INDUSTRY & ENVIRONMENT ANALYSIS

Firm

business organization that produces goods or services for profit and competes with other firms in the market

Monopsony

A market where there is only one buyer but many sellers, giving the buyer strong power to set prices.

Porter's Five Forces of Competitive Position

A framework by Michael Porter

Threat of Substitute Goods

The risk that other products can replace yours, reducing a firm's power. Example: Coffee vs. Tea.

Bargaining Power of Customers (Buyers)

The ability of customers to demand lower prices or higher quality, especially when they have many choices.

Bargaining Power of Suppliers

The ability of suppliers to raise input prices, strong when there are few suppliers.

Threat of New Entrants

The risk of new businesses entering the market, increasing competition and reducing profits for existing firms.

Competition Among Firms (Rivalry)

Rivalry among existing businesses through price cuts, promotions, or product improvements.

High rivalry reduces profits.

Summary of Porter's Five Forces

Substitutes, Customers, Suppliers, Entrants, and Rivals are the five factors that decide competition level in an industry.

Change in National & Global Economy

Economic factors like taxes, inflation, trade, and exchange rates that affect business profitability.

Government Reputation & Policies

Laws, regulations, licenses, and political stability that influence how businesses operate.

Technological Development

New tools and systems (e-commerce, AI, digital marketing) that can reduce costs and expand markets.

Demographic Change

Changes in population size, age, gender, income, or education that affect demand for goods and services.

Social Change

Shifts in lifestyle, culture, and values that influence consumer behavior and buying habits.

Change in Physical/Natural Environment

Natural conditions like location, climate, and resources that affect where and how businesses operate.

Summary of Environmental Scanning

Six main external factors affecting business: Economy, Government, Technology, Demography, Social, and Natural Environment.