and those that are local, so that the
attributes of transnational strategy can be tailored
to match the drivers.
 It can be used to analyze both industry and market
 It can be mapped onto Porter’s five forces
 Changes in the drivers can be indicated by
macroenvironmental analysis.
 It assists in the identification of the critical success
factors of a global industry and market
Industry Analysis
Threats of substitute
products
Bargaining
power of
suppliers
Intensity of rivalry in the industry
Threats from new
entrants
Porter’s five-forces framework
Bargaining
power of
buyers
Market Analysis
 Market segmentation analysis
 Customer motivation
 Sensitivity to price
 Sensitivity to quality
 The extent of brand loyalty
 Unmet need
 In addition to above analyses, Porter’s five-
forces framework can also be applied to a
market or submarket within an industry.
Change
Firm strategy
structure and
rivalry
Demand
conditions
Factor
conditions
Related and
supporting
industries
Government
Determinants of national competitive advantage – Porter’s diamond