The External Environment.pptVIP

* * * Market growth: Rivalry is intensified when firms are competing for a greater market share in a total market where growth is slow or stagnant Cost structure: High fixed costs may be a barrier to competing on price Switching: Suppliers will compete if buyers can switch easily Capacity: A supplier might need to achieve a substantial increase in output capacity in order to obtain reductions in unit costs. Uncertainty: When one firm is not sure what another is up to, there is a tendency to respond to the uncertainty by formulating a more competitive strategy Strategic importance: If success is the prime strategic objective, firms will be likely to act very competitvely to meet their targets Exit barriers: These make it difficult for an existing supplier to leave the industry. They include; Fixed assets with a ow break-up value Cost of redundancy payments If the firm is a division of a larger enterprise, thee may be a knock-on effect on other areas of activity Reluctance of managers to admit defeat, their loyalty to employees, and fear for their own jobs Government pressures on major employers not to shut down operations, especially when competition comes from foreign producers rather than domestic producers. * * * 29 * INU3106 Semester 2: Lecture 1 The External Environment * Learning Outcomes Explain the importance of analysing and understanding the firm’s external environment. Define and describe the general environment and the industry environment. Identify the five competitive forces and explain how they determine an industry’s profit potential. Describe what firms need to know about their competitors * External Analysis A business exists within an external environment, consisting of the actions of other players who are outside the business. These external factors are beyond their control General environment: PEST EL analysis Macro level identifies the drivers of change Competitive environment: 5 Forces analysis Micro level assessment of the industry