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34 Cards in this Set
- Front
- Back
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ENVIRONMENTAL INFLUENCES |
The environment within which an organisation operates exerts three basic forms of influence upon the organisation. - Threats and Opportunities - Resources - Pressure Groups |
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WAYS TO REACT TO ENVIRONMENTAL SITUATIONS |
Do nothing - if convinced the problem is in-significant or short-term. Monitor environment - But not respond Increase flexibility - Contingency planning/product market development Major strategic change - Situation is import/urgent. |
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ENVIRONMENTAL CHARACTERISTICS |
Stable and unchanging - Can focus attention on past decisions and results. Correct past mistakes. Stable with minor fluctuations - Cyclical or seasonal fluctuations within a stable structure. Gradually changing - Organisation recognises that environment is being changed into something new and predictable. Rapidly changing - Highly turbulent and unpredictable business. Strategic planning much more important. |
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EXTERNAL ANALYSIS OF THE MACRO ENVIRONMENT PEST(EL) |
- Political influences and events - Economic influences - Social influences - Technological influences - Environmental influences - Legal influences The output from this model will help an organisation form the opportunities and threats part of their corporate appraisal. |
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EXTERNAL ANALYSIS OF THE MACRO ENVIRONMENT LoNGPEST |
Lo - Refers to the local level in which the organisation operates. N - Concerned with the home country in which it has its HQ G - Represents the global view, everything outside the Lo/N |
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EXTERNAL ANALYSIS OF THE INDUSTRY/COMPETITIVE ENVIRONMENT Porters Five Forces |
(1) New Entrants - Will bring extra capacity and intensity competition. (2) Rivalry Amongst Competitors - Existing competition and its intensity. (3) Substitutions - This threat is cross industry (4) Power of Buyer - Powerful buyers can force price cuts and/or quality improvement. (5) Power of Suppliers - To charge higher prices. |
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PORTERS FIVE FORCES Model uses |
- To help management decide to enter a particular industry. - To influence whether to invest more in an industry. - To identify company strategy needed. |
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PORTERS FIVE FORCES New Entrants |
- Economies of scale - Product differentiation - Capital requirements - Switching costs - Restricted access to distribution channels - Cost advantage of existing products - Government policy |
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PORTERS FIVE FORCES Rivalry Amongst Competitors |
- Number and relative strength of competitors - Rate of growth - How easily buyers can switch between suppliers - If exit barrier is high, competition will hang on until forced out - Highly competitive if its presence in the market is a strategic need - If high fixed costs are involved, companies will cut prices to retain volume |
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PORTERS FIVE FORCES Substitutions |
Substitutions limit the potential return by placing a ceiling on the price which firms in the industry can profitably charge. |
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PORTERS FIVE FORCES Power of Buyers |
- Where a buyer makes a low profit - Where quality or delivery time is not important prices will be forced down - Where a product has been strongly differentiated with good brand, a retailer would to stock to meet demand - Where a buyers purchases are a high proportion of the suppliers total business or total trade in that market |
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PORTERS FIVE FORCES Power of Suppliers |
- The degree to which switching costs apply and substitutes are available - The presence of one or two dominant suppliers controlling prices - The extent to which products offered have uniqueness of brand, technical performance or design not available elsewhere |
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EVALUATION OF ENVIRONMENTAL MODELS |
Benefits - They ensure management consider a wide range of potential impacts when devising strategy. - They allow the division of work in environmental analysis. - They provide a common language between managers. - They provide insight into key strategic choices. Limitations - They can distort reality. - They present the environment as external. - They may cause management to overlook networks. - They can overload management with analysis. |
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GLOBALISATION |
Companies are able to compete more evenly anywhere in the world, with the effect that competition has become even fiercer. Global managers must have an understanding of the complexities of the modern world and how to deal with people from a wide range of background and cultures. |
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IMPACT OF GLOBALISATION ON STRATEGY |
Porter Any organisation competing in a global market has a balance of two dimensions. - Global dimension for worldwide co-ordination to achieve economies of scale - Local dimension that enables country managers to respond to local customer needs. |
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GLOBALISATION - DEVELOPMENTS IN THE BUSINESS ENVIRONMENT |
- The drive by multinational companies to seek new markets as domestic markets become saturated. - The deregulation an privatisation of industries. - Consolidation and development of trading blocs. - Liberation of trade - Free trade opening up new opportunities in emerging markets. - Potential cost and market share advantage. - Lower production costs in developed countries. - Development in communications networks - Global financing - Developments in the technology of communication and transportation. |
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GLOBALISATION IMPACT Industrial Relocation |
May firms have relocated their manufacturing base to countries with lower labour costs - off-shoring. Managing global supply chains has only been made possible by the advances in technology. |
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GLOBALISATION IMPACT Emergence of Growth Markets |
Many previously closed markets, such as China, are opening up to Western firms. |
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GLOBALISATION IMPACT Access to markets/enhanced competition |
The combination of firms global expansion plans and the relaxation of trade barriers have resulted in increased competition. - There is greater pressure on firms cost basis with factories being relocated. - Greater call for protectionism. |
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GLOBALISATION IMPACT Cross national business alliances and mergers |
To exploit the opportunities in global markets offer, many firms have sought to obtain expertise and greater economies of scale through cross-national mergers and acquisitions. |
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GLOBALISATION IMPACT Widening economic divisions between countires |
Many opponents of globalisation agree that it is creating new gaps between the rich and poor. - Rich countries have greater access to the internet and communications services. - The relentless drive to liberate trade has had a negative impact on the lives of millions around the world. - Many poorer countries have been pressured to orientate their economies towards exporting and to reduce already small amounts of spending on public services. |
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NATIONAL COMPETITIVE ADVANTAGE Porters Diamond |
Factor conditions - Availability of raw materials and suitable infrastructure. Demand conditions - The goods or services have to be demanded at home. Related and Supporting industries - These allow easy access to components and knowledge. Firm strategy, structure and rivalry - If a home company is more competitive, a company is more likely to become world class. |
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PORTERS DIAMOND Demand Conditions |
(1) Demand enables the firm to obtain economies of scale and experience. (2) The experience a firm gets from supplying domestic consumers will give it information advantage in global markets. (3) If maturity stage of the product is reached quickly this will give the firm the incentive to enter export markets before others do. |
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PORTERS DIAMOND Related and Supporting Industries |
The internationally competitive firm must have enjoyed the support of world-class producers of components and related products. Moreover success in a related industry may be due to experience accumulated elsewhere. |
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PORTERS DIAMOND Factor Conditions |
(1) Basic factors such as raw materials, semi-skilled or unskilled labour and initial capital availability. (2) Advanced factors such as infrastructure, levels of training and skill, R&D experience ect. |
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PORTERS DIAMOND Firms structure, strategy and rivalry |
National cultures and competitive conditions create distinctive focuses. - Ownership structure - The attitudes and investment horizons of capital markets - The extent of competitive rivalry - The openness of the markets to outside competition |
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PORTERS DIAMOND Difficulties |
- Companies not countries - Ignores multinational or global corporations - Ignores the target country - Less applicable to services |
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EMERGING MARKETS - BRICS |
Two key factors have resulted in the growth of these economies: -Globalisation -Internal developments -Large and rapid growth rates -Move towards a free market -Relative political stability -Availability of labour -Low wage rates -Improvements in education -Availability of natural resources |
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FUTURE OF BRIC ECONOMIES |
BRIC countries have a number of strengths which should allow them to continue to grow: -Strong consumer demand -High levels of foreign exchange reserve |
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THREATS TO BRIC ECONOMIES |
-Foreign investment in BRIC economies have slowed from developed countries. -Consumer demand in developed world has slowed. -Indian economy depends on developed countries outsourcing services to them. |
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POLITICAL RISK Definition |
Is the possibility of an unexpected politically motivated event in a country affecting the outcome of an investment. |
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POLITICAL RISK Examples |
- Greater in countries with developing economies. - A change in government can sometimes result in dramatic changes of businesses. - Can have a direct effect on business through.. ->Risk of nationalisation ->Risk of restriction of payment to shareholders ->Changes in law -Can also have an indirect effect because of the effect of government policies on the economy. |
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POLITICAL RISK Groups that can generate it |
-Current government -Opposition groups -Organised interest groups -Terrorist groups -International organisations -Foreign governments that have entered into international alliances |
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COUNTRY RISK |
Is the risk arising from operating or investing in a particular country. Risks relating to matters such as: - Political interference - Political stability - The social and economic structure - The culture of a country - Its attitudes to foreign businesses |
