The External Environment for Strategy

1. The External Environment for Strategy Strategic Management Lecture 2 義守大學企管系四年級B班 2009.09.30

2. Key Objectives • Understand how to explain the firm’s external environment • Describe the general, industrial, and competition environment • Identify the firm’s five competitive forces • Explain the environmental dimensions • Define the strategic groups • Describe how firms need to know about their competitors

3. External Environment • Three Possible Environmental Analysis Layers • General Environments • Dimensions in the broader society that influence an industry and the firms within it • Industry Environments • The set of factors that directly influences a firm and its competitive actions and competitive responses • Competitor Environments • Gather and interpret information about their competitors

4. External Environment • Another Four Environmental Dimensions • Market Segmentation • How to segment the possible market, and identify the possible source of customer • Growth Opportunities • The possible growth space in the specific product-market line • Market Channel Modes • The Possible Channel to Access the Customer • Industrial Life Cycle • How a industry evolve

5. Segments of the General Environments • Demographic Segment • Population Size, Age Structure, Geographic Distribution, Ethnic Mix, Income Distribution • Economic Segment • Recession, Booming, GNP, GDP, Average Income • Political/ Legal Segment • The Government Policy • Socio-cultural Segment • Customer Taste, Degree of Openness, Value • Technological Segment • Global Segment • Economic or Trade Region

6. Industry Environment • Definition of Industry • Importance of Industry Environment Analysis • Five Forces Model within a Specific Industry • Threat of New Entrants • Rivalry among Competing Firms • Bargaining Power of Suppliers • Threat of Substitute Products • Bargaining Power of Buyers

7. Five Forces Model—Threat of New Entrants • How to Identify a Competitor? • Possible Threat from New Entrants • High Entry Barrier Increase the Returns for Existing Firms • How to Prevent the New Entrance? • Establish Barrier to Entry • Retaliation

8. Five Forces Model—Threat of New Entrants • Possible Sources of Barriers to Entry • Economic of Scale • Product Differentiation • Capital Requirements • Switching Costs • Access to Distribution Channels • Cost Disadvantages Independent of Scale • Government Policy

9. Five Forces Model—Bargaining Power of Suppliers • Sources of Suppliers’ Bargaining Power • Fewer • Non-substitute • Non-significant • Critical • Higher Switch Cost • Credible Threat • Possible Methods to Lower the Bargaining Power of Suppliers

10. Five Forces Model—Bargaining Power of Buyers • Sources of Buyers’ Bargaining Power • Large Portion • Significant Portion for Annual Revenues • lower Switch Cost • Undifferentiated/ Standardized Products • Possible Methods to Lower the Bargaining Power of Buyers

11. Five Forces Model—Threat of Substitute Products • Definition of Substitute Products • Possible Source of Substitute Products • Differentiating Products along Dimensions that Customers Value • Price • Quality • Service • Location…

12. Five Forces Model—Intensity of Rivalry among Competitors • Possible Sources of Higher Intensity of Rivalry • Numerous or Equally Balanced Competitors • Slow Industry Growth • High Fixed Costs/ High Storage Costs • Lack of Differentiation/ Low Switching Costs • High Strategic Stakes • High Exit Barriers

13. Competitor Analysis • Understanding a Competitors from • Scale, growth, profit • Mission, commitment • Organizational factors • Cost structure • Past strategies • Resources and competencies • How to Response the Competitor’s Action

14. Market Segmentation • Importance of Market Segmentation • Market Diversity • Limited Resources • Monopolistic Advantage • Market Transformation • The Possible Variables for Segmentation • Customer Characteristics • Demography, Life Style and Personality, Geography • Product Characteristics • Interest, Purpose, Brand Identity v.s. Price Sensitivity

15. Market Segmentation • The Principle of Market Segmentation • Market Boundary • Inside similarity v.s. Outside Dissimilarity • Measurability • Quantity v.s Quality • Accessibility • The possible channel to access the customers • Feasibility • The resource and executive ability of the firms

16. Market Channel • The Channel Dimension • Channel Length • Degree of Spread • The Players in the Channel • The link between Upstream and Downstream • Typology

17. Market Channel • The Influential Factors in Channel Analysis • The Market Characteristics • The Cost associated with the Channel • The Value-added of the Channel • The product Characteristics • The Competition in the Channel

18. Industry Life Cycle • Product Life Cycle Analysis • According the growth rate of the product’s sales volume • Introduction stage, growth stage, maturity stage, decline stage • TheEvolution of an industry does not always follow the S curve • Industry characteristics, Industrial structure, The speed of innovation and technological Change… do matter

19. Growth Opportunity • The Possible Driving Force for Growth • The Quantity and Frequency of the Product • The New Use of the product • The Degree of the Maturity of the Product (可改良空間） • The Potential Segmentation in the Market （尚未被重視） • The Potential Cost Cutting Possibility • Standardization （是否出現標準規格） • The Substituted Product • The Growth and Decline of the Customer • The Demand Trend

20. Growth Opportunity • The Risk in Growth or Booming Market • Over-Crowded Competition • The Growth Rate is over-predicted • A Powerful and Competitive New Entrant • The Key successful factor is changed • The Resource Limitation • The Channel Limitation

21. Discussions (I) • What is the Driver for New Economy • Globalization • Technological innovation • Internet • Are There the Sixth Force for Analyzing the Competitive Environment? • Governmental policy • Culture, value • …

22. Discussions (II) • How the Concept of Boundary-less Company may Influence the Competitive Environment? • The Nature of competitiveness • The Nature of management • The Possible Inter-organizational relationships • Co-option, competing & cooperation, • Strategic alliance • Business group