External Analysis

Opportunities

arise when a company can take advantage of conditions in its environment to formulate and implement strategies that enable it to become more profitable.

Threats

arise when conditions in the external environment endanger the integrity and profitability of the company’s business.

Industry

Strong competitive advantage

can be regarded as a threat because it depresses profits

Weak competitive advantage

can be viewed as an opportunity because it allows a company to earn greater profits.

Potential competitors

are companies that are not currently competing in an industry but have the capability to do so if they choose.

Barriers to entry

factors that make it costly for companies to enter an industry

Economies of scale

arise when unit costs fall as a firm expands its output.

Brand loyalty

exists when consumers have a preference for the products of established companies.

Absolute cost advantage

relative to potential entrants, meaning that entrants cannot expect to match the established companies’ lower cost structure.

Customer Switching Cost

arise when it costs a customer time, energy, and money to switch from the products offered by one established company to the products offered by a new entrant.

Switching cost

are the expenses that a consumer encounters when buying products or services from a new company.

Pre emptive depense

Company decides to attack competitors before it attack them

Rivalry

refers to the competitive struggle between companies in an industry to gain market share from each other.

More intense rivalry

implies lower prices or more spending on non–price- competitive weapons, or both.

Less intense rivalry

companies may have the opportunity to raise prices or reduce spending on non–price- competitive weapons, which leads to a higher level of industry profits.

Industry competitive structure

refers to the number and size distribution of companies in it, something that strategic managers determine at the beginning of an industry analysis.

Fragmented industry

consists of a large number of small- or medium- sized companies, none of which is in a position to determine industry price.

Consolidated Industry

is dominated by a small number of large companies (an oligopoly), or in extreme cases, by just one company (a monopoly) in which companies often are in a position to determine industry prices.

Fixed cost

refer to the costs that must be born before the firm makes a single sale.

Exit barriers

economic, strategic, and emotional factors that prevent companies from leaving an industry.

Substitute products

the products of different businesses or industries that can satisfy similar customer needs.

Strategic group

Groups of companies in which each company follows a strategy that is similar to that pursued by other companies in the group, but different from the strategies followed by companies in other groups.

Mobility barrier

are within- industry factors that inhibit the movement of companies between strategic groups.

Embryonic industry

is just beginning to develop. Growth at this stage is slow because of buyers’ unfamiliarity with the industry’s product, high prices due to the inability of companies to reap any significant scale economies, and poorly developed distribution channels.

Growth industry

when customers become familiar with the product, prices fall because experience and scale economies have been attained, and distribution channels develop.

Industry shakeout

Explosive growth cannot be maintained indefinitely. Sooner or later, the rate of growth slows, and the industry enters the ____. _____ demand approaches saturation levels: most of the demand is limited to replacement because there are few potentials first- time buyers left.

Mature industry

the market is totally saturated, demand is limited primarily to replacement demand, and growth is low or zero.

Declining industry

growth becomes negative for a variety of reasons, including technological substitution

Macroeconomic force

affect the general health and well-being of a nation or the regional economy of an organization, which in turn affect companies’ and industries’ ability to earn an adequate rate of return.

Economic growth

because it leads to an expansion in customer expenditures, tends to produce a general easing of competitive pressures within an industry.

The level of interest rate

are important whenever customers routinely borrow money to finance their purchase of these products.

Currency exchange rate

define the value of different national currencies against each other.

Price inflation

can destabilize the economy, producing slower economic growth, higher interest rates, and volatile currency movements.

Political and legal forces

are outcomes of changes in laws and regulations. They result from political and legal developments within society and significantly affect managers and companies

Global forces

Over the last half of a century there have been enormous changes in the world economic system. The important points to note are that barriers to international trade and investment have tumbled, and an increasing number of countries are enjoying sustained economic growth.

Technological forces

change is that it can affect the height of barriers to entry and therefore radically reshape industry structure. The Internet, because it is so pervasive, has the potential for changing the competitive structure of many industries.

Demographics forces

are outcomes of changes in the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class.

Social forces

refer to the way in which changing social mores and values affect an industry.