HIH Ch. 2 – External Analyses
How does external analysis affect a business' ability to discern strategic opportunities
and threats during a SWOT analysis?
For a company to have properly conducted a SWOT analysis and identified strategic
opportunities and threats an external analysis is essential. It helps in identifying market
trends, consumer wants/needs, rival strategies, and governmental developments.
Businesses can identify possibilities for growth and eliminate risks by comprehending
the external forces. It offers contextual knowledge, aids decision-making, and enables
companies to forecast and assess to market developments. The ability of a corporation
to match its internal resources with external opportunities and dangers is improved by
external analysis, which supports strategic decision-making.
​
Discuss the elements/factors of the General Environment and how trends and changes
in each affects the strategy and performance of businesses.
The general environment is composed of seven environmental segments that influence
the industry and the firms within them. The changes and trends within these segments
influence the business’s strategy and performance. Their are two environments that
separate these seven segments known as the industry environment and the competitor
environment.
The industry environment is a set of four factors that directly pertain to the influence of
the firm and its competitive actions and responses (the threat of new entrants, the
power of suppli- ers, the power of buyers, the threat of product substitutes, and the
intensity of rivalry).
Industry Environment:
1. Demographic Segment: Population size, age structure, geographic distribution,
ethnic mix, and income distribution.
2. Economic Segment: the character and direction of the market that a company
competes in or might compete in.
3. Sustainable Physical Segment: potential and actual changes in the physical
environment and business practices that are intended to positively respond to
those changes in order to create a sustainable environment
4. Sociocultural Segment: concern of society’s attitudes and cultural values. As
attitudes and values form a society, this is what will drive demographic,
economic, political/legal, and technological conditions and changes.
Competitor Environment:
5. 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 interactions among nations as well as between firms and
various local governmental agencies.
6. Technological Segment: the institutions and activities involved in creating new
knowledge and translating that knowledge into new outputs, products, processes,
and materials.
7. Global Segment: relevant new global markets and their critical cultural and
institutional characteristics, existing markets that are changing, and important
international political events.
Trends and changes in each of these elements of the general environment can
significantly impact a company's strategy and performance. Businesses can spot new
opportunities, risks, and adjust their strategy as necessary by closely monitoring and
analyzing these aspects. Environmental changes can be caused by having missed
opportunities, competitive disadvantages, or even economic disruptions if they are not
acknowledged and addressed. The long term success of a business requires a hyper
awareness to the overall environment and how it affects business.
​
What are Porter's Five Forces, and how are they used to analyze an industry? Choose
an industry in which you are interested, and use this model to analyze the attractiveness
of the industry. [NOTE: You may NOT an existing web-based Industry Analysis. I
will be checking for originality in your analysis].
​
Michael Porter created a concept known as Porter's Five Forces to help aid in the
analysis of an industry's competitive dynamics and attractiveness. The five main factors
that influence industry rivalry and determine overall profitability:
1. Threat of New Entrants: this forces assess new competitors that enter the
industry. There are factors such as barriers to entry, economies of scale, access
to distribution channels, and government regulations that influence the threat
level. High entry barriers, such as significant capital requirements or strong brand
loyalty, can limit new entrants, making the industry more attractive and potentially
more profitable.
2. Bargaining Power of Suppliers: This force evaluates the influence suppliers have
on the industry. Suppliers with high bargaining power can demand higher prices
or reduce the quality of inputs, impacting the profitability of industry players.
Factors such as supplier concentration, availability of substitute inputs, and the
uniqueness of suppliers' offerings determine their bargaining power. An industry
with numerous alternative suppliers and low switching costs is likely to have
weaker supplier power.
3. Bargaining Power of Buyers: This force examines the influence customers have
on the industry. Buyers with high bargaining power can demand lower prices,
higher quality, or better service, reducing industry profitability. Factors such as
buyer concentration, price sensitivity, and switching costs determine buyer power.
An industry with fragmented buyers and low switching costs typically has weaker
buyer power.
1. Threat of Substitutes: This force considers the availability of alternative products
or services that can satisfy customers' needs. Substitutes can limit the pricing
power and profitability of an industry. Factors such as the relative
price-performance ratio, switching costs, and customer loyalty affect the threat of
substitutes. Industries with fewer or less attractive substitute options are
generally more favorable.
2. Intensity of Competitive Rivalry: This force analyzes the level of competition
among existing industry players. Factors such as the number of competitors,
industry growth rate, product differentiation, and exit barriers influence
competitive intensity. A highly competitive industry with numerous players, low
differentiation, and slow growth may lead to price wars and reduced profitability.
Analyzing the attractiveness of the electric vehicle (EV) industry using Porter's Five
Forces:
1. Threat of New Entrants: The EV industry has a moderate to high threat of new
entrants. While there are barriers to entry such as high capital requirements for
manufacturing, established automakers with existing production capabilities can
enter the market. Additionally, the increasing availability of electric vehicle
technology and the push for sustainability may attract new players, making this
force relatively strong.
2. Bargaining Power of Suppliers: The bargaining power of suppliers in the EV
industry can vary. Suppliers of key components like batteries may have some
leverage due to they're expertise and limited competition. However, as the
industry grows and demand for EVs increases, suppliers may face more
competition, potentially reducing they're power.
3. Bargaining Power of Buyers: The bargaining power of buyers in the EV industry
is relatively high. Buyers have access to various electric vehicle models and can
compare prices and features easy. Additionally, government incentives and
policies can influence buyer decisions. Overall, buyers have the power to
demand competitive pricing, quality, and additional features, affecting industry
profitability.
4. Threat of Substitutes: The threat of substitutes in the EV industry is relatively low.
Currently, there are limited viable substitutes for electric vehicles, especially in
terms of clean and sustainable transportation. While internal combustion engine
(ICE) vehicles are a substitute, the global shift towards electric mobility and
increasing environmental concerns make substitutes less attractive.
5. Intensity of Competitive Rivalry: The competitive rivalry in the EV industry is very
high. Established automakers, new entrants, and technological advancements
drive an intense competition. Factors such as product differentiation, pricing
strategies, and global market share can all make an impact on the level of
rivalry. Additionally, the EV industry is characterized by rapid innovation and has
a focus on gaining market dominance, which further fuels the competitive
intensity!
Overall, the electric vehicle industry demonstrates both opportunities and challenges.
While the threat of new entrants and the bargaining power of suppliers does pose
potential risks. The high bargaining power of buyers and the relatively of a low threat of
substitutes can be favorable for the industry profitability. However, the intense
competitive rivalry is necessary for companies to constantly create innovation,
differentiate their offerings, and effectively manage pricing strategies to maintain a
competitive edge.