OPPORTUNITIES AND

THREATS OF
EXTERNAL
ENVIRONMENT
Ram & Som
 AIM & OBJECTIVE

To discuss the organization as an open system and

assess the impact of a number of environmental forces
To understand the opportunity-driven strategy
depends upon an ability to manage, and to manage in,
the business environment
To examine the threat of the business and implement
process to the strategic plan of the organization
TABLE OF CONTENTS
External environment

General environment

Industry environment

Competitor environment

SWOT analysis

Potential opportunities and threats in the external environment

Company Analysis

Conclusion

References
 EXTERNAL ENVIRONMENT
T he exter nal environment
comprises of all the entities that
exist outside its boundary, but have
significant influence on its growth
and survival. An organization has
little or no control over its
environment but needs to
constantly monitor and adapt to
these external changes, a proactive
or reactive response leads to
significantly different outcome

Gupta, 2009
 TYPES OF
EXTERNAL ENVIRONMENT

Direct interactive this

environment has an immediate
and firsthand impact upon the
organization.
Indirect interactive this
environment has a secondary
and more distant effect upon
the organization
 EXTERNAL ENVIRONMENT
ANALYSIS
Scanning Identifying early signals of environmental
changes and trends
Monitoring Detecting meaning through ongoing
observations of environmental changes and trends
Forecasting Developing projections of anticipated
outcomes based on monitored changes and trends
Assessing Determining the timing and importance of
environmental changes and trends for firm’s strategies
and their management
EXTERNAL ENVIRONMENT
ANALYSIS
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment

The External
Environment

Strategic Intent
Strategic mission
 ANALYSIS OF THE
EXTERNAL ENVIRONMENT
General Environment
Focused on the future

Industry Environment
Focused on factors and conditions influencing a firm’s
profitability within an industry

Competitor Environment
Focused on predicting the dynamics of competitors’
actions, responses and intentions
 GENERAL ENVIRONMENT
Dimension in the broader society that influence an industry
and the firms within it
Demographic

Economic

Political/Legal

Sociocultural

Technological

Global
Thomson/South-Western, 2007
 GENERAL ENVIRONMENT

Demographic Segment

Population size
Age structure
Geographic distribution
Ethnic mix
Income allocation
 GENERAL ENVIRONMENT
Economic Segment
Inflation rates

Interest rates

Trade deficits or surplusses

Budget deficits or surplusses

Personal saving rate

Business saving rates

Gross Domestic Product

 GENERAL ENVIRONMENT
Political/Legal Segment
Government stability
Taxation policy
Foreign trade regulations
Social welfare policies
Employment law
Health and safety
 GENERAL ENVIRONMENT
Sociocultural Segment
Workforce diversity

Attitudes to work and leisure

Consumerism

Level of education

Concerns about environment

Social mobility
 GENERAL ENVIRONMENT
Technological Segment
Product innovation

Applications knowledge

New communication
technologies

Government and industry focus

on technological effort

Government spending on R&D

expenditures
GENERAL ENVIRONMENT
Global Segment
Importance political
events
Critical global markets
Newly industrialize
country
Different cultural and
institutional attributes
 Economic Global

IMAGINE YOU HAVE A COMPANY

WHICH FACTORS WOULD YOU
CONSIDER FIRST AND LAST
WHY?
Political Sociocultural

Technological
INDUSTRY ENVIRONMENT
The set of factors directly influencing a firm and its
competitive actions and competitive responses
Threat of new entrants
Bargaining power of suppliers
Bargaining power of customers/ buyers
Threat of product substitutes
Intensity of rivalry among competitors
PORTER’S FIVE FORCES
 THE PURPOSE OF
FIVE FORCES ANALYSIS
T h e F i v e Fo r c e s a r e
environmental forces that
impact on a company’s
ability to compare in a given
market
The purpose of five-forces
analysis is to diagnose the
principle competitive
pressures in a market and
assess how strong and
important each one is
THREAT OF NEW ENTRANTS
Barriers to entry
Economies of scale

High differentiate products or well-known brand names

Capital requirements

High consumer switching costs

Assess the distribution channels

Cost advantages independent of scale

Government policy

Expected retaliation
THREAT OF NEW ENTRANTS
 BARGAINING POWER
OF THE SUPPLIER
Supplier power increase when
Suppliers are large and few in number

Suitable substitute products are not available

Individual buyers are not large customer of suppliers and there

are many of them

Suppliers’ goods are critical to the buyers’ marketplace success

Suppliers’ products create high switching costs

Suppliers pose a threat to integrate forward into buyers’ industry

BARGAINING POWER
OF THE SUPPLIER
 BARGAINING POWER OF
BUYERS/CUSTOMERS
Buyer power increase when
Buyers are large and few in number

Buyers purchase a large portion of an industry’s total output

Buyer purchase are significant portion of a supplier’s annual

revenues

Buyer’s switching costs are low

Buyer can pose threat to integrate backward into the seller’s

industry

Buyer has full information

 BARGAINING POWER OF
BUYERS/CUSTOMERS
eBay & Walmart Defense contractors
 THREAT OF PRODUCT
SUBSTITUTES
The threats of substitute products increase when

Buyers face few switching costs

The substitute product’s price is lower
Substitute product’s quality and performance are
equal to or greater than the existing product

Differentiated industry products that are valued

by customer reduce this threat
THREAT OF PRODUCT
SUBSTITUTES
 INTENSITY OF RIVALRY
AMONG COMPETITORS
Industry rivalry increase when
There are numerous or equally balanced competitors

Industry growth slows or declines

There are high fixed costs or high storage costs

There is a lack of differentiation opportunities or low switching

costs

When the strategic stakes are high

When high exit barriers prevent competitors from leaving the

industry
INTENSITY OF RIVALRY
AMONG COMPETITORS
 INTERPRETING
INDUSTRY ANALYSIS

Low entry barriers

Suppliers and buyers

have strong position
Unattractive
Industry
Strong threats from
substitute products
Low profit potential
Intense rivalry among competitors
 INTERPRETING
INDUSTRY ANALYSIS

High entry barriers

Suppliers and buyers

have weak position
Attractive
Industry
Few threats from
substitute products
High profit potential
Moderate rivalry among competitors
INDUSTRY ANALYSIS

Supermarkets
SUPERMARKETS SUMMARY

Threats of new entry High

Power of suppliers Medium
Power of buyers Medium/ High
Threat of substitutes Medium
Existing rivalries Intense
 COMPETITOR ENVIRONMENT
Competitor intelligence
The ethical gathering of needed information and
data that provides insight into
A competitor’s direction (future objective)
A competitor’s capabilities and intentions (current
strategy)
A competitor’s beliefs about the industry (its
assumption)
A competitor’s capabilities
COMPETITIVE ANALYSIS

Who are your competitor?

Do you know about your close competitors’ strengths
and weaknesses?
How detail should we analyse the competition?
Use a systematic approach
Analysis competition at various levels
SWOT ANALYSIS

Strengths
Weaknesses
Opportunities
Threats

Albert S.Humphrey, 1960s

THE PURPOSE OF
SWOT ANALYSIS

It is easy-to-use tool for

developing an overview
of a company’s strategic
situation
It forms a basis of
matching your
company’s strategy to
its situation
OPPORTUNITIES & THREATS

Opportunity

A condition in the general environment that, if exploits,

helps a company achieve strategic competitiveness
Threat
A condition in the general environment that may hinder
a company’s efforts to achieve strategic competitiveness
WHY IS IT IMPORTANT TO
KNOW THE COMPANY
OPPORTUNITIES AND
THREATS?
 OPPORTUNITY & THREATS
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
 EXAMPLE OF THREAT
AND OPPORTUNITIES

The strength of economy effects

The economy
the level of demand

This includes shareholders, and

Capital markets their satisfaction with company
success
Changes in structure
Labour market Availability of skills
Influence of trade unions
 EXAMPLE OF THREAT
AND OPPORTUNITIES

Robotics in manufacturing
Technology Computers
Information technology
Changing population - by age
Sociocultural environment Changing tastes and values
Regional movements

Special industry initiatives

Government
The legal environment
 EXAMPLE OF THREAT
AND OPPORTUNITIES

Suppliers Availability and cost of suppliers

Changes in preferences and

Customers
purchasing power

Changes in competitive strategies

Competitors
Innovation

Effects of good and bad publicity,

The media drawing attention to companies,
products and services
 IDENTIFY INDUSTRY
KEY SUCCESS FACTORS
1. Identify
2. Draw conclusion
3. Translate into strategic action
 CAN YOU THINK OF ANY
COMPANY THAT ADAPT ITS
STRATEGY WELL WITH
EXTERNAL ENVIRONMENT?
 CASE STUDY
SAMSUNG
MOBILE & TABLET
 SAMSUNG GALAXY S

10 millions sold globally

30 millions sold Samsung
Galaxy S & S II
Approx $500
SAMSUNG GALAXY MINI

In trend
Preferences (white/black)
Functional
Cheap (only $175)
SAMSUNG GALAXY NOTE

Mix of phone & tablet

Come with a stylus
$799.99
SAMSUNG GALAXY TAB

Tablet market
Smaller than iPad
$600
3 YEARS AGO
THIS YEAR
 DISCUSSION

Analyse Samsung’s strategy? What do you think

about their strategy?
List Samsung opportunities and threats
What do you think will challenge Samsung in the
future?
SAMSUNG OPPORTUNITY

Offer product variation, grab all different type of

markets - opportunity to grow
Demand for cellphones driven by the service providers
or carriers
Lowering the price of a phone by just $20 in many
countries could increase its affordability by 43%
 SAMSUNG THREATS
Aggressive competitors such as iPhone, HTC, Nokia
and Windows phone etc.
Keeping track of the new trends in the market but the
price is much more cheaper than competitors
Not an accessory in the fashion statement
 CONCLUSION
It is important for company to pay attention to
external environment
The research in external environment is essential for
the business
The company that adapt its strategy to the changes of
external environment is likely to be more competitive
in the business
 REFERENCES
Marketing Institute Singapore. External Environment in the Asia Pacific Region. [ppt.]

My Strategic Plan (2010). Internal and External Analysis. Available at http://mystrategicplan.com/

resources/internal-and-external-analysis/ [Accessed on October 15, 2011].

Cliffsnotes, (2000-2011). The External Environment, Principles of Management. Available at http://

www.cliffsnotes.com/study_guide/The-External-Environment.topicArticleId-8944,articleId-8859.html
[Accessed on October 13, 2011].

Gupta, A., (2009). Organization External Environment, Practical Management. Available at http://
www.practical-management.com/Organization-Development/Organization-s-External-Environment.html
[Accessed on October 13, 2011].

Samsung, (2010). Samsung. Available at http://gsg.samsung.com/ [Accessed on October 15,2011].

Strategic CFO, (2009). Porter’s Five Forces of Competition. Available at http://www.wikicfo.com/Wiki/Porters

%20Five%20Forces%20of%20Competition.ashx [Accessed on October 15, 2011].

Thompson, J. & Martin, F., (2010). Strategic Management: Awareness and Change. UK: South-Western
CENGAGE Learning.
THANK YOU
FOR YOUR ATTENTION