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General Environment Analysis

General Environment Analysis. Trouble at Amana. In 1967, Amana introduced the first microwave, and gained 60% of the market. A decade later, its market share declined to 6%. WHY? Mis-forecast: microwave will SUBSTITUTE for traditional ways of cooking

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General Environment Analysis

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  1. General Environment Analysis

  2. Trouble at Amana In 1967, Amana introduced the first microwave, and gained 60% of the market. A decade later, its market share declined to 6%. WHY? • Mis-forecast: microwave will SUBSTITUTE for traditional ways of cooking • Misunderstood the market: assumed that the market DOESN’T care about the price • Unprepared for new entrants: Low priced Japanese competitors

  3. Layers of the business environment

  4. Environment and Management Economic Technological Political Social Global Demographic BUSINESS POLICIES AND MANAGEMENT STYLE

  5. Macroenvironment – PEST (2) • Political • Government stability • Taxation policy • Foreign trade regulations • Social welfare policies • Economic • Business cycles • GNP trends • Interest rates • Money supply • Inflation • Unemployment • Disposable income

  6. The Political Environment in Asia Pacific Countries

  7. Ranking On “Easy To Do Business” • Rank 155 countries • Based on various indicators • Surveys law firms/ organizations

  8. Which indicators make up the ranking? Starting a business • Procedures, time, cost and minimum capital to open a new business Dealing with licenses • Procedures, time and cost of business inspections and licensing (construction industry) Hiring and firing workers • Difficulty of hiring index, rigidity of hours of index, difficulty of firing index, hiring cost and firing cost Registering property • Procedures, time and cost to register commercial real estate Getting credit • Strength of legal rights index, depth of credit information index

  9. Which indicators make up the ranking? (con.) Protecting investors • Indices on the extent of disclosure, extent of director liability and ease of shareholder suits Paying taxes • Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit Trading across borders • Number of documents, number of signatures and time necessary to export and import Enforcing contracts • Procedures, time and cost to enforce a debt contract Closing a business • Time and cost to close down a business, and recovery rate

  10. IFC Rank Countries on “Easy to do Business”, 2005 2006 1. Singapore 2. New Zealand 3. U.S.A. 5. Hong Kong 11. Japan 18. Thailand 23. Korea 25. Malaysia 47. Taiwan 93. China 104. Vietnam 126. Philippines 134. India 135. Indonesia 2005 1. New Zeala 2. Singapore 3. U.S.A. 7. Hong Kong 10. Japan 20. Thailand 21. Malaysia 27. Korea 35. Taiwan 91. China 99. Vietnam 114. Philippines 115. Indonesia 116. India

  11. WB’s Ranking on Corruption • Rank 146 countries • Based on different types of surveys (institutions, managers, etc.)

  12. WB’s Ranking on Corruption 2. New Zealand 71. China 5. Singapore 90. India 16. Hong Kong 102. Philippines 24. Japan 102. Vietnam 35. Taiwan 133. Indonesia 39. Malaysia 47. South Korea 64. Thailand

  13. The Political Environment Map High corruption Indonesia Philippines Vietnam India China Easy Difficult Thailand SK Malaysia Taiwan Japan HK Singapore NZ Low corruption

  14. STOP AND THINK! • What are examples of products that are most sensitive to political environment? What products are least sensitive? • How do firms adjust their marketing effort when products are very sensitive to the political environment?

  15. Macroenvironment – PEST (3) • Socio-cultural • Population demographics • Income distribution • Social mobility • Lifestyle changes • Attitudes to work and leisure • Consumerism • Levels of education

  16. Case: Echo Boomer • Who are the “Echo Boomer” generation? • How would you describe them? Compared to older generations, what are differences in their values? • How does the trend impact businesses in general • Choose an industry. What impacts do the trends have on the industry? How should firms in that industry respond?

  17. Macroenvironment – PESTEL (4) • Technological • Government spending on research • Government and industry focus on technological effort • New discoveries /developments • Speed of technology transfer • Rates of obsolescence • Legal • Competition law • Employment law • Health and safety • Product safety

  18. Key Aspects of PESTEL Analysis • Not just a list of influences • Need to understand key drivers of change • Drivers of change have differential impact on industries, markets, and organisations • Focus is on future impact of environmental factors • Combined effect of some of the factors likely to be most important

  19. INDUSTRY ANALYSIS

  20. Which Industries Are More Attractive? • Banking • Garment • Restaurant

  21. The Five Forces Framework

  22. Five Forces Analysis (1) The threat of entry ... Potential entrants are competitors who are NOT YET in the industry, but may enter in the future Dependent on barriers to entry such as: • economies of scale • capital requirements of entry • access to supply or distribution channels • customer or supplier loyalty • experience • expected retaliation • legislation or government action • differentiation Which one has more potential for new entry? • Banking • Garment • Management Consulting

  23. Five Forces Analysis (2) Threat of substitutes Reduction in demand for products as customers switch to alternatives: • Product for product substitution • e.g. email for post • substitution of need • e.g. reliable and cheap appliances reduce need for maintenance services • generic substitution • competition for household income, e.g. cars versus holidays Which one has more threats of substitute? • Banking • Garment • Management Consulting

  24. Five Forces Analysis (3) Buyer power is likely to be high where there is / are: • a concentration of buyers • many small operators in the supplying industry • alternative sources of supply • low switching costs • possible integration backward by the buyer Which one has strong buyer power? • Banking • Garment • Management Consulting

  25. Five Forces Analysis (4) Suppliers are those who supply inputs to the firms in the industry Supplier power is likely to be high where there is / are: • a concentration of suppliers • customers that are fragmented and bargaining power low • high switching costs • powerful supplier brand • possible integration forward by the supplier Which one has strong supplier power? • Banking • Garment • Management Consulting

  26. Five Forces Analysis (5) Competitive Rivalry is likely to be high when: • competitors are in balance • there is slow market growth (product life cycle) • there are high fixed costs in an industry • there are high exit barriers • markets are undifferentiated Which one has intensive competition? • Banking • Garment • Management Consulting Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors

  27. Five Forces Analysis: Key questions and implications • Are some industries more attractive than others? (weaker forces) • What underlying forcesin the macroenvironment drive the competitive forces? • Will competitive forceschange? • What are the strengths and weaknessesof the competitors in relation to the competitive forces? • Can competitive strategyinfluence competitive forces? (e.g. build barriers to entry)

  28. Key Aspects of 5-Forces Analysis • Use at level of strategic business units (SBU) • Define the industry/market/sector • Don’t just list the forces: derive implications for industry/organisation • Note connections between competitive forces and key drivers in macroenvironment • Establish interconnections between the five forces • Competition may disrupt the forces rather than accommodate them

  29. The Life-Cycle Model

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