Running Head: EXTERNAL ENVIRONMENT SCAN
External Environment Scan
External Environment Scan
The strategic management process of an organization initiates with the external and
internal environment scan of the company. Scanning the external environment of the
organization provides the necessary information on the industry trends and forecasts that would
be affecting the business in short or long-term. External environment of an organization
comprises of the political, economic, social, legal, technological and regulatory forces also
known as PESTL analysis (Armstrong et al., 2009). Porter’s five forces analysis is also an
effective tool for comprehending the external factors that impacts the business of an
organization. This paper scans the external environment for Sony electronics and also elaborates
1
EXTERNAL ENVIRONMENT SCAN
2
on the key factors and trends that impact the electronics industry. Also, a preliminary
classification of the factors and trends that are external to organization as threats or opportunity
for the organization is included in this paper.
PESTL Analysis
The PESTL analysis of the Sony electronics involves the analysis of political, economic,
social, technological and legal forces that constitute the macro environment of the industry.
Political – Sony is a multinational organization and its business could possibly be impacted by
the governments of several countries. Because of globalization, the bilateral and multilateral
trade agreements have been pivotal in the growth of electronics industry and in the event of
military and political instability in world region or natural disasters, the industry could suffer
major losses (Sony Form 20-F, 2010).
Economic – The global economy impacts the electronics industry and with the U.S. still
recovering from economic recession, the electronics industry is subject to minimized sales. Sony
in particular derives approximately 78% of its operating revenue from U.S., Japan and Europe
and is therefore, vulnerable to the economic downturn (Sony Form 20-F, 2010).
Social – Electronics industry is influenced by the social factors such as changing lifestyle of the
people and decision-makers in the family. The changing preferences of the customers present
both, a risk and an opportunity to the various players in the industry depending on their ability to
innovate and meet customers’ needs. Sony has been a leader in innovation and therefore, is
expected to be benefitted by the change in customer preferences.
EXTERNAL ENVIRONMENT SCAN
Technological – Advanced technologies dominate the electronics industry and are one of the
determining factors that differentiate between the market leaders and average organizations in
the industry. Technological innovations are well-adopted by Sony, leading to the strong presence
and demand of Sony electronics in several geographical locations.
Legal & Regulatory – Intellectual property rights and patents are crucial in the electronics
industry as evident in the case of Samsung and Apple lawsuit (Apple-Samsung Lawsuit: Apple
Targets 4 Additional Products , 2012). Moreover, the multinational electronics organizations
have to be cautious of the regulatory framework of the various countries they operate in.
Along with the PESTL analysis, Porter’s five forces analysis is required to assess the
external environment of Sony electronics. Porter’s five forces analysis comprises of threat of
new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute
products and rivalry among existing firms.
Porter’s Five Forces Analysis
Threat of New Entrants – The barriers of entry for any new entrant is high in electronics industry
because of the economies of scale enjoyed by existing players including Sony, differentiated
products offered by the companies and huge capital requirements to sustain continuous
innovation and research & development. Therefore, the threat of new entrants in electronics
industry is low.
Bargaining Power of Suppliers – The electronics industry has suppliers scattered all across the
world and their suppliers aren’t a part of specific conglomeration. This provides the opportunity
to companies in electronics industry to better negotiate the quality and prices with suppliers.
3
EXTERNAL ENVIRONMENT SCAN
Because of elaborated supply chain, the bargaining power of suppliers is low for electronics
industry.
Bargaining Power of Buyers – In the age of internet, the customers are well-aware of the range
of electronic products available in market and the companies in electronics industry are price
competitive. The customers are price-sensitive to a large extent as the electronics are luxury
goods. Moreover, switching cost to other company is low and basic features of all the products in
similar category are same. Therefore, the bargaining power of buyers is high.
Threat of Substitute Products – Electronics industries, though attempts to differentiate products
on the basis of secondary features such as design or color, their primary features and functions
remain same. The products in a category such as plasma screens are easily substitutable and
therefore, the threat of substitute products is high in the industry.
Rivalry Among Existing Firms – Electronics industry is concentrated with few industry leaders
such as Sony, Apple, Samsung, Dell etc. and these companies have to compete on quality and
prices to ensure customer loyalty. The competitors in the industry also focus on continuous
innovation and market research that leads to intense competition in the industry. Therefore, the
rivalry among existing firms is high.
Other than the factors covered in the PESTL and Porter’s five forces analysis, there are
some key factors and trends that impact the electronics industry. These key emerging trends in
the electronics industry are; enhanced interaction with customers, providing holistic experience
to customers and providing excellent online shopping experience to customers (Best Global
Brands, 2013).
4
EXTERNAL ENVIRONMENT SCAN
5
Key Emerging Trends
The key emerging trends in electronics industry are altering the dynamics of the business
and for any organization to be successful, it’s essential to adopt them. The social media
platforms such as facebook and twitter have opened new avenues for organizations to converse
and interact with their customers (Best Global Brands, 2013). Moreover, the conversation is
always two-sided on these platforms in contrast to marketing and advertising activities where
communication is one-sided; from organization to customers. The companies have to adopt a
proactive approach to interact with the customers and listen to their recommendations and
complaints. This is an opportunity for Sony because the organization can not only gather
significant information on customer expectation but also use these platforms for marketing their
new launches and innovations.
Providing holistic experience to customers comprises of hassle-free combination of
product and services to customers that enables them to utilize full benefits of the product. This
strategy is well-adopted by Apple and Sony should move fast to adopt this trend or this will
become a threat for the organization (Best Global Brands, 2013). Another emerging key factor is
providing customers with excellent shopping experience online that suits fast lifestyle and
changing preferences of the customers. Sony presently lacks in this with no online shop and
therefore, this is a threat for the company.
Conclusion
The external environment scanning of electronics industry reveals it to be highly
competitive with high bargaining power of customers. The industry is also prone to economic
EXTERNAL ENVIRONMENT SCAN
6
and political disturbances across the globe that makes organizations vulnerable to the economic
downturn and political instabilities. Overall, Sony has moderate external business environment
based on the threats and opportunities offered by the external environment.
References
Sony Form 20-F. (2010). Retrieved from Securities & Exchange Commision:
http://www.sec.gov/Archives/edgar/data/313838/000114554908001104/k01608e20vf.ht
m
Apple-Samsung Lawsuit: Apple Targets 4 Additional Products . (2012, August 31). Retrieved
from : http://www.huffingtonpost.com/2012/08/31/apple-targets-moresamsun_n_1848273.html
(2013). Best Global Brands. Interbrand.
EXTERNAL ENVIRONMENT SCAN
Gary Armstrong, Michael Harker, Philip Kotler & Ross Brennan. (2009). Marketing: An
Introduction. Financial Times Prentice Hall.
7