Strategic Management Chapter 2 External Environment
Forecasting (in more detail)
Example- Analysts might _________ the time that will be required for a new technology to reach the marketplace, the length of time before different corporate training procedures are required to deal with anticipated changes in the composition of the workforce, or how much time will elapse before changes in governmental taxation policies affect consumers' purchasing patterns. o _______________ events and outcomes accurately is challenging o _____________ Demand for new technological product is difficult because technology trends are continually diving product life cycles shorter Example- Intel, products go into many customers' technological products, which are consistently updated. Increasing the difficulty, each new wafer fabrication or silicon chip technology production plant in which Intel invests becomes significantly more expensive for each generation of the chip product. Tools in regard to electric product demand is of value to this firm as it studies conditions in its external environment o Having access to tools that allow better ________________
Globalfocusing
-------- often is used by firms with moderate levels of international operations who increase their inter-nationalization by focusing on global niche markets.
barriers to entry
-Economies of Scale (EOS) -Product Differentiation -Capital Requirement -Switching costs -Access to Distribution Channels -Cost Disadvantages independent of Scale -Proprietary Product Technology -Government Policy -Expected Retaliation
Parts of the External Environment Analysis
-Scanning -Monitoring -Forecasting -Accessing
5 forces Model
-Threat of New Entrance -Bargaining Power of Suppliers -Bargaining Power of Buyers -Threat of Substitute Products -Intensity of Rivalry among Competitors
sources
-Use multiple _________ to analyze general environment through 4 parts -Examples of _______: wide variety of printed materials (such as trade publications, newspapers, business publications, and results of academic research and public polls), trade shows, and suppliers, customers, and employees of public-sector organizations, and internet sources to study general environment
strategic group
A ___________ _________ is a collection of firms following similar strategies along similar dimensions.
Strategic Group
A set of firms emphasizing similar strategic dimensions and using a similar strategy
complementors
A thorough competitor analysis examines ____________ that support forming and implementing rivals' strategies.
wa
Alternatively, the ideology in China calls for an emphasis on guanxi—personal connections—while in Japan, the focus is on _____—group harmony and social cohesion. (global segment)
general
Analysis of _______ environment focuses on environmental trends and their implications
competitors
Analysis of ________ is focused on predicting competitor's actions, responses, and intentions
industry
Analysis of the ______ environment focuses on the factors and conditions influencing an industry's profitability potential
forces
By studying these _______, a firm can identify a position in an industry where it can influence the _______ in its favor or where it can buffer itself from the power of the______ in order to achieve strategic competitiveness and earn above-average returns
the industry environment
Compared with the general environment,_____ _____ __________ has a more direct effect on firms' competitive actions and responses.
Capital Requirement
Competing in a new industry requires a firm to have resources to invest (physical facilities). o ----- is needed for inventories, marketing activities, and other critical business functions. o Even when a new industry is attractive, the ---- -----for successful market entry may not be available to pursue the market opportunity. Example- Defense industries are difficult to enter because of the substantial resource investments required to be competitive. • Because of the high knowledge requirements of the defense industry, a firm might acquire an existing company as a means of entering this industry, but it must have access to the ----- necessary to do this
competitor intelligence
Different techniques are used to create _________ ____________: the set of data, information, and knowledge that allow the firm to better understand its competitors and thereby predict their likely competitive actions and responses.
opportunities; threats
Effectively using the External Environmental Analysis Process helps the firm in its efforts to identify ____________ and ________.
performance; opportunities; threats
Firm's External Environment is challenging and complex--> Because of its effect on ____________, firms must develop the skills required to identify _________________ and _______ that are a part of their external environment.
legal; ethical
Firms absolutely should use only _____ and ______ practices to gather intelligence.
Barriers to Entry
Firms competing in an industry (and especially those earning above-average returns) try to develop entry barriers to thwart potential competitors. o MORE is known about entry barriers (with respect to how they are developed as well as paths firms can pursue to overcome them) in industrialized countries such as those in North America and Western Europe. o LITTLE is known about barriers to entry in the rapidly emerging markets such as those in China. o Companies competing within a particular industry study these barriers to determine the degree to which their competitive position reduces the likelihood of new competitors being able to enter the industry to compete against them. o Firms considering entering an industry study entry barrier to determine the likelihood of being able to identify an attractive competitive position within the industry. ------------ that may discourage competitors from entering a market and that may facilitate a firm's ability to remain competitive in a market in which it currently competes
external
Firms face _______ environments that are turbulent, complex, and global- conditions that make interpreting those environments difficult
Geographic Distribution (demographic segment)
How a population is distributed within countries and regions is subject to change over time -patterns differ throughout the world Example- Over time, the U.S. population has shifted from states in the Northeast and Great Lakes region to states in the West (California), South (Florida), and Southwest (Texas). Data in 2018, California's population has grown by approximately 2.3 million since 2010, while Texas's population has grown by 3.2 million in the same time period. • These changes are characterized as moving from the "Frost Belt" to "Sun Belt" • Outcome from "Frost Belt" to "Sun Belt" shifts, GDP of California in 2011 was just under $2 trillion, amount that makes them the 9th largest economy in the world and Texas' GDP followed that ($1.3 trillion) o The least popular states over the years are Illinois, New Jersey, New York, Michigan, Maine, Connecticut, and Wisconsin. o Washington DC most popular destination for relocation along with Oregon. Washington DC= Popular because of its somewhat recession proof economic opportunities generated by a maturing high-tech sector and federal government jobs Oregon (Portland) attractive for its mix of economic growth, effective urban planning, and scenic landscapes o Firms want to carefully study the patterns of population ------ in countries and regions to identify opportunities and threats. Thus, in the United States, current patterns suggest the possibility of opportunities in states on the West Coast and some in the South and Southwest. In contrast, firms competing in the Northeast and Great Lakes areas may concentrate on identifying threats to their ability to operate profitably in those areas.
Competitor Analysis
How companies gather and interpret information about their competitors
Scanning
Identifying early signals of environmental changes and trends
interlocking directorates
Means of monitoring major stakeholders is by using directors that serve on other boards of directors
Age Structure (demographic segment)
Projections suggest life expectancy will surpass 100 in some industrialized countries by the second half of this century—roughly triple the lifespan of the population in earlier years o In China, the 65 and older population is expected to reach roughly 330 million by 2050, which will be close to ¼ of the nation's total population o In 1950s, Japan's population was one of the youngest in the world. 45 is now the median age in Japan, with the projection that it will be 55 by 2040
External Environmental Analysis
Scanning, monitoring, forecasting, and assessing are the four parts of the ________ _________ ________ process.
Target case study (segments of the general environment)
Strategic focus= the lack of a commitment to analyzing the environment in depth can have serious, company-wide ramifications. Target failed to maintain a good understanding of its industry and hence, lost market share to Internet company rivals and other more established competitor. It didn't understand its market, competitors, and suppliers in Canada. New CEO analyzed the environment in depth (old one didn't aka why they failed), demonstrated his commitment by locating his office close to the center of the data collection unit and checking in with the staff in this unit each morning to gain the latest information.
environmental changes; trends
The General Environments have 7 segments. For each segment, firms have to determine the strategic relevance of__________ _____ and ________.
general environment
The _____ ____________ (segments and elements in the broader society that affect industries and the firms competing in them).
industry environment
The ________ __________ (factors that influence a firm, its competitive actions and responses, and the industry's profitability potential)
Internet
The _____________ enhances firms' ability to gather insights about competitors and their strategic intentions.
Five Forces Model of Competition
The _______________________________________ includes the threat of entry, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors.
3
The external environment has ____ major parts.
general; industry; competitor
The external environment has three major parts: 1. ______ environment 2. ______ environment 3. ______ environment
challenging; complex
The firm's external environment is ________ and __________.
Population Size (demographic segment)
The world's ---- doubled (from 3 billion to 6 billion) between 1959 and 1999. Current projections suggest that ----growth will continue in the twenty-first century, but at a slower pace. o In 2018 the world's --- was 7.6 billion, and it is projected to be 9.2 billion by 2040 and roughly 10 billion by 2055. o In 2018, China was the world's largest country by ------ with slightly more than 1.4 billion people. o By 2050, however, India is expected to be the most ---- nation in the world followed by China, the United States, Indonesia, and Pakistan. o Firms seeking to find growing markets in which to sell their goods and services want to recognize the market potential that may exist for them in these five nations. o Firms also want to study changes occurring within the ----- of different nations and regions of the world to assess their strategic implications.
competitor environment
The________ ____________ (in which the firm analyzes each major competitor's future objectives, current strategies, assumptions, and capabilities)
age (demographic segment)
These changes in the _____ of the population have significant implications for availability of qualified labor, health care, retirement policies, and business opportunities among others.
cope; increase
To ________ with often ambiguous and incomplete environmental data and to _________ understanding of the general environment, firms complete this (4 parts)
Income Distribution (demographic segment)
Understanding how income is distributed within and across populations informs firms of different groups' purchasing power and discretionary income.
guanxi
Understanding the importance of ----- is critical for foreign firms doing business in China. Personal relationships are especially important in China; the concept of ----(personal relationships or good connections) is important in doing business within the country and for individuals to advance their careers in what is becoming a more open market society. (sociocultural segment)
The General Environment
_____ _________ __________ has seven segments: demographic, economic, political/legal, sociocultural, technological, global, and sustainable physical.
Competitive Rivalry
________ __________ is greater within a strategic group than between strategic groups.
Knowledge
___________ sharing is important for dispersing new knowledge in organizations and increasing the speed in implementing innovations. (sociocultural segment)
Industries
_____________ are populated with different strategic groups.
Competitor analysis
______________ __________ informs the firm about the future objectives, current strategies, assumptions, and capabilities of the companies with which it competes directly.
Ethnic Mix (demographic segment)
______________ _________of countries' populations continues to change, creating opportunities and threats for many companies as a result. Example- Hispanics have become the largest --- minority in the United States. U.S. Hispanic market is the third largest "Latin American" economy behind Brazil and Mexico. Example- Spanish is now the dominant language in parts of the United States such as Texas, California, Florida, and New Mexico. o Firms might want to assess how their goods or services could be adapted to serve the unique needs of Hispanic consumers. By 2020, more than 50 percent of children in the United States will be a member of a minority ---- group, and the population in the United States is projected to have a majority of minority ---- members by 2044. By 2060, whites are projected to compose approximately 44 percent of the U.S. population. o The --- diversity of the population is important not only because of consumer needs but also because of the labor force composition Research has shown that firms with greater ---- diversity in their managerial team are likely to enjoy higher performance. o Additional evidence is of interest to firms when examining this segment Example- African countries are the most ---- diverse in the world, with Uganda having the highest --- diversity rating and Liberia having the second highest. In contrast, Japan and the Koreas are the least ----- diversified in their populations. European countries are largely ethnically homogeneous while the Americas are more diverse. "From the United States through Central America down to Brazil, the 'new world' countries, maybe in part because of their histories of relatively open immigration (and, in some cases, intermingling between natives and new arrivals) tend to be pretty diverse."
Complementors
are companies or networks of companies that sell complementary goods or services that are compatible with the focal firm's good or service.
Economies of Scale (EOS)
are derived from incremental efficiency improvements through experience as a firm grows larger o Cost of producing each unit declines as the quantity of a product produced during a given period increases. o New entrant is unlikely to quickly generate the level of demand for its product that in turn would allow it to develop -------------------------------. o Developed in most business functions (marketing, manufacturing, research & development, & purchasing) o Firms sometimes form strategic alliances or joint ventures to gain scale economies o Other firms acquire rivals in order to build economies of scale in the operations and to increase their market share o Becoming more flexible on being able to meet shifts in customer demand is another benefit for an industry incumbent and a possible entry barrier for the firms considering entering the industry. Example- Firm may choose to reduce its price with the intention of capturing a larger share of the market. Alternatively, it may keep its price constant to increase profits. In so doing, it likely will increase its free cash flow, which is very helpful during financially challenging times. o Some competitive conditions reduce the ability of ------------------- to create an entry barrier such as the use of scale free resources. o Companies now customize their products for large numbers of small customer groups. Customized products are not manufactured in the volumes necessary to achieve -------------------------. Customization is made possible by several factors, including flexible manufacturing systems. New manufacturing technology facilitated by advanced information systems has allowed the development of mass customization in an increasing number of industries. Online ordering has enhanced customers' ability to buy customized products. Companies manufacturing customized products can respond quickly to customers' needs in lieu of developing -----------
Product Differentiation
customers may come to believe that a firm's product is unique o This belief can result from the firm's service to the customer, effective advertising campaigns, or being the first to market a good or service. o Greater levels of perceived product uniqueness create customers who consistently purchase a firm's products. o To combat the perception of uniqueness, new entrants frequently offer products at lower prices. o May result in lower profits or even losses. o Example- The Coca-Cola Company and PepsiCo have established strong brands in the markets in which they compete, and these companies compete against each other in countries throughout the world. Because each of these competitors has allocated a significant amount of resources over many decades to build its brands, customer loyalty is strong for each firm. When considering entry into the soft drink market, a potential entrant would be well advised to pause and determine actions it would take to try to overcome the brand image and consumer loyalty each of these giants possesses
Monitoring
detecting meaning through ongoing observations of environmental changes and trends; observe environmental changes to see if an important trend is emerging from among those spotted through scanning
Accessing
determining the timing and importance of environmental changes and trends for firm's strategies and their management
Forecasting
developing projections of anticipated outcomes based on monitored changes and trends
Global Segment
includes relevant new global markets and their critical cultural and institutional characteristics, existing markets that are changing, and important international political events.
Technological Segment
includes the institutions and activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.
Threat
is a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness
Opportunity
is a condition in the general environment that, if exploited effectively, helps a company reach strategic competitiveness.
Industry
is a group of firms producing products that are close substitutes. In the course of competition, these firms influence one another.
General Environment
is composed of dimensions in the broader society that influence an industry and the firms within it.
Demographic Segment
is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution
Sociocultural Segment
is concerned with a society's attitudes and cultural values.
Political/Legal Segment
is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies
Competitor Intelligence
is the set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities.
Industry Environment
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
2 Reasons Economic Environment is Challenging to study & predict trends
o 1. Global Recession of 2008-2009 created numerous problems for companies throughout the world, problems of: reduced customer demand, increases in firms' inventory levels, development of additional governmental regulations, and a tightening of access to financial resources. o 2. Global Recovery from the economic shock in 2008-2009 continues to be persistently slow compared to previous recoveries
Sociocultural Segment (in detail)
o Because attitudes and values form the cornerstone of a society, they often drive demo-graphic, economic, political/legal, and technological conditions and changes. o Individual societies' attitudes and cultural orientations are relatively stable, but they can and often do change over time. o Firms must carefully scan, monitor, forecast, and assess them to recognize and study associated opportunities and threats. o Be aware of changes taking place in the societies and their associated cultural values in which they are competing. o Firms must identify changes in cultural values, norms, and attitudes in order to "adapt to stay ahead of their competitors and stay relevant in the minds of their consumers." o ------ factors influence the entry into new markets and the development of new firms in a country. o Attitudes about and approaches to health care are being evaluated in nations and regions throughout the world. Example- For Europe, the European Commission has developed a health care strategy for all of Europe that is oriented to preventing diseases while tackling lifestyle factors influencing health such as nutrition, working conditions, and physical activity. This Commission argues that promoting attitudes to take care of one's health is especially important in the context of an aging Europe, as shown by the projection that the proportion of people over 65 living in Europe and in most of the developed nations throughout the world will continue to grow. o At issue for business firms is that attitudes and values about health care can affect them; accordingly, they must carefully examine trends regarding health care in order to anticipate the effects on their operations. o The U.S. labor force (grown in size) has evolved to become more diverse, with significantly more women and minorities from a variety of cultures entering the workplace. o Predicted to grow more in future o Women and men will eventually even out & be similar o Rate of growth in the U.S labor force has declined over years because of slower growth of the nation's population and downward trend in labor force participation rate o Other changes in the U.S. labor force between 2010 and 2050 are expected. o During this time, Asian membership in the labor force is projected to more than double in size o Growth in Caucasian members of the labor force is predicted to be much slower compared to other racial groups. o In contrast, people of Hispanic origin are expected to account for roughly 80 percent of the total growth in the labor force. o Greater diversity in the workforce creates challenges and opportunities, including combining the best of both men's and women's traditional leadership styles. Although diversity in the workforce has the potential to improve performance, research indicates that diversity initiatives must be successfully managed to reap these organizational benefit o Although the lifestyle and workforce changes referenced previously reflect the attitudes and values of the U.S. population, each country is unique with respect to these --------- indicators. o National cultural values affect behavior in organizations and thus also influence organizational outcomes such as differences in managerial styles. o Likewise, the national culture influences a large portion of the internationalization strategy that firms pursue relative to one's home country. o Knowledge sharing is important for dispersing new knowledge in organizations and increasing the speed in implementing innovations. o Personal relationships are especially important in China; the concept of guanxi (personal relationships or good connections) is important in doing business within the country and for individuals to advance their careers in what is becoming a more open market society. Understanding the importance of guanxi is critical for foreign firms doing business in China. o Side Picture on TEXTBOOK: Healthcare is becoming increasingly important as the proportion of people order than 65 is growing larger in many nations throughout the world.
Industry (in detail)
o Companies use a rich mix of different strategies to pursue above-avg returns when competing in a particular industry o structural characteristics influence a firm's choice of strategies o This ---- Environment is measured primarily in forms of its characteristics o More direct effect on competitive actions and responses a firm takes to succeed (compared to general environment) o To study an ------, firms examine 5 forces that affect the ability of all firms to operate profitably within a given ----.
Sustainable Physical Environment Segment (in detail)
o Concerned with trends oriented to sustaining the world's physical environment, firms recognize that ecological, social, and economic systems interactively influence what happens in this particular segment and that they are part of an interconnected global society o Concerned about the ---- environment, and many record the actions they are taking in reports with names such as "Sustainability" and "Corporate Social Responsibility." o Increasing number of companies are investing in ----- development o Because of the importance to firms of becoming ------, certification programs have been developed to help them understand how to be ----- organizations. o Example- Walmart's (world's largest retailer), environmental footprint is huge, meaning that trends in the physical environment can significantly affect this firm and how it chooses to operate. Because of this, Walmart's goal is to produce zero waste and to use 100 percent renewable energy to power its operations. o Environmental ------= Important to all societal citizens and customers respond more positively to firms taking actions such as those by Walmart. o To build and maintain -----operations in companies that directly service retail customers requires sustainable supply chain management practices. o Top managers must focus on managing any of the firm's practices that have effects on the ---- environment. o By contributing to a cleaner environment and also reap financial rewards from being an effective competitor due to positive customer responses.
Monitoring (in more detail)
o Critical to success, firm's ability to detect meaning Example- Retirement in US- 57% of US workers surveyed reported that excluding the value of their home they have only $25,000 or less in savings and investments set aside for their retirement. 28% feel they won't have enough money to retire comfortably, highest in surveys 23 years of history. Due from economic recessions and low wage growth, 67% said they would only last 6 month or less of their expenses & 28% said they had no savings. • Firms seeking to ______ retirees' financial needs will continue to see if a trend is developing, once they understand there is indeed a trend, they will seek to understand its competitive implications o Identify important stakeholders and understand its reputation among these stakeholders as the foundation for serving their unique needs Means of ______ major stakeholders is by using directors that serve on other boards of directors (called interlocking directorates) Facilitate info. And knowledge transfer from external sources o When firm competes in an industry with high technological uncertainty-provides info o These activities serve as means of importing knowledge about markets and about how to successfully commercialize the new technologies the firm has developed
Scanning (more detail)
o Entails the study of all segments in the general environment o Challenging o Critically important to the firms' efforts to understand trends in the general environment and to predict their implications = companies competing in HIGHLY volatile environments o Through this part, forms identify early signals of potential changes in the general environment and detect changes that are already under way o Activities must be aligned with the organizational context- ______________system designed for a volatile environment is inappropriate for a firm in a stable environment o Reveals ambiguous, incomplete, or unconnected data and info that require careful analysis o Use special software to identify events that are taking place in the environment and that are announced in public sources o Increasingly, these systems are used to study social media outlets as sources of info o Internet provides a wealth of opportunities for ___________ (gathering information on users) o When firm competes in an industry with high technological uncertainty-provides info o These activities serve as means of importing knowledge about markets and about how to successfully commercialize the new technologies the firm has developed
Global Segment (in detail)
o Example- Firms competing in automobile must study this segment- the fact that consumers in multiple nations are willing to buy cars and trucks "from whatever area of the world" supports this position o Globalization of business markets may create opportunities to enter new markets & threats that new competitors from other economies may also enter their market. o In terms of an opportunity for automobile manufacturers, the possibility for these firms to sell their products outside of their home market would seem attractive. o But what markets might firms choose to enter? o Currently, automobile and truck sales are expected to increase in Brazil, Russia, India, China, and Eastern Europe. o In contrast, sales are expected to decline, at least in the near term, in the United States, Western Europe, and Japan. o These markets, then, are the most and least attractive ones for automobile manufacturers desiring to sell outside their domestic market. o At the same time, from the perspective of a threat, Japan, Germany, Korea, Spain, France, and the United States appear to have excess production capacity in the automobile manufacturing industry. o In turn, overcapacity signals the possibility that companies based in markets where this is the case will simultaneously attempt to increase their exports as well as sales in their domestic market. o Thus, ----- automobile manufacturers should carefully examine the global segment to precisely identify all opportunities and threats. o Threats associated with participating in international markets, some firms choose to take a more cautious approach to globalization. o Example- Family business firms, even the larger ones, often take a conservative approach to entering international markets in a manner very similar to how they approach the development and introduction of new technology. They try to manage their risk. o These firms participate in globalfocusing. o This approach allows firms to build onto and use their core competencies while limiting their risks within the niche market. o Another way in which firms limit their risks in international markets is to focus their operations and sales in one region of the world o Firms building relationships in and knowledge of its market and as they build these strengths, rivals find it more difficult to enter its markets and compete successfully. o Firms competing in ----- markets should recognize each market's sociocultural and institutional attributes. o Example- Korean ideology emphasizes communitarianism, a characteristic of many Asian countries. Alternatively, the ideology in China calls for an emphasis on guanxi—personal connections—while in Japan, the focus is on wa—group harmony and social cohesion. o The institutional context of China suggests a major emphasis on centralized planning by the government. The Chinese government provides incentives to firms to develop alliances with foreign firms having sophisticated technology, in hopes of building knowledge and introducing new technologies to the Chinese markets over time. o Important to analyze the strategic intent of foreign firms when pursuing alliances and joint ventures abroad, especially where the local partners are receiving technology that may in the long run reduce the foreign firms' advantages. o Increasing in the informal economy as it exists throughout the world is another aspect of the -----segment requiring analysis. o Growing in size, this economy has implications for firms' competitive actions and responses in that increasingly, firms competing in the formal economy will find that they are competing against informal economy companies as well.
Threat of New Entrants
o Important because they can threaten the market share of existing competitors o Reason -------- pose such a threat is: that they bring additional production capacity. o Unless the demand for a good or service is increasing, additional capacity holds consumers' costs down, resulting in less revenue and lower returns for competing firms. o Often, --------- have a keen interest in gaining a large market share. o As a result, new competitors may force existing firms to be more efficient and to learn how to compete in new dimensions (e.g., using an Internet-based distribution channel). o The likelihood that firms will enter an industry is a function of two factors: barriers to entry and the retaliation expected from current industry participants. o Entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they can enter. o High entry barriers tend to increase the returns for existing firms in the industry and may allow some firms to dominate the industry. o Firms competing successfully in an industry want to maintain high entry barriers to discourage potential competitors from deciding to enter the industry
Income Distribution (demographic segment & in detail)
o Of particular interest to firms are the average ---- of households and individuals. Example- Increase in dual-career couples has had a notable effect on average incomes. Real ----- has been declining in general in some nations, the household income of dual-career couples has increased, especially in the United States. These figures yield strategically relevant information for firms. o Whether an employee is part of a dual-career couple can strongly influence the willingness of the employee to accept an international assignment. Because of recent global economic conditions, many companies were still pursuing international assignments but changing them to avoid some additional costs of funding expatriates aboard. o The growth of the economy in China has drawn many firms, not only for the low-cost production, but also because of the large potential demand for products, given its large population base o In recent times, the amount of China's gross domestic product that makes up domestic consumption is the lowest of any major economy at less than one-third. In comparison, India's domestic consumption of consumer goods accounts for two-thirds of its economy, or twice China's level. For this reason, many western multinationals are interested in India as a consumption market as its middle class grows extensively; although India has poor infrastructure, its consumers are in a better position to spend. o Paying attention to the differences between markets based on income distribution can be very important. o These differences across nations suggest it is important for most firms to identify the economic systems that are most likely to produce the most income growth and market opportunities Economic segment is a critically important focus of firm's environmental analysis o Side Picture on TEXTBOOK: Vast differences in ----- ------ around the world
Technological Segment (in detail)
o Pervasive and diversified in scope, ------ changes affect many parts of societies. o These effects occur primarily through new products, processes, and materials. o Rapid pace of ------ change and risk of disruption, it is vital for firms to thoroughly study the ------ segment. o The importance of these efforts is shown by the fact that early adopters of new ----- often achieve higher market shares and earn higher returns. o Both large and small firms should continuously scan the general environment to identify potential substitutes for ----- that are in current use, as well as to identify newly emerging ------- from which their firm could derive competitive advantage o The internet offers remarkable capabilities in terms of efforts to do 4-part analysis o Internet can generate significant number of opportunities and threats for firms across the world because of the predictions about internet usage in years to come- number of users increasing, more users accessing it with various devices throughout the day, more people engaged in an increasingly participatory medium o New ------ and innovations are changing many industries o These changes are exemplified by the change to digital publishing (e.g., electronic books) and retail industries moving from brick and mortar stores to Internet sales. o Firms in all industries must become more innovative in order to survive, and must develop new or at least comparable ________________—and continuously improve it & must have a sophisticated information system to support their new product development efforts o Adoption and efficient use of new --------has become critical to global competitiveness in many or most industries, countries have begun to offer special forms of support, such as the development of ------- business incubators, which provide several types of assistance to increase the success rate of new ----- ventures. o Despite the Internet's far-reaching effects and the opportunities and threats associated with its potential, wireless communication ------has become a significant technological opportunity for companies. o Handheld devices and other wireless communications equipment are used to access a variety of network-based services. o The use of handheld computers (of many types) with wireless network connectivity has become the dominant form of communication and commerce, and additional functionalities and software applications are generating multiple opportunities—and potential threats—for companies of all types
Political/Legal Segment (in detail)
o Segment is concerned with how organizations try to influence governments and how they try to understand the influences (current and projected) of those governments on their competitive actions and responses o Firms develop a ----- strategy to specify how they will analyze and the ----- to develop approaches they can take (such as lobbying efforts) to successfully deal with opportunities and threats that surface within this segment at different points in time o Regulations formed in response to new national, regional, state, and/or local laws that are legislated often influence a firm's competitive actions and responses. o Example- Nevada legalized the business of online poker/gambling. New Jersey and Delaware quickly took the same action o Relationship between national, regional, and local laws and regulations creates a highly complex environment within which businesses must navigate o At a regional level, changes in laws regarding the appropriate regulation European banks are still being actively debated o For interactive, technology-based firms such as Facebook, Google, and Amazon, among others, "the effort in Europe to adopt the world's strongest data protection law has drawn the attention of dozens of lobbyists from U.S technology and advertising companies" = significant challenges. o Highly restrictive laws about consumer privacy could threaten how these firms conduct business in the European Union. o Firms must deal with quite different challenges when they operate in countries with weak formal institutions (e.g., weak legal protection of intellectual property). o Laws and regulations provide structure to guide strategic and competitive actions; without such structure, it is difficult to identify the best strategic actions.
Accessing (in more detail)
o Through scanning, monitoring, and forecasting, analysts are able to understand the general environment o Intent of ______________ -ment is to specify the implications of that understanding o Without ____________-ment, the firm has data that may be interesting but of unknown competitive relevance. if formal _________-ment is inadequate, the appropriate interpretation of that information is important. o Accurately ________the trends expected to take place in the segments of a firm's general environment is important & accurately interpreting the meaning of those trends is even more important although gathering and organizing information is important, appropriately interpreting that information to determine if an identified trend in the general environment is an opportunity or threat is critical.
fertility rate (demographic segment)
o With a _________ ________that is below replacement value Another prediction is that by 2040 there will be almost as many Japanese people 100 years old or older as there are newborns. By 2050, almost 25 percent of the world's population will be aged 65 or older. (age structure/ demographic segment)
aging (demographic segment)
o _____ populations are a significant problem for countries Because of the need for workers and the burden of supporting retirement programs In Japan and some other countries, employees are urged to work longer to overcome these problems. o WORLD'S POPULATION IS RAPIDLY ----- -This ---- of the population threatens the ability of firms to hire and retain a workforce that meets their needs o Firms are challenged to increase the productivity of their workers and/or to establish additional operations in other nations in order to access the potential working age population. o A potential opportunity is represented by delayed retirements; older workers (baby boomers) with extended life expectancies may need to work longer in order to eventually afford retirement. o Delayed retirements may help companies to retain experienced and knowledgeable workers "organizations now have a fresh opportunity to address the talent gap created by a shortage of critical skills in the marketplace as well as the experience gap created by multiple waves of downsizing over the past decade." Firms can also use their older, more experienced workers to transfer their knowledge to younger employees, helping them to quickly gain valuable skills. Opportunity for firms to more effectively use the talent available in the workforce. • Example- Moving women into higher level professional and managerial jobs could offset the challenges created by decline in overall talent availability. And, based on research, it may even enhance overall outcomes.
5 Forces of Competition Model
o expands the scope of a firm's competitive analysis o Historically, when studying the competitive environment, firms concentrated on companies with which they directly competed. o NOW firms must search more broadly to recognize current and potential competitors by identifying potential customers as well as the firms serving them. o Example- The communications industry is now broadly defined as encompassing media companies, telecoms, entertainment companies, and companies producing devices such as smartphones. firms must study many other industries to identify companies with capabilities (especially technology-based capabilities) that might be the foundation for producing a good or a service that can compete against what they are producing. o When studying the industry environment, firms must also recognize that suppliers can become a firm's competitors (by integrating forward) as can buyers (by integrating backward). o Example- Several firms have integrated forward in the pharmaceutical industry by acquiring distributors or wholesalers. o Firms choosing to enter a new market and those producing products that are adequate substitutes for existing products can become a company's competitors
Economic Segment/Environment (in detail)
o firms seek to compete in relatively stable ----- with strong growth potential. o Because nations are interconnected as a result of the global economy, firms must scan, monitor, forecast, and assess the health of their host nation as well as the health of the ---- outside it. o 2 Reasons this is Challenging to study & predict trends o Firms must adjust not only to ---- shock and try to recover from it, but also have to respond to what appears to be an unpredictable recovery. o Current degree of ----- uncertainty suggests the possibility of slower growth for the foreseeable future- makes it challenging to develop effective strategies. o When facing ---- uncertainty, firms especially want to study closely the ---- environment in multiple regions and countries throughout the world. Although -------- growth remains relatively weak and -------- uncertainty has been strong in Europe, ---- growth has been better in the United States in recent time o Projected average annual ----- growth is increasing and highlights the anticipation of the continuing development of emerging --------. o Firms will be able to pursue higher growth opportunities in regions and nations where they exist while avoiding the threats of slow growth periods in other settings o Side Picture on TEXTBOOK: To date, most legalized gambling had been provided in resorts such as MGM Resorts. However, recent changes in regulations within the state of Nevada in the US allows online gambling which is now being evaluated as an opportunity for these resorts.
Switching Costs
one-time costs customers incur when they buy from a different supplier o Costs of buying new ancillary equipment and of retraining employees, and even the psychological costs of ending a relationship, may be incurred in ---- to a new supplier. o Some cases are low, when the consumer ----to a different brand of soft drink. o Vary as a function of time, in terms of credit hours toward graduation, the cost to a student to transfer from one university to another as a freshman is much lower than it is when the student is entering the senior year o Decision made by manufacturers to produce a new, innovative product creates high -------- ------ for customers o Customer loyalty programs, such as airlines' frequent flyer miles, are intended to increase the customer's switching costs. o If -------- ------ are high, a new entrant must offer either a substantially lower price or a much better product to attract buyers. o More established the relationships between parties, the greater the ----- -----
Access to Distribution Channels
over time, industry participants commonly learn how to effectively distribute their products. o After building a relationship with its -----, a firm will nurture it, creating switching costs for the -----. o Can be a strong entry barrier for new entrants, particularly in consumer nondurable goods industries (e.g., in grocery stores where shelf space is limited) and in international markets. o New entrants have to persuade ----- to carry their products, either in addition to or in place of those currently ------. Price breaks and cooperative advertising allowances may be used for this purpose; however, those practices reduce the new entrant's profit potential o Less of a barrier for products that can be sold on the Internet.
Sustainable Physical Environment Segment
refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to those changes in order to create a sustainable environment.
Economic Environment
refers to the nature and direction of the economy in which a firm competes or may compete
Political/Legal Segment (elements)
• Antitrust laws • Taxation laws • Deregulation philosophies • Labor training Laws • Educational philosophies and policies
Demographic Segment (in detail)
• Commonly analyzed on global basis because of their potential effects across countries' borders and many firms compete in global markets
Sustainable Physical Environment Segment (elements)
• 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.
General environment
• Grouped in 7 environmental segments • cannot directly control • companies seek to recognize trends in each segment and predict each trend's effect on it • no firm is able to control where growth in potential customers may take place in the next couple decades • Firms must study this anticipated trend as a foundation for predicting its effect on their ability to identify strategies to use that will allow them to remain successful as market conditions change
Global Segment (elements)
• Important Political events • Critical Global Markets • Newly industrialized countries • Different cultural and institutional attributes
Economic Environment (elements)
• Inflation Rates • Interest Rates • Trade deficits or surpluses • Budget deficits or surpluses • Personal savings data • Business savings data • Gross Domestic Product
Industry environment
• Interactions among these 5 factors determine an industry's profitability potential • an industry's profitability potential influences the choices each firm makes about its competitive actions and responses • Challenge= is to locate a position within an industry where it can favorably influence the 5 factors or where it can successfully defend itself against their influence. • GREATER firm's capacity to favorably influence its industry environment = GREATER likelihood it will earn above avg. returns
opportunity (in detail)
• Most companies, certainly large ones, continuously encounter multiple of this • Combination of cultural, political, and economic factors is resulting in rapid retail growth in parts of Africa, Asia, and Latin America. Examples- o Walmart, the world's largest retailer, and the next three largest global giants (France's Carrefour, UK-based Tesco, and Germany's Metro) are expanding in these regions o Walmart is expanding its number of retail units in Chile (404 units), India (20 units), and South Africa (360 units). o Carrefour exited India after four years and in the same year that Tesco opened stores in India. o Metro closed its operations in Egypt, it has stores in China, Russia, Japan, Vietnam, and India in addition to many eastern European countries.
Demographic Segment (elements)
• Population size • Age Structure • Geographic Distribution • Ethnic Mix • Income Distribution
Technological Segment (elements)
• Product Innovations • Applications of Knowledge • Focus on private and government-supported R&D Expenditures • New communication
competitor Analysis
• Understanding firm's competitor environment complements the insight provided by studying the general & industry environment • Analysis of general environment • Analysis of the industry environment • Analysis of competitors environment • Result of all 3 analyses combined influences firm's vision, mission, choice of strategies, and competitive actions and responses it will take to implement those strategies.
Sociocultural Segment (elements)
• 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 service characteristics
Segments of the General Environment
• composed of ----- that are external to firm • degree of impact varies; these ---- affect all industries and firms competing in them o The challenge to each firm is to scan, monitor, forecast, and assess the elements in each ----- to predict their effects on it. o Effectiveness of the 4 parts is vital for firm's efforts to recognize and evaluate opportunities and threats • identifying anticipated changes and trends among ------ and their elements is a key objective of analyzing this environment. • Focus on the future, the analysis of the general environment allows firms to identify opportunities and threats. • Have a top management team with the experience, knowledge, and sensitivity required to effectively analyze the conditions in a firm's general environment—as well as other facets such as the industry environment and competitors • Critical to a firm's choices of strategies and their associated competitive actions and responses is an understanding of its industry environment, its competitors, and the general environment of the countries in which it operates.
threat (deals with political/legal segment & in detail)
•Intellectual property protection has become a significant issue not only within a country but also across country borders Examples o In 2018 President Trump placed tariffs on goods exported from China into the United States. The primary reason given for the tariffs was the theft of U.S. firms' intellectual property by Chinese firms. China responded by placing tariffs on a large number of U.S. products exported to China, sparking fears of a potential trade war between the two countries with the largest economies in the world. This type of threat deals with the _______ Segment o Finished-based Nokia Corp. is dealing with threats including one that is intellectual property rights. In 2013, filed 2 complaints against competitor HTC Corp. alleging that the Taiwanese smartphone manufacturer had infringed on 9 of Nokia's patents. Ended in 2014, both companies signed a collaboration agreement. This type of threat deals with the _______ Segment
