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External Environmental Scan

Module 3 Assignment 2

Misty Dawn Varco

B6028-P Solutions to Organizational Challenges: A Capstone Experience

Dr. Richard Dool

09/18/2013

Abstract

This paper is on the external environmental analysis of Sony Play station 4, which is powerful and amazing piece of hardware which provides a cutting edge in the gaming entertainment industry. The hard core gamers will be the target customers for Play station 4.

Key Words: Bargaining power of customers (buyers), Bargaining power suppliers, Intensity of competitive / industry rivalry, Pan European Game Information (PEGI), Political Environment Social Technologist and Legal (PESTL), Porter’s five forces tools, Sony Play station 4, Threat of new competition, Threat of substitute products or services, Unterhaltungssoftware Selbstkontrolle (USK).

Introduction:

This external analysis is significant for the console gaming industry and make it highly competitive. External analysis requires two tools, Porters five forces tools and Political, Environment, Social, Technologist, and Legal (PESTL) analysis.

Porter’s Five Forces Analysis

To analyze the competitive forces in the industry environment, Porter developed a framework called as Porter’s Five Focuses Model. This framework contains five forces that, define the competition in the industry. The Five Forces are: Threat of new competition, Threat of substitute products or services, Bargaining power of customers (buyers), Bargaining power suppliers, and Intensity of competitive / industry rivalry.

1. Threat of new competition: It is the risk of entry by potential competitors. Threats of new entries are low in the gaming industry because today gaming industry has reached advance levels which are complex for new companies to match. These advancements prohibit new entrants to enter the gaming industry and they are also demonization because of large investment required for research and development. Another reasons for the lower risk is that gaming industry has already reached it saturation level by producing numerous products by already existing companies. In addition, game developers will hesitate to make new games for new players because they are not sure about their products sales (Bohm, 2008).

2. Threat of substitute products or services: Its major substitute of Cloud gaming. There is a huge potential that is not measurable yet, since it is still in beta status.

3. Bargaining power of customers (buyers): Customers enjoy higher bargaining power because Play station 4 consumers are electronic consumers and they know that they gaming companies depend upon the sale of the product. Further consumers also know that gaming console market is also increasing and this has increased the number of casual gamers. It was notices that consumers have shown interest in purchasing Play station 3 only when the company has reduced its prices (Bohm, 2008)

4. Bargaining power of suppliers: Its suppliers are H / W Game Publisher Game. In this industry, suppliers are bit leverage over console developers. The hardwire that supplied to these console developers will help them to decide the price. Earlier in a case of Play station 3, the hardware was supplied by International Business Machine Corporations (IBM), so its prices are kept very too high but this high price has reduced its sales. In addition, another reason for Play station 3 prices hikes was a shortage of the blue Light-Emitting diode (LED) used in blue-ray drives. Sony kept its game developers and publishers at priority and meets their demands at any cost because company needs exclusive games to remain in the market. If the company has less number of compatible games for console lesser will be the demand and lower will be the revenue.

5. Intensity of competitive industry rivalry: It faces intense competition from Nintendo, Microsoft, and Gaming Personal Computer (PC). Nintendo is ruling this industry by keeping its prices lower and being the first to introduce: innovative gaming (motion gaming). In its national market Japan, Sony remains the leader but in the Unites States of America (USA), and X-box 360 gains popularity (Bohm, 2008).

Key Factors and Trends: PESTL Analysis

Political, Environmental, Social, Technologist, and Legal (PESTL) are a tool of importance for an organization in developing strategy with macro-environment framework. In this tool, the last section “L” stands for legal analysis because gaming industries requires lots of copyright privileges: Political, Economic, Society, Technologist, and Legal factors and trends.

· Political factors and trends: As gaming industry produce games which are global products and hence involved lost of currencies and hence impacts the company’s revenues. For this gaming industry has to create certain restrictions like Unterhaltungssoftware Selbstkontrolle (USK) and or Pan European Game Information (PEGI).

· Economic factors and trends: Earlier industrial countries do not give importance to gaming industry but now they also have identified the importance of gaming consoles and has developed a potential growing market for console gaming. But still the developed countries have very less demand for such games and therefore this issue has to be tackled and overcome.

· Society factors and trends: To use Play station 4 additional and advance televisions and other equipments are required so that consumers can experience a rich digital effect of the game. Video gaming industry is gaining large acceptance from society and all ages of people are joining this industry that developed the growth of digital natives (The Hollywood Reporter, 1994).

· Technologist factors and trends: The gaming companies are introducing new inventions in their game to make the games more interactive and use friendly. These games are playing huge role in connecting people in the society. The gaming consoles have gone through new advancement like Blue-ray three-dimensional (3D), High-Definition or Density Digital Versatile disk (HD-DVD), and also make use of different computing units like Central Processing unit (CPU) and or Graphic Processing unit (GPU).

· Legal factors and trends: The gaming industry give different and multiple restrictions on the content and age. For instance in Germany: Unterhaltungssoftware Selbstkontrolle (USK) but Pan European Game Information (PEGI) for the rest of Europe and North America. The gaming industry requires compatibility with international standards (The Hollywood Reporter, 1994).

External Factors and Trends as Either Opportunities or Threads

External Factors	Opportunities	Threats
Social Factors		Declining Market
Competitive factors	Lowering Prices	Duplicity of games by the competitors
Technologist Factors	Leader in Technology	Competitors can use advance technologies
Economical Factors	High Consumer Income	Saturated and Exhausted Market for Products (Bohm, 2008)

Reference:

Böhm, A. (2008). The Swot Analysis. NorderStedt: GRIN Verlag. Odies C. Ferrell, M. D. (2011).

The Hollywood Reporter. (1994). Sony latest to toss hat in vid game arena. Marketing Strategy 5th Edition. Mason, Ohio: Ceneage Learning. Los Angeles, California: (Hollywood Reporter, Inc.