Business environment

1. Business Environment :
An Introduction

2. An Overview
Business Environment
External Internal
Macro
Micro
Structure
Resources
Culture

3. Political/
Legal
Economic
Technological
Global
Demographic
Sociocultural
Competitive
Environment
Industry
Environment
Components of the External Environment

4. Macro Environment:
PEST (PESTEL / PESTLE)
Framework
Politico-legal Factors
Economic Factors
Socio Cultural Factors
Technological Factors

5. Politico-legal Factors
This is the most important influence on
the regulation of any business.
How stable is the political environment?
Influence the Government Policy / Law on
your business
Government’s position on Marketing Ethics
Government’s policy on the economy
Government’s view on culture under
religion

6. Political Factors - Contd.
Political System is responsible for Law
Making.
Immediate laws which affect any business
in general are Central Excise, Sales Tax/
VAT, Corporate Income Tax, Personal
Income Tax & Service Tax
Environmental Protection Law
Controls if any on Marketing Strategies
Like Marketing / Advertising of
Cigarettes, Tobacco, Alcohol etc.

7. Political Factors - Contd..
Control on Pricing
like sugar, drugs etc.
Government Policies on the Economy
Role of Public Sector
Role of Private Sector
Role of Joint Sector

8. Economic Factors
Economic System
Economic Structure
Economic Planning
Economic Policies
Economic Regulations
Economic Functioning
Economic Growth & Development

9. Economic Factors - Contd.
Avenues for Capital Creation
Size of the Capital Market
Role of the Regulator
Type of the Instruments
Nature of the Investors
Business Cycles

10. Socio-Cultural Factors
Demographics
Distribution of Income
Caste and Gender Bias
Social Mobility
Life Style Changes
Consumerism
Educational Levels
Religion and Traditions
Language

11. Socio-Cultural Factors - Contd.
Demographics & Distribution of
Income
Division of population - Male / Female
Age Group of the Population
Disposable Family Income
Disposable Income in the hands of the
different Age Groups
Education Level of the Age Groups

12. Social Cultural Factors - Contd.
Life Style Changes & Consumerism
Attitude to living
Different Age Groups
In tune with available disposable income
Thrust on taking care of present needs by
spending than saving for the future.
Joint living and nuclear families
Availability of various media tools
Reach of the media to the population

13. Advantage of Technology
In terms of Economies of Scale
New Discoveries & Innovations
Speed & Cost of Technology Transfer
Rate of Obsolescence
Technological Factors

14. Other Factors
Judicial System
Insurance System
Banking System
Regulatory System
Infra Structure
Communication
Transportation

15. COMPONENTS OF MICRO
ENVIRONMENT
Customers
Suppliers : of material and funds
Competitors
Publics
Intermediaries

16. Micro Environment:
Five-Forces Analysis
The five forces are environmental forces
that impact on a company’s ability to
compete in a given market.
The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.

17. Threat of
New
Entrants
Threat of
New
Entrants
Porter’s Five Forces
Model of Competition

18. Threat of New Entrants
Barriers to
Entry
Expected Retaliation
Government Policy
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent
of Scale

19. Bargaining Power of Suppliers
Suppliers exert power
in the industry by:
* Threatening to raise
prices or to reduce quality
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
Suppliers are likely to be powerful if:
Supplier industry is dominated by a
few firms
Suppliers’ products have few substitutes
Buyer is not an important customer to
supplier
Suppliers’ product is an important
input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high
switching costs
Supplier poses credible threat of
forward integration

20. Bargaining
Power of
Buyers
Threat of
New
Entrants
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Porter’s Five Forces
Model of Competition

21. Bargaining Power of Buyers
Buyers compete
with the supplying
industry by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off of
each other
Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases
are large relative to seller’s sales
Purchase accounts for a significant
fraction of supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyers’ industry earns low profits
Buyer presents a credible threat of
backward integration
Product unimportant to quality
Buyer has full information

22. Threat of
Substitute
Products
Threat of
New
Entrants
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Porter’s Five Forces
Model of Competition

23. Threat of Substitute Products
Products
with similar
function
limit the
prices firms
can charge
Keys to evaluate substitute products:
Products with improving
price/performance tradeoffs
relative to present industry
products
Example:
Electronic security systems
in place of security guards
Fax machines in place of
overnight mail delivery

24. Threat of
Substitute
Products
Threat of
New
Entrants
Threat of
New
Entrants
Rivalry Among
Competing Firms
in Industry
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Porter’s Five Forces
Model of Competition

25. Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Making new product introductions
Increasing consumer warranties or service
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand,
but may be costly to smaller competitors

26. Cutthroat competition is more likely to occur when:
Rivalry Among Existing Competitors
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
Lack of differentiation or switching costs
High storage costs
Capacity added in large increments
High strategic stakes
High exit barriers
Diverse competitors

27. The Five Forces are Unique to
Your Industry
Five-Forces Analysis is a framework for
analyzing a particular industry.
Yet, the five forces affect all the other
businesses in that industry.

28. Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firm’s Competitors
Competitive
Environment
Industry
Environment

29. Competitor Analysis
Assumptions
What assumptions do our
competitors hold about the future
of industry and themselves?
Current Strategy
Does our current strategy support
changes in the competitive
environment?
Future Objectives
How do our goals compare to our
competitors’ goals?
Capabilities
How do our capabilities compare
to our competitors?
Response
What will our
competitors do in the
future?
Where do we have a
competitive
advantage?
How will this change
our relationship with
our competition?

30. Future Objectives
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
What Drives the competitor?
Competitor Analysis

31. What is the competitor doing?
What can the competitor do?
Future Objectives
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?
Does this strategy
support changes in the
competitive structure?
Competitor Analysis

32. What does the competitor believe
about itself and the industry?
Future Objectives
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?
Does this strategy
support changes in the
competition structure?
Do we assume the future
will be volatile?
Are we assuming stable
competitive conditions?
What assumptions do our
competitors hold about the
industry and themselves?
Assumptions
Competitor Analysis

33. What are the competitor’s
capabilities?
Future Objectives
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?
Does this strategy
support changes in the
competition structure?
Do we assume the future
will be volatile?
Are we operating under
a status quo?
What assumptions do our
competitors hold about the
industry and themselves?
Assumptions
What are my competitors’
strengths and weaknesses?
How do our capabilities
compare to our
competitors?
Capabilities
Competitor Analysis

34. Future Objectives
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?
Does this strategy
support changes in the
competition structure?
Do we assume the future
will be volatile?
Are we operating under
a status quo?
What assumptions do our
competitors hold about the
industry and themselves?
Assumptions
Response
What will our competitors
do in the future?
Where do we have a
competitive advantage?
How will this change our
relationship with our
competition?
Capabilities
What are my competitors’
strengths and weaknesses?
How do our capabilities
compare to our
competitors?
Competitor Analysis

35. Internal Environment
Structure: Chain of command
Culture: Beliefs, Expectations and
Values
Resources: Assets, Skills,
Competencies, Knowledge

36. ETOP & SWOT Analysis
ETOP
Environmental Threat and
Opportunity Profile
Derived after
environmental scanning
SWOT
Strengths
Weaknesses
Opportunities
Threats

37. The purpose of ETOP and SWOT
Analysis
It is an easy-to-use tool for
developing an overview of a
company’s strategic situation
It forms a basis for matching your
company’s strategy to its situation

38. ETOP is the starting point
It provides the “raw material” to do
more extensive internal and
external analysis.
SWOT follows.
It provides an overview of the
strategic situation.

39. Opportunities
An OPPORTUNITY is a chance for firm
growth or progress due to a favorable
juncture of circumstances in the
business environment.
Possible Opportunities:
Emerging customer needs
Quality Improvements
Expanding global markets
Vertical Integration

40. Threats
A THREAT is a factor in your
company’s external environment
that poses a danger to its well-
being.
Possible Threats:
New entry by competitors
Changing demographics/shifting
demand
Emergence of cheaper technologies
Regulatory requirements

41. Opportunities and Threats form
a basis for EXTERNAL analysis
By examining opportunities, you can
discover untapped markets, and new
products or technologies, or identify
potential avenues for diversification.
By examining threats, you can identify
unfavorable market shifts or changes in
technology, and create a defensive
posture aimed at preserving your
competitive position.