8 The competitive,
technological,
political and
sociocultural
environments
© John Tribe
© John Tribe
Learning outcomes
• By studying this section students will be
able to:
– describe and analyse an organization’s
competitive environment
– describe and analyse an organization’s
technological environment
– describe and analyse an organization’s
political environment
– describe and analyse an organization’s
sociocultural environment
© John Tribe
The external environment
• Environment scanning =
– monitoring of operating
environment.
• Strategic drift =
– failure of business strategy
to keep abreast of
environment change.
• Operating environment =
– competitive and PEST
environment.
• PEST =
– political, economic,
sociocultural, and
technical environment.
© John Tribe
The competitive environment
• In his book Competitive Strategy (1980),
Porter proposes the following model (‘the
five forces’) for investigating the
competitive environment:
– 1 the threat of entrants
– 2 the power of suppliers
– 3 the power of consumers
– 4 the threat of substitutes
– 5 competitive rivalry
© John Tribe
The threat of entrants
• The extent of the threat of new entrants will
depend upon barriers to entry such as:
–
–
–
–
economies of scale (next OHT)
capital and experience barriers to entry
advertising barriers to entry
availability of distribution channels (vertical
integration)
– anticipated entry wars
– natural monopoly conditions
– product differentiation barriers
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Economies of scale
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How does Coca-cola co attempt to
reduce the threat of entrants?
– economies of scale
– capital and
experience barriers
to entry
– advertising barriers
to entry
– availability of
distribution channels
(vertical integration)
– product
differentiation
barriers
© John Tribe
The power of suppliers
• Supplier power is another important aspect of
the competitive environment. Suppliers of an
organisation’s inputs have a key impact on
prices and quality and the greater the power of
suppliers, the lower margins will be.
– Supplier power is increased by the degree of
monopoly or oligopoly in the supplying industry, and
whether there are high costs of switching suppliers.
Because of this airport operators are often able to
exert considerable supplier power when negotiating
with airlines.
– Supplier power is diminished where the organization
buying inputs has large purchasing power.
© John Tribe
The power of suppliers
• Assess the power of
suppliers to Emirates
Airways
– Aircraft suppliers
– Airport owners
– Fuel suppliers
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The power of buyers
• Where the buyer is a monopsonist (single
buyer) or a near monopsonist,
considerable power can be exerted over
the selling organization.
• Competition between suppliers is a key
factor that increases buyer power.
• The level of buyer knowledge is another
important factor.
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The power of buyers
• First choice?
• But how much
power do buyers
have in the
holiday industry?
• What factors
affect this?
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The threat of substitutes
• Organizations faced with the threat of
substitutes may react in several ways.
These include:
– price leadership strategies
– differentiation strategies
– withdrawal or diversification strategies
– creating switching costs to prevent loss of
customers
© John Tribe
The degree of competitive rivalry
• Competitive rivalry within an industry is
increased by the threat of new entrants and the
threat of substitutes, but it is also influenced by
current conditions in the industry. These include:
– whether competitors can cross-subsidize
– degree of market leadership and number of
competitors
– changes in capacity
– high storage costs/perishability
© John Tribe
The technological environment
• Technological change offers two key
opportunities for leisure and tourism
organizations.
– First it can lead to cost reductions (next OHT)
– Second, technology can provide new products and
markets
• However, technological change also poses
threats where existing products become
obsolete in the face of new developments.
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Effect of technology on LRAC
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The technological environment
• What are the
opportunities and
threats in the
technological
environment for
airlines?
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The political environment
Left wing
(e.g. Labour / Democrat parties)
Right wing
(e.g. Conservative / Republican parties)
need to control the free market
pro trade unions
some state ownership of industry
progressive taxation
regulation of industry
higher government spending and
taxes
7. reduce inequality of incomes
8. provision of jobs a priority
9. comprehensive welfare state
1. belief in supremacy of the free
market
2. anti trade unions
3. private ownership of industry
4. proportional taxation
5. minimal state interference
6. low taxes and government spending
7. inequality of income as incentive
8. control of inflation a priority
9. minimal welfare state
1.
2.
3.
4.
5.
6.
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The sociocultural environment
• Sociocultural factors include the make-up
of society, for example in terms of its
– population structure
– levels of education
– social class
– attitudes
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Review of key terms
• Environment scanning =
– monitoring of operating environment.
• Strategic drift =
– failure of business strategy to keep abreast of environment
change.
• Operating environment =
– competitive and PEST environment.
• PEST =
– political, economic, sociocultural, and technical environment.
• Barriers to entry =
– factors making entry into industry difficult.
• Monopsonist =
– single buyer.
© John Tribe
Review of key terms
•
Cross-subsidization =
– using profits from one division to subsidize prices in another
division
• Political power =
– the ability to influence events.
• Scenario planning =
– developing plans to cope with different views of future.
• Crude birth rate =
– number of births per thousand population.
• Ageing population =
– average age of population increasing.
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8 The competitive,
technological,
political and
sociocultural
environments:
The End
© John Tribe