Slide 1Analyzing the External EnvironmentLearning ObjectivesQuestionThe General EnvironmentSlide 6Demographic SegmentSociocultural SegmentPolitical/Legal SegmentExample: Sarbanes-OxleyTechnological SegmentTechnological Segment - NanotechnologyExample: Nanotech’s MaterialTechnological Segment – Internet GrowthEconomic SegmentThe Competitive EnvironmentPorter’s Five Forces Model of Industry CompetitionSlide 18Slide 19ExampleThe Threat of New EntrantsSlide 22The Bargaining Power of BuyersSlide 24Slide 25The Bargaining Power of SuppliersSlide 27Slide 28The Threat of Substitute Products and ServicesThe Intensity of Rivalry among Competitors in an IndustrySlide 31Using Industry Analysis: A Few CaveatsSlide 33How the Internet and Digital Technologies Influences IndustrySlide 35Slide 36Slide 37Strategic Groups within IndustriesSlide 39Slide 40McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 4 Analyzing the External EnvironmentLearning ObjectivesAfter reading this chapter, you should have a good understanding of:The impact of the general environment on a firm’s strategies and performance.How forces in the competitive environment can affect profitability and how a firm can improve its competitive position by increasing its power vis-à-vis these forces.How trends and events in the general environment and forces in the competitive environment are interrelated and affect performance.How the internet and digitally based compatibilities are affecting the five competitive forces and industry profitability.The concept of strategic groups and their strategy and performance implications.4-3QuestionAll of the following are segments of the general environment except:a) Legal/Politicalb) Technologicalc) Ethicald) Sociocultural4-4The General EnvironmentSegments of the general environment include:DemographicSocioculturalLegal/PoliticalTechnologicalEconomicGlobalGeneral Environment4-5The General EnvironmentGeneral environmental trends and events:Little ability to predict themEven less ability to control themCan vary across industriesGeneral Environment4-6Demographic SegmentAging populationRising affluenceChanges in ethnic compositionGeographic distribution of populationGreater disparities in income levels4-7Sociocultural SegmentMore women in the workforceIncrease in temporary workersGreater concern for fitnessGreater concern for environmentPostponement of family formation4-8Political/Legal SegmentTort reformAmericans with Disabilities Act (ADA)Repeal of Glass-Steagall Act in 1999Deregulation of utility and other industriesIncreases in federally mandated minimum wagesTaxation at local, state, federal levelsLegislation on corporate governance reforms (Sarbanes-Oxley Act)4-9Example: Sarbanes-OxleySarbanes-Oxley Act is five years young and seems to be having the desired effect Intended to protect from corporate corruption In 1981 about 36% of households invested in the stock market; now 54%Initially the law was "far too bureaucratic" Since been ironed out by the SEC and the Public Company Oversight Accounting Boardwww.forbes.com/leadership/2007/08/27/sarbox-regulation-rules-lead-govern-cx_mk_0827oxley.html4-10Technological SegmentGenetic engineeringEmergence of Internet technologyComputer-aided design/computer-aided manufacturing systems (CAD/CAM)Research in synthetic and exotic materialsPollution/global warmingMiniaturization of computing technologiesWireless communicationNanotechnology4-11Technological Segment - Nanotechnology4-12Example: Nanotech’s MaterialCarbon nanotubes become first application to transform nanotechnologyRolled sheets of graphite, with the ends capped with a soccer ball-shaped carbon structureSeveral times stronger and lighter than steel Electronically, they can be metallic or semiconductingNanotubes can be made as ballistic conductors or insulators www.forbes.com/personalfinance/2007/05/15/nanotech-arrowhead-intel-pf-guru-in_jw_0515soapbox_inl.html4-13Technological Segment – Internet Growth4-14Economic SegmentInterest ratesUnemploymentConsumer Price indexTrends in GDPChanges in stock market valuations4-15The Competitive EnvironmentSegments of the competitive environment include:CompetitorsCustomersSuppliersSometimes called the task or industry environmentPorter’s five forces modelCompetitive Environment4-16Porter’s Five Forces Model of Industry CompetitionMost common analytical tool for examining competitive environmentFive basic competitive forces:Threat of new entrantsBargaining power of buyersBargaining power of suppliersThreat of substitute products and servicesIntensity of rivalry among competitors in an industry4-17Porter’s Five Forces Model of Industry CompetitionFive forces model important because:Helps decide if firm should remain in or exit an industryProvides rationale for increasing or decreasing resource commitmentsHelps assess how to improve firm’s competitive position with regard to each of forces4-18Porter’s Five Forces Model of Industry Competition4-19ExamplePorter’s Five Forces Model: BMWThreat of new entrantsVery lowThreat of substitutesMediumPower of suppliersMediumPower of buyersMediumRivalry among existing firmsVery HighSource: Developed from www.bmw.com 4-20The Threat of New EntrantsProfits of established firms in the industry may be eroded by new competitorsHigh entry barriers lead to low threat of new entriesEconomies of scaleProduct differentiationCapital requirementsSwitching costsAccess to distribution channelsCost disadvantages independent of scale4-21Question If you are considering opening a new pizza restaurant in your community, what would be the threat of new entrants? How would you evaluate Porter’s other forces for this industry? Explain.4-22The Bargaining Power of BuyersBuyers threaten an industryForce down pricesBargain for higher quality or more servicesPlay competitors against each other4-23The Bargaining Power of BuyersA buyer group is powerful whenIt is concentrated or purchases large volumes relative to seller salesThe products it purchases from the industry are standard or undifferentiatedThe buyer faces few switching costsIt earns low profitsThe buyers