BMGT

External Environment Analysis

Introduction

External environment analysis entails the study of forces that influence the operations of businesses. It covers industry and competitor analysis in the assessment of the growth of an organization. This paper use key assessment tools in the discussion of aspects that are relevant to the cannabis industry. It incorporates Porter’s Five Forces and does a competitive analysis of the main competitors of Tilray Inc. The analysis of opportunities and threats provides a look into the factors that can potentially impact the growth of Tilray Inc. The external factor evaluation helps in synthesis of the information in determining the capacity of the organization to fair in the environment.

Porter’s Five Forces

Canada has been at the forefront in legalizing of medical and recreational marijuana use. The federal Cannabis Act legalized the cultivation, possession, distribution, and consumption of cannabis and related products. It is a billion-dollar industry with a lot of room for growth. This has drastically increased the level of competition in the sector. The investment by competitors has substantially driven up the stock valuations of marijuana and products (Lee, 2018). Different organizations have formed partnerships with joint ventures and taken part in acquisitions. Some of the major competitors to Tilray Inc. include Aurora Cannabis, Aphria, Canopy Growth Corp and The Green Organic Dutchman. These companies are the biggest producers of cannabis and bring about north of hundreds of thousands of products in kilos. The number of competitors is substantial and growing which has contributed to limiting the power of Tilray Inc. in the industry. There is much emphasis on pricing and quality of product which are critical factors for buyers and suppliers. The threat of competition is high (Kharub & Sharma, 2017).

The cannabis industry’s profitability is heightened by the threat of new entrants. The outcome is usually a decline in profitability. An organization can protect itself from the effect through employing factors such as economies of scale, patents, capital requirements, and policies. One aspect that limits the threat is the differentiation of marijuana products. The differentiation is advantageous to preexisting organizations such as Tilray. It is quite costly to set up a flourishing cannabis business as the capital requirements are necessary; therefore, it might be challenging for new entities to make a successful entry. The government policies are tough and strict which makes it harder for new entrants to get into the business. These aspects show that the threat of new entrants is low (Kharub & Sharma, 2017).

The growth in the industry has seen an increase in the numbers of suppliers. The vast numbers limit the capacity or power to drive up prices. Marijuana companies, including Tilray, have been able to keep costs lower. This has been aided by lower costs of switching between suppliers. The low switching costs limit the power of suppliers and give the advantage to the producers who can increase profitability. There is not much product differentiation that takes place in the role that suppliers play. The suppliers do not contribute much input to the end product which shows that their bargaining power is low thus the threat is weak (Kharub & Sharma, 2017).

Buyers have a significant role in the marijuana business, as they have some level of bargaining power. In recent times there has been growth in number of firms involved in cannabis production and distribution. This provides customers with a variety to choose from and gives them some bargaining power. They can switch from one firm’s products to another. Buyers are more focused on the quality of products rather than pricing, which lowers their bargaining power in this case. The nature of product differentiation is a crucial factor in the bargaining power of customers. The buyers have limited power considering that particular products are produced by specific companies. Tilray Inc must have a vast customer base thus the buyers have lesser control on the pricing. Overall, the threat is modest (Kharub & Sharma, 2017).

The threat of substitutes is more evident in an industry with different substitute goods and services. The cannabis industry has minimal threat as there are very few products that can be substituted for marijuana. This means that the level of threat is substantially low. Tilray and other entities in the cannabis industry are able to profit in part due to few and costly substitutes which limit the possibility of buyers looking for different products. The threat of substitute product is weak (Lee, 2018).

Competitive Analysis

Critical success factors are the aspects that drive and indicate the achievement of the goals and objectives of companies. The factors influence the progression of the firms in the industry. One key aspect is the financial outcomes of given companies. The finances are major indicators of the position of the organizations relative to the other competitors in the industry. It depicts the profitability of a business and availability of capital which are vital elements of success (Lee, 2018). Brand reputation is essential as it determines the market of the specific organization. A good reputation increases the business of a given entity; thus, it is a crucial factor for evaluation. Customers generally are attracted to brands with better reputations (Jurevicius, 2013).

Differentiation of products is a big part of the success in the industry. Companies can increase their competitive advantage by producing a wide range of products. The more successful organizations have a more extensive assortment of products which makes this a vital point of consideration in assessment of success factors. Customers are essential to the industry (Jurevicius, 2013). A holistic competitive analysis should regard the effect of customer base on the success of cannabis businesses. It is, therefore, crucial to consider customer loyalty and the nature of customer service of the entities as they are linked to their progress and development.

Market expansion is a good measure for assessing the success of the companies. Penetration of both regional and global markets indicates the accomplishment of these organizations. Companies that are able to dominate the market have various locations established in different regions of the world (Lee, 2018). Advertising should also be considered as it promotes agenda of business. The marketing helps in building the customer of base hence raising the profitability. The industry is also impacted by product development. There is emphasis on research and development which enhances the innovativeness of companies and subsequently influences their success (Capps III & Glissmeyer, 2012).

The three companies form the main competitors for Tilray Inc. The success factors incorporated in the analysis comprised of the core elements that contribute or are indicative of good business outcomes. The most vital factors are expansion financial position customer services and loyalty. These features are more influential in the industry compared to the other components. The financial position depicts the revenue of the respective firms. Canopy Growth is the largest company with net revenue above $90 million (Jones, 2019). Aurora Company follows with about $80 million in revenue (Mohanty, 2019) while Aphria and Tilray inc. close out the rank.

Canopy also has the most significant representation in regional and global platforms. There are numerous subsidiaries and partnerships associated with it such as Spektrum Cannabis and Mettrum Health. The other organizations have also made strides in expanding acquisitions and mergers. Research and development is a big part of the objectives of Aurora. The company has made significant investments toward increasing innovation and product range. Aurora is looking to expand into production of concentrates, edibles, and vapes. There are more R&D efforts in the company as compared to its counterparts. Canopy Growth and Aurora have been successful in part because of the services they provide to customers. They have been able to build strong following due to their quality of products and customer services. Each client is treated as a unique individual, and they foster personalization of care. Advertising is the least effective factor as it is hampered by laws and regulations in many cases. Nonetheless, these organizations have promoted their products with use of proper guidelines. Aphria and Canopy Growth have put effort in marketing and advertising while at times treading the boundaries determining conformity to the rule of law (Jurevicius, 2013).

SWOT Analysis

The policies and regulations of different regions provide the basis for business decisions. As more regions legalize the use of cannabis products there is more market to penetrate. Such developments in Chile, Columbia, Turkey and other European nations provide cannabis companies with opportunity for growth and expansion of business. The globe is steadily becoming more technological. Technology supports many aspects of people’s lives, and it allows growth to cannabis companies. It can be utilized to increase online presence and use of e-commerce platforms (Phadermrod et al., 2019). Technology can also be used in improving the systems of the organization and connecting with customers and potential clients through social media.

Trade agreements foster trade development between different countries. They create a conducive business climate for companies to operate in. Removal of trade barriers cuts down on costs of imports and exports, which increases the profitability of a company. Government policies are impactful as they govern the nature of operations. The policies influence the range of products that are allowed taxation and activities related to marketing and advertising. These are aspects that have significant implications on the direction of a business and thus present substantial opportunities. Use of marijuana is now regarded in good light which is a far cry from the past times. This mentality is contributing towards increasing the numbers of potential customers (Phadermrod et al., 2019).

The marijuana business evidently has major competitors in play. Large companies such as Canopy Growth and Aphria have huge market share and customer base, which takes away from what Tilray Inc has on the hand. Expansions into foreign territory may be affected by political issues such regime changes and coup attempts such as one that occurred in Turkey in 2016. The changing nature of international regulations means that the organizations always have to adjust and conform to particular rules of law. In recent times there has been increase in substitute products. This has potential to reduce the consumption of the company products. Additionally, there is remarkable drop in suppliers. Meager numbers of suppliers mean that they are in a position to have more influence and control (Phadermrod et al., 2019).

External Factor Evaluation Analysis

The more significant threats and opportunities had a higher weight. Expansion in product range and market and competition have a substantial impact on the business. These are two factors that determine success of the organization. Technological developments also factor highly as there is enormous potential for growth with proper use of technology in marketing and sales. Government policies and trade agreements are also effective as they influence the direction of the company. The increase in positive regard has the least weight as it does not offer as much opportunity as the other factors. International regulations tend to change occasionally thus their unpredictability makes it an important point for consideration. Political instability is always a possibility in foreign locations (Maxi-Pedia, 2017).

Conclusion

The analysis provided a deep insight into the marijuana business and some of the major players involved. It shows the varied elements that are integral to the industry and specific companies. It enhances comprehension of success factors and how they fit in the industry. Porter’s model provides a way of gauging these factors and their relative importance. The competitive analysis provides an outlook of the major organizations and their comparative performance in different aspects. The external environment analysis is useful in informing the steps or direction of a firm within a specific industry. The findings are critical aspects to consider in decision making. The results show the cannabis industry is quite competitive and Tilray Inc. has grounds to make improvements in its performance.

References

Capps III, C. J., & Glissmeyer, M. D. (2012). Extending the competitive profile matrix using internal factor evaluation and external factor evaluation matrix concepts. Journal of Applied Business Research, 28(5), 1059.

Jones, A. (2019). Canopy Growth Posts 4q Revenue Growth. Retrieved from