The External Environment ( Strategic Management)

Entry: Despite low prices, high exit barriers discourage firms to enter market due to cost of leaving the market if business turned unsuccessful.

Economies of scale: Large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises

Both potential and existing competitors influence average industry profitability. The threat of new entrants is usually based on the market entry barriers. They can take diverse forms and are used to prevent an influx of firms into an industry whenever profits, adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents’ position (Porter, 1980b; Sanderson, 1998) The most common forms of entry barriers, except intrinsic physical or legal obstacles, are as follows:

An organization’s external environment is terribly important and must be studied and understood for the organization to truly succeed. Through such study and understanding, a manager would be able “mitigate threats and leverage opportunities” that are caused by the six segments identified as macro-level external forces: (1) political, (2) economic, (3) sociocultural, (4) technological, (5) ecological, and (6) legal (Rothaermel, 2013, pp. 56-57). Since the manager’s decisions, or firm effects, have a greater impact than those external forces mentioned only when the manager accounts for them and builds a strategy around them, the manager must be aware of and understand these forces to be

The external environment affects a firm’s strategic actions. Essentially, if a company decision has created a disaster in the environment, they

The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. If there is a market with much choice supplier choice, bargaining power will be less.

„« Barriers to entry are typically high, it requires a very large amount of money and expertise to enter the industry. The industry is consolidating not growing.

Potential for new entrants - The primary prevention to entrance are higher barriers within industry with the threats of new entrants as competitors (Porter, 1998).

The environment in which a company finds itself has been a factor in a firm’s strategy, because of access to raw materials. The environment in which a company operates can make and break the company at the same time. Environmental factors are evaluated on the footprint left behind by a firm on its respective surroundings. It is important that every individual or management considers the environment in which they intend to set up a business.

Some firms cannot even enter a market if the market is so saturated by advertising from another firm, as advertising is a sunk cost therefore whatever is spent is unable to be recuperated afterwards if the firm decides to leave the industry, therefore a firm may decide to not enter in the first place, therefore keeping the market a monopoly or oligopoly. Therefore it is clear to see that most barriers to entry make the market less

The conclusion on the bargaining power of suppliers is high for equipment suppliers and relatively low for ingredient

- Suppliers’ bargaining power: The company does bargains with the suppliers, suppliers are first carefully selected by carrying out bidding then a fixed price is set by multi consent then material is provided by the supplier.

An analysis of the external environment includes the factors in a business’s external environment about a business's industry, competition, and political and social environments, and affects the firm’s strategy (Aaker, 2001).

Again, with high entry barriers they are not bombarded with other firms coming and going from their market. (Samuelson and Marks, 2010).

So when barriers for entry and exits are high, it means that companies have a higher potential to make more profit and the opposite occurs when barriers are low.