Week 2: External Environmental Analysis
- What economic factors have to be considered in identifying an industry analysis?
- What competitive forces do companies face in an industry?
- What factors are driving industry change and what impacts will they have?
- What market positions do rivals occupy – who is strongly positioned and who is not?
- What strategic moves are rivals likely to make next?
- What are the key factors for future competitive success?
- Does the outlook for the industry present the company with an attractive opportunity?
Week 2 Discussion: External Environmental Analysis
The economic factors that need to be considered in industry analysis are the government policy-making towards the industry, the purchasing power of the customers who are establishing the demanded market, the demand conditions of the products supplied by the industry, the kind of infrastructure that enhances the industry growth, and the prices of the raw materials used by the industry (CFA Institute, 2022). Therefore, it can be said that the industry gets analyzed and measured with the help of PESTEL analysis.
The competitive force that companies face while being in an industry is the bargaining power of the buyers, suppliers’ power, the power of the substitute products, the threat from the new entrants, and the competitive rivalry among various companies (MaRS Startup, 2022). Therefore, it can be said that the company should use PORTER’S five forces model to measure and find out its competition accurately.
The factors that are driving the industry change include market presence, availability of raw materials, infrastructure availability, manpower specialization, and government orientation. These factors will make any kind of industry more attractive for buyers and suppliers resulting in the overall expansion of the industry. Therefore, there will be a positive contribution to the GDP rate of the country (Global Business Consultant, 2019). Moreover, there will be one negative impact also which is as the industry becomes attractive, it will automatically become sluggish.
A strategic group is a group of industry rivals that share similar competitive forces and market positions (Linton, 2022). It also possesses a comparable product line breadth, sells around at the same prices, but emphasizes the same distribution channels, utilizes the product attributes to the buyers, depends on similar technologies, and offers somewhat similar products and technical assistance.
If the organization does not pay attention to building its strategies similar and better than its competitors, it ends up falling behind the competition in the industry. Therefore, the organization gives a wonderful chance to its competition to go ahead in the plan development. The organization needs to put effort into gaining information about its rivals to anticipate its next strategic process (Cram, 2022). Overall helps the organization in planning a good strategy to develop sales and profit for itself. The key factors for the future competitive success of the organization are focus, market share, customer service, and product quality. It means that the organization or business needs to focus on its key areas such as a business plan (Root III, 2022). It needs to make sure that the business plan should comprise essential business functions and plans, The business also needs to possess a handsome market share to give tight competition to its competitors, and so on. With the industry outlook, a business can be able to find out the possible trends going on in the 209 industries. Through the outlook, a business can understand the trends in the industry easily (CMIE, 2022). It comprises the suppliers’ industries, customers’ industries, and competing industries as a whole. Therefore, it can be said that the industry outlook assists the business in gaining an attractive opportunity.
CFA Institute (2022). Introduction to Industry and Company Analysis. Retrieved on 30th September 2022, from: https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/introduction-industry-company-analysis#
MaRS Startup (2022). Industry analysis and competition: Porter’s five forces. Retrieved on 30th September 2022, from: https://learn.marsdd.com/article/industry-analysis-and-competition-using-porters-five-forces/#:~:text=Customers%2C%20suppliers%2C%20substitutes%20and%20potential,of%20industry%20competition%20and%20profitability.
Global business consultants (2019). What Factors Are Driving Change In Your Industry? Retrieved on 30th September 2022, from: https://globalbusinessconsultants.com.au/what-factors-are-driving-change-in-your-industry/
Linton, I. (2022). How Are Competitive Rivals Positioned in the Marketplace? Retrieved on 30th September 2022, from: https://smallbusiness.chron.com/competitive-rivals-positioned-marketplace-38921.html
Cram (2022). What Strategic Moves Are Rivals Likely To Make Next? Retrieved on 30th September 2022, from: https://www.cram.com/essay/What-Strategic-Moves-Are-Rivals-Likely-To/PCJSCZ4MGQM
Root III, G.N. (2022). What Are the Key Planning Factors for Competitive Success in Business? Retrieved on 30th September 2022, from: https://smallbusiness.chron.com/key-planning-factors-competitive-success-business-602.html
CMIE (2022). Industry Outlook. Retrieved on 30th September 2022, from: https://www.cmie.com/kommon/bin/sr.php?kall=wproducts&tabno=7010&prd=io&portal_code=030030030005000000000000000000000000000000000