Chapter 2: Analysis of the External Environment: Opportunities and Threats

Vocabulary flashcards covering the external environment, Porter's Five Forces analysis, and general environmental forces based on Chapter 2 of Strategic Management.

Landscape

The industry (or industries) in which a firm competes, along with the product and geographic markets within that industry that the firm targets.

Five Forces Industry Analysis Tool

A framework adapted from Michael E. Porter used to evaluate the major threats and opportunities in an industry: competitor rivalry, buyer power, supplier power, threat of new entrants, and threat of substitutes.

Rivalry

Competition among firms within an industry, typically involving firms putting pressure on each other and limiting each other's profit potential by attempting to steal profits and/or market share.

Substitute

A product that is fundamentally different yet serves the same function or purpose (or does the same "job") as another product.

Threats

Conditions in the competitive environment that endanger the profitability of a firm.

Opportunities

Ways of taking advantage of conditions in the environment to become more profitable.

Suppliers

A firm that provides products that serve as inputs to another firm's production process.

Forward Integration

A credible strategic move where a firm goes into the business of its former buyers rather than continuing to sell inputs to them.

Barriers to Entry

Mechanisms that make it more difficult for potential entrants to get a foothold in an industry, including economies of scale, capital requirements, and government policy restrictions.

Network Effects

Growth in demand for a firm's product that results directly from a growth in the number of existing customers.

The General Environment

The broad external context surrounding an industry's five forces, comprising complementary products/services, technological change, general economic conditions, demographics, ecological/natural environment, global forces, political/legal/regulatory forces, and social/cultural forces.

Complementary Products or Services

Products or services that can be used in tandem with those from another industry, such as video gaming hardware and software, or smartphone operating systems and apps.

Technological Change

Shifts including new products, new processes, and new materials that allow early adopters to gain greater market share and earn higher profit margins.

General Economic Conditions

The state of the broader economy—such as economic growth, interest rates, and inflation—that influences the profitability of the average firm in an industry.

Demographic Forces

Changes in the basic characteristics of a population, including overall numbers, average age, gender or ethnic makeup, and income distribution.

Ecological/Natural Environment

Changes to the physical environment and shifts in the public's perception of how businesses affect the environment.

Global Forces

Worldwide factors that shape business opportunity and strategy, such as trade barriers, international economic growth, and rising standards of living.

Political, Legal, and Regulatory Forces

Laws and regulations established by government agencies and institutions that impact business operations.

Social/Cultural Forces

A society's cultural values, norms, and collective attitudes that influence market preferences and behaviors.