499 assignment 2

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Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis: 2-1 The General, Industry, and Competitor Environments Book Title: Strategic Management: Competitiveness & Globalization: Concepts and Cases Printed By: Veronica Powell ([email protected]) © 2020 Cengage Learning, Inc.

2-1 The General, Industry, and Competitor Environments The general environment (composed of dimensions in the broader society that influence an industry and the firms within it.) is composed of dimensions in the broader society that influence an industry and the firms within it. We group these dimensions into seven environmental segments: demographic, economic, political/legal, sociocultural, technological, global, and sustainable physical. Examples of elements analyzed in each of these segments are shown in Table 2.1.

Table 2.1

The General Environment: Segments and Elements

Demographic segment Population size

Age structure

Geographic distribution

Ethnic mix

Income distribution

Economic segment Inflation rates

Interest rates

Trade deficits or surpluses

Budget deficits or surpluses

Personal savings rate

Business savings rates

Gross domestic product

Political/Legal segment Antitrust laws

Taxation laws

Deregulation philosophies

Labor training laws

Educational philosophies and policies

Sociocultural segment Women in the workforce

Workforce diversity

Attitudes about the quality of work life

Shifts in work and career preferences

Shifts in preferences regarding product and

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service characteristics

Technological segment Product innovations

Applications of knowledge

Focus of private and government-supported R&D expenditures

New communication technologies

Global segment Important political events

Critical global markets

Newly industrialized countries

Different cultural and institutional attributes

Sustainable physical environment segment

Energy consumption

Practices used to develop energy sources

Renewable energy efforts

Minimizing a firm’s environmental footprint

Availability of water as a resource

Producing environmentally friendly products

Reacting to natural or man-made disasters

Firms cannot directly control the general environment’s segments. Accordingly, what a company seeks to do is recognize trends in each segment of the general environment and then predict each trend’s effect on it. For example, it has been predicted that over the next 10 to 20 years, millions of people living in emerging market countries will join the middle class. In fact, by 2030, it is predicted that two-thirds of the global middle class, about 525 million people, will live in the Asia-Pacific region of the world. Of course, this is not surprising given that almost 60 percent of the world’s population is located in Asia. No firm, including large multinationals, is able to control where growth in potential customers may take place in the next decade or two. Nonetheless, firms must study this anticipated trend as a foundation for predicting its effects on their ability to identify strategies to use that will allow them to remain successful as market conditions change.

The industry environment (the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.) is the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.

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In total, the interactions among these five factors determine an industry’s profitability potential; in turn, the industry’s profitability potential influences the choices each firm makes about its competitive actions and responses. The challenge for a firm is to locate a position within an industry where it can favorably influence the five factors or where it can successfully defend itself against their influence. The greater a firm’s capacity to favorably influence its industry environment, the greater the likelihood it will earn above-average returns.

How companies gather and interpret information about their competitors is called competitor analysis (How companies gather and interpret information about their competitors) . Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments. This means, for example, that McDonald’s needs to do a better job of analyzing and understanding its general and industry environments.

An analysis of the general environment focuses on environmental trends and their implications, an analysis of the industry environment focuses on the factors and conditions influencing an industry’s profitability potential, and an analysis of competitors is focused on predicting competitors’ actions, responses, and intentions. In combination, the results of these three analyses influence the firm’s vision, mission, choice of strategies, and the competitive actions and responses it will take to implement those strategies. Although we discuss each analysis separately, the firm can develop and implement a more effective strategy when it successfully integrates the insights provided by analyses of the general environment, the industry environment, and the competitor environment.

Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis: 2-1 The General, Industry, and Competitor Environments Book Title: Strategic Management: Competitiveness & Globalization: Concepts and Cases Printed By: Veronica Powell ([email protected]) © 2020 Cengage Learning, Inc.

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