environmental influences in businessPresentation Transcript
BUSINESS ENVIRONMENT Dr.K.S.CHANDRASEKHAR NAIR UNIVERSITY OF KERALA, TRIVANDRUM, INDIA email: firstname.lastname@example.org
Industries are the circles in the supply chain diagram.
Each industry is a set of firms that operate in the same space in a supply chain, competing to control some of the space and so capture value.
Industries have structure, history/ trajectories and competitive dynamics that set the context for new entrants.
Industries also operate within the macro environment -- where most analysis starts.
Scan the Environment
In business terminology, the environment consists of all the external forces that impinge on the industry, its markets and its firms.
Needless to say, there are a lot of potentially relevant factors.
Environmental Forces Firm/ Organization : Structure Culture Competencies Resources Industry Trade Association Government Union/ employees Competitors Creditors Suppliers Customers Communities Stockholders Sociocultural Forces Political/Legal Forces Technological Forces Economic Forces Macroenvironment
Environmental Forces Indicators ECONOMIC TECHNOLOGICAL GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/revaluation Energy availability & cost Disposable & discretionary income Total federal spending for R&D Total industry spending for R&D Focus of technological efforts Patent protection New products New technologies New developments in technology transfer from lab to marketplace Productivity improvements through automation
Environmental Forces Indicators POLITICAL-LEGAL SOCIOCULTURAL Antitrust regulations Environmental protection laws Tax laws Special incentives Foreign trade regulations Attitudes toward foreign companies Laws on hiring and promotion Stability of government Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies Birth rates
This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence.
This includes all factors that can influence and organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology
The internal environment
All factors that are internal to the organization are known as the 'internal environment'. They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external.
The organization's environment
1.The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Socio-cultural forces, and Technological forces. These are known as PEST factors.
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
1. Interest rates
2. The level of inflation Employment level per capita
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
Scan the Environment
The challenge is to sort through the noise to find the key strategic factors for your organization or industry or market.
This requires a constant process of scanning, which is both art and science.
As you conduct various analyses of your industry or markets, keep track of the outside forces that affect them, and especially the trends and discontinuities -- the opportunities and threats -- driven by these forces.
Tool: Matrix for Tracking Environmental Forces Env. Forces Communities Creditors Customers Employees Stockholders Suppliers Etc. Economic 1. 2. 1. 2. Stake- holders 1. 2. 1. 2. Technological Political-Legal Sociocultural Note how each force or set of forces affects each stakeholder group...
Tool: Force Field Analysis Organization Can be done for an organization or an industry. Each arrow is a force, with the lengths indicating relative strength.
SWOT Analysis—What to Look for in Sizing Up a Company’s Strength's , Weaknesses, Opportunities , and Threats Potential Internal Strengths CORE COMPETENCIES IN KEY AREAS ADEQUATE FINANCIAL RESOURCES WELL THOUGHT OF BY BUYERS AN ACKNOWLEDGED MARKET LEADER WELL-CONCEIVED FUNCTIONAL AREA STRATEGIES ACCESS TO ECONOMIES OF SCALE INSULATED (AT LEAST SOMEWHAT) FROM STRONG COMPETITIVE PRESSURES PROPRIETARY TECHNOLOGY COST ADVANTAGES
Potential Internal Weaknesses NO CLEAR STRATEGIC DIRECTION OBSOLETE FACILITIES SUB-PAR PROFITABILITY BECAUSE… LACK OF MANAGERIAL DEPTH AND TALENT MISSING SOME KEY SKILLS OR COMPETENCIES POOR TRACK RECORD IN IMPLEMENTING STRATEGY PLAGUED WITH INTERNAL OPERATING PROBLEMS FALLING BEHIND IN R&D TOO NARROW A PRODUCT LINE
Potential Internal Weaknesses WEAK MARKET IMAGE WEAK MARKET IMAGE WEAK DISTRIBUTION NETWORK BELOW-AVERAGE MARKETING SKILLS UNABLE TO FINANCE NEEDED CHANGES IN STRATEGY HIGHER OVERALL UNIT COSTS RELATIVE TO KEY COMPETITORS OTHER?
Potential External Opportunities SERVE ADDITIONAL CUSTOMER GROUPS ENTER NEW MARKETS OR SEGMENTS EXPAND PRODUCT LINE TO MEET BROADER RANGE OF CUSTOMER NEEDS DIVERSIFY INTO RELATED PRODUCTS VERTICAL INTEGRATION (FORWARD OR BACKWARD) FALLING TRADE BARRIERS IN ATTRACTIVE FOREIGN MARKETS COMPLACENCY AMONG RIVAL FIRMS FASTER MARKET GROWTH OTHER?
Potential External Threats ENTRY OF LOWER-COST FOREIGN COMPETITORS RISING SALES OF SUBSTITUTE PRODUCTS SLOWER MARKET GROWTH ADVERSE SHIFTS IN FOREIGN EXCHANGE RATES AND TRADE POLICIES OF FOREIGN GOVERNMENTS COSTLY REGULATORY REQUIREMENTS VULNERABILITY TO RECESSION AND BUSINESS CYCLES GROWING BARGAINING POWER OF CUSTOMERS OR SUPPLIERS CHANGING BUYER NEEDS AND TASTES ADVERSE DEMOGRAPHIC CHANGES OTHER?
Tool: Industry Scenarios A tool for exploring the impact of major shifts in the underlying context: 1. Examine possible shifts in environmental forces. 2. Identify uncertainties in each of the forces. 3. Identify causal factors behind the uncertainties. 4. Make range of assumptions about each causal factor. 5. Combine assumption into internally consistent scenarios. 6. Analyze the industry situation under each scenario. 7. Determine sources of competitive advantage under each scenario. 8. Predict competitor’s behavior under each scenario.
Once you understand some of the forces affecting your industry, it is useful to look at the structure of the industry, and especially the power relations that define the interactions within the industry.
Actually, it often works best to start with this industry analysis and then examine how larger trends might shape or change the picture.
The key tool for defining industry structure is Porter’s Five Forces Model -- the one Hamilton presented in detail (see notes in course materials).
Tool: Porter’s Five Forces Model (adjusted) Threat from Substitutes Suppliers’ Power Threat from New Entrants Buyers’ Power Rivalry of Firms Power of other Stakeholders
Tool: Porter’s Five Forces Model, (adjusted)
Applying microeconomic theory, Porter highlights the forces that affect a firms ability to raise prices and earn profits.
The stronger a force, the more it limits the industry firms’ ability to set prices.
Thus, strong forces are threats because they are likely to reduce profits; weak forces are opportunities because they may allow firms a chance to earn greater profits.
The pattern of forces shape an industry and constrain firms within the industry -- but industry structure is subject to change as the environment, each force, and each participant’s strategy change.
Tool: Porter’s Five Forces Model, Threat of Entry
Industries that are hard to enter are cozy for insiders, but also often attractive to outsiders longing for the value being shared by so few.
Barriers to entry make it harder for newcomers to play.
Fierce reaction by incumbents.
Size of payoff/relation of supply to demand.
Economies of scale:
minimum efficient scale of production
distribution or sales networks
Pioneering brand advantages.
Licenses or patents.
Cost of exit.
Tool: Porter’s Five Forces Model, Threat of Substitution
Industries with few substitute products are more attractive than those with many substitutes.
Effective substitutes can often provide ways in for upstarts.
The threat of substitutes is often the weakest of the forces -- except during times of high demand or fast change, when interlopers may see opportunities.
Tool: Porter’s Five Forces Model, Buyer Power
Attractive industries feature disorganized, small customers, with little purchasing and negotiating power.
Buyers gain power when:
They are large, relative to the seller (superstores).
They are organized (eg., a coop).
It is easy to switch to another supplier (eg., when products are standard).
They could integrate backwards and so take over a supplier.
Tool: Porter’s Five Forces Model, Supplier Power
Attractive industries feature small and disorganized suppliers.
Suppliers gain power when:
They are large, relative to the buyers. (Alcoa).
It is difficult for buyers to switch to competing suppliers. (Custom products, proprietary information).
They pose a credible threat of integrating forward and taking over the buyers’ functions.
Tool: Porter’s Five Forces Model, Industry Rivalry
Attractive industries are controlled by monopolies or gentlemanly oligopolies.
On the other hand, the more the players, and the more equally matched, the closer the industry approximates “perfect competition” and minimum profits.
Rivalry is reduced when:
Power is concentrated
Competitors can truly differentiate.
It is easy to exit.
Demand is stable and predictable.
Regulation takes the edge off.
Tool: Porter’s Five Forces Model, Other Stakeholders’ Power
Governments (if not in the environmental scan), unions, creditors (if not a supplier), advocacy groups (eg., environmentalists) can all constrain industries.
Competitive Intelligence (CI) is the process of gathering
and analyzing internal and external knowledge about the
environment in which an organization competes. It is the
ethical and legal gathering, evaluation and interpretation
of marketplace information, based on data available
through public sources. The CI analyst creates new
knowledge of the present and future competitive arena
for timely management decisions.
Competitive Intelligence Programme
" A formalised, yet continuously evolving process by which the management team assesses the evolution of its industry and the capabilities and behaviour of its current and potential competitors to assist in maintaining or developing a competitive advantage"
Tools and Techniques for Competitive Intelligence Activities
Contacting Government Agencies
Searching Online Databases
From Companies and Investment Community Resources
Surveys and Interviews
Drive-by and On-site Observations
Defensive Competitive Intelligence
Industry and Competitor Analysis methodology
Identifying the most attractive segments of the market
Competitive Advantage – Sustainable superiority
Understanding the life-cycle dynamics of each market area
Uncertainties and Risks
Return on Investment
How to win in the cut throat market
Speed (Dandi salt)
Innovation – Appropriate Technology (Samsung)
Exploit home grown equity (Amul)
Leverage cost leadership (Nirma)
Fragment by extension (Colgate)
Region concentration (Dabur)
Tactical promos (Cease fire)
Predict Competitor Responses
Various typologies classify competitors according to their typical responses:
Traditional - leader, challenger, follower
Porter - neutral, offensive, defensive, etc
Sources of Information
Company Annual Reports (See Library)
Observation - mystery shopper visits to competitors
Media - advertising
Trade fairs, exhibitions, etc
Collateral Material (corporate brochures, Internet sites)
Exclusive reliance on online sources is to be discouraged
Neutral - moves that are not seen as threatening, at least at the time
Offensive - moves that are likely to improve an organisation’s position
Defensive - moves that are designed to protect an organisation’s position or to prevent further conflict
Types of Tactics Anticipatory tactics Tactics of Engagement Offensive tactics Defensive tactics
Capture (Coke/ Parle)
Frontal assualt ( Coke/ Pepsi)
Flanking maneuver (IBM/ HP)
Siege Warfare (Subhiksha)
Guerilla (Indica/ Maruti)
Raising structural barriers
Increased expected retaliation
Lowering inducements for attack
Counter attack (Thumsup)
Fast follower (TOMCO / HLL)
Retrenchment ( Xerox / Cannon)
Withdrawal ( Cibaca /Binaca)
MARKETING INTELLIGENCE ON NEW CUSTOMERS
CHANGE IN DEMOGRPAHICS AND LIFESTYLES
TOO MANY PRODUCTS AFTER CUSTOMERS
VALUE IN TIME APART FROM VFM
NO LOYALTY - OUTCOME OF COST REDUCTIONS
TOO MANY ADVERTISEMENTS - AVERSION
CUT THROAT SALES PROMOTION
FINANCIAL SECURITY AND OVERFLOW
PROPENSITY TO PURCHASE ON THE RISE
INFLUENCE OF CHILDRENS POWER
EFFECT OF A BETTER ECONOMY ON PURCHASE
IMPORTANT CHANGES AMONG THE CONSUMERS
LIBERALISATION CHILDREN GROW UP
MORPHING OF RURAL INDIA BEYOND AGRICULTURE
RISE OF SELF EMPLOYED
ENVIRONMENTAL CHANGES DRIVE ASPIRATION
PLUARLITY OF INCOME, SINGULAR MINDSET
CHRACTERISTICS OF INDIAN CONSUMERS
‘ I CAN’
THE RISE OF THE WOMEN
EDUCATION AND HEALTH DRIVEN
PRAGMATISM IN CONSUMPTION AND PREFERENCE
FOR REAL VALUE PRODUCTS
COMFORT WITH BORROWING TO FUND FUTURE
COMFORT WITH CONSUMPTION
COMFORT WITH TECHNOLOGY
Indicators of an economy and its position in India Gross Domestic Product Gross Domestic Saving Net National Product Gross Domestic Capital Formation Life Expectancy at birth Literacy Rate Birth rate Death Rate Population
Agricultural Production Finished Steel Electricity Wholesale Price Index Consumer Price Index Export Import Securities Market Foreign Direct Investment
Gross Domestic Product Gross Domestic Product is the gross value-added by all the enterprises within the domestic territory f a country Gross Domestic Product represents the money value of all goods and services produced in the domestic territory of a country during a year.
Net National Product & Gross National Product Net National Product is the total value of final goods and services produced in an economy during a year (GNP) minus consumption of fixed capital. Gross National Product is the total value of all goods and services produced by the nationals of a country within the country or outside the country.
GNP= GDP plus or minus net factor income abroad. Net National product at factor cost (NNPFc) and National Income are one and the same.
703,080 MEXICO 875,817 SPAIN 905,629 CANADA 1,503562 ITALY 1,676,846 CHINA 1,858,731 FRANCE 2,016,393 UK 2,488974 GERMANY 4,749,910 JAPAN 12,150931 US GNP (MILLION $) COUNTRY
1,620,454 ITALY 1,724,647 FRANCE 1,736,377 UK 2,391,569 GERMANY 3,290,800 INDIA 3,817,221 JAPAN 7334254 CHINA 11,605185 US GDP(PPP) country
COMMODITY & SERVICE SECTOR % DISTRIBUTION 49.5 36.6 28.0
(III + IV + V)
100 100 100 TOTAL 50.5 63.4 72.0
( I+II )
2001-02 1980-81 1950-51
SHARE OF SERVICE SECTOR IN INDIA’S GDP (in Rs. Crore) 92733 43.69 97045 (45.35) 102142 (45.34) 108974 (45.62) 423200 (49.15) 463980 (50.08) 498572 (49.91) 537642 (51.24) 569005 (51.16) SERVICESECTOR 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 YEAR
Among the Asian countries Japan accounts for nearly half of Asia's GDP
China is in the 2 nd place &India in the 3 rd place
Luxemburg has the highest per capita GNP followed by Norway ,switzerland,us,japan
World GDP-44168157US DOLLARS
Japan-4,749,910 us $
Capital Formation Capital formation is also called capital accumulation. Acquiring assets is called capital formation. Capital accumulation is that part of current production which is not consumed, but set aside for use in further production. Capital formation is the surplus of production over consumption in an accounting year.
Gross Domestic Capital Formation Gross Domestic Capital Formation is the sum of gross fixed capital formation and change in stocks in the domestic territory of a country in an accounting year. Gross domestic Fixed Capital Formation consists of acquisition of new assets and net purchase of second-hand assets.
Economic Growth Economic Growth is calculated on the basis of the increase in Gross National Product indicating the values of goods and services produced in the economy during a year estimated at current or constant prices.
Sectors affecting GDP
Agriculture and allied
Mining and Quarrying
Electricity gas and Water Supply
a. Trade, Hotels, Transport and Communications
c. Community, Social and Personal Services
Rate of inflation in India
1970-80 declined to 8 9 % from 10.7 %.
2003-04 3 %
Due to increased G.D.P increases inflation decreases .
Inflation rate rose due to hike in oil prices .
Liberal imports – helps to control prices
Positive aspects of low inflationary trends.
General rise in price level of goods and services
Price level of most goods decrease
TYPES OF INFLATION
Increase in price level is small or gradual
Continuous creeping inflation for a long period of time without any monetary or fiscal control
Complete loss of control over running inflation by monetary authorities
Inflation reaches double or triple digit figures
SOURCES OF INFLATION
Demand pull inflation
High aggregate demand over a long period of time
Main factors -- increase in money supply,export earnings etc.
Cost push inflation
Increase in the cost of production,reduces the supply of goods by producers
The aggregate demand for goods remains the same
Wholesale Price index(WPI)
Weights are assigned to a series of 435 commodities in all, proportional to their share in the total value of output in the economy.
The sector-wise break-up of the 435 commodities is :
Fuel, Power, light and lubricants-19
Advantage-- available at frequent intervals, so continuous monitoring of the price level is possible
Disadvantage—Will not cover non-commodity producing sector i.e., services
Consumer Price Index(CPI)
CPI reflects the cost of living of a particular group in the population
Measured on the basis of changes in retail prices of selected goods and services (essential goods) on which a particular group of consumers spend their money based on their income
The consumption basket data is gathered from family budget surveys carried out from time to time
Since the CPI reflects changes in the retail price of goods consumed by a homogenous group of people, it cannot capture the consumption patterns of different segments
Effect of Inflation on the distribution of income and wealth
Debtors and Creditors:
Debtors gain and creditors lose
Producers gain from inflation
Depends on the investment
Measures to control inflation
a) Bank rate policy
b) Open market operations
c) Cash Reserve Ratio
d) Regulation of consumer credit
Public borrowing and debt
a) Price Control and rationing
b) Wage Policy
During the first quarter of the year 2002,the WPI in India was less than 2%
In the last year ,the highest inflation rate was 7.23%
The current rate of inflation for the week ended November 19 is 4.32%
Annual rate of inflation (%)
Availability of qualified engineer
Availability of qualified labor
Indian foreign exchange reserve –a steady rise
Literacy Rates in India state with high Lit. rate Kerala : 90.99 Mizoram: 88.5 Delhi : 81.82
Total Foreign Investment
Incidence of Poverty in India States with low pov.rate Goa: 4.4 Punjab: 6.2