External Environment Analysis

1774 Words Jul 15th, 2013 8 Pages
CHAPTER TWO
EXTERNAL ENVIRONMENT ANALYSIS

At the end of this chapter, the student should be able to:
1. Understand the processes for an environmentally conscious organization.
2. Know the importance of SWOT analysis in analyzing both external and internal environment.
3. Understand the different segments of the external environment known as the general environment.
4. To find out how the strength of the company’s competitive forces are congruent with the industry’s through the five-forces model of industry competition.
5. To understand the relevance of benchmarking in evaluating company’s performance as against competitors.

INTRODUCTION:

Companies must be responsive to the external business environment. Knowledge about the
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5. Technological. Information technology, robotics, microelectronics, ergonomics, genetic engineering, computer-aided design, pollution, global warning, invention of smart gadgets are some of issues under this segment.
6. Global segment. This segment includes political events, peace agreements or negotiations, critical global markets, newly industrialized countries, trade agreements, and different cultural and institutional attributes.

THE STRENGTH OF AN INDUSTRY’S COMPETITIVE FORCES
Industry and competitive analysis should focus on the competitive dynamics of the industry. The five-forces model of competition is the most powerful and widely used tool for assessing the strength of the industry’s competitive forces.

The Five Basic Competitive Forces
1. The threat of new entrants. Several factors determine whether the threat of new companies entering the marketplace presents a significant competitive pressure. As a rule, the bigger pool of entry candidates, the stronger the threat of potential entry. Dess, et.al. enumerated the six major sources of entry barriers.
a. Economies of scale. Economies of scale refers to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the absolute volume per period increases.
b. Product differentiation. When existing competitors have strong brand