Master of Business Administration

Corporate & Business Strategy

Business Environment

Nalin Anthony
MBA, M.Sc.(Finance), ACMA,MCIM,LLB

t
Nombre del profesor – Nombre de la Conferencia
Universidad Católica San Antonio de Murcia · Tlf: (+34) 968 27 88 · www.ucam.edu
 The organization’s business
environment involves Industry
(MICRO) and larger(MACRO)
environments including factors &
influences that impact the
operations.
Organisations invariably respond
or react to their business
environments in order to
maintain its flow of operations.
MBA | Corporate & Business Strategy| Nalin Anthony
 MACRO Environment (PEST Factors)

The MACRO environment involves four broad factors (PEST).

• Political-legal
• Economic
• Socio-cultural
• Technological

MBA | Corporate & Business Strategy| Nalin Anthony

 Political Factors (Regulatory Environment)

The political arena has a huge influence upon the regulation of businesses.

Government Policies that affect business such as,

- The degree of government intervention in the Economy

- What goods & services do governments want to provide?
- To what extent does it believe in subsidizing firms?
- Political stability/orientations, policies, Trade union power, Foreign trade
regulations, Taxes, Embargos, FTA’s

MBA | Corporate & Business Strategy| Nalin Anthony

 Economic Factors ( level of demand)

Interest Rates: higher interest rates may deter investment due to high cost of
borrowing.

Strong Currency: makes exporting more difficult because it may raise the price in
terms of foreign currency.

Inflation: may provoke higher wage demands and raise costs

National Income Growth: may boost demand for a firm's products.

Unemployment: causes demand drop

MBA | Corporate & Business Strategy| Nalin Anthony
 Social Factors
The social & cultural influences on business vary from country to country.
It is very important that such factors are considered. Changes in social
trends can impact on the demand for a firm's products. For instance
ageing population demands healthcare, medicine whereas demand for
toys is falling.
Ex:
● Demographics
● Lifestyles
● Social mobility
● Educational levels
● Attitudes
● Likes & dislikes
● Consumerism

MBA | Corporate & Business Strategy| Nalin Anthony

 Technological Factors
✔ Technology is vital for competitive advantage, and is a major driver of
globalization.

✔ New technologies create new products and new processes. Artificial

intelligence, Ecommerce, GPS, mobile communication, internet, online
gambling.

✔ Online shopping, bar coding and computer aided design are all improvements
to the way we do business as a result of better technology.

✔ Technology can reduce costs, improve quality and lead to innovation.

✔ These developments can benefit consumers as well as the organisations

providing the products.
MBA | Corporate & Business Strategy| Nalin Anthony
 PEST Analysis in Summary
Political Economic Social Technological

• Political stability • Interest rates • Dominant religion • Technological

Infrastructure
• Tax policies • Inflation rate • Attitude towards
foreign products •R&D activities
• Tariff • Exchange rates
• Leisure hours • Automation
• Ethical standards • Earning per capital
• Sex equity • Technology
• Employment • Gross Domestic incentives
regulations Product (GDP) • Age distribution

MBA | Corporate & Business Strategy| Nalin Anthony

 Industry Attractiveness

Porter’s 5 Forces Model

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 5 Industry Forces

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 Threat of New Entrants
The extent to which barriers to entry exist. The more difficult it is for other
firms to enter a market the more likely it is that existing firms can make
relatively high profits.
1.How loyal are the end users in this industry?
2. How hard is it for the end users to switch?
3. Does it require a large capital to enter the industry?
4. Do industry entries regulated by government?
5. How hard is it to access to distribution channels?
6. How long does it take to acquire the necessary skills?
MBA | Corporate & Business Strategy| Nalin Anthony
 Score-Card : Threat of New Entrants
Factor Favorable (F) Unfavorable
(UF)
End user's loyalty
User’s switching cost
Capital Requirement
Government regulation
Hard access to distribution channel
Time to acquire necessary skills
Overall Threat of New Entrants

MBA | Corporate & Business Strategy| Nalin Anthony

 The power of Buyers.

The stronger the power of buyers in an industry the more likely it is that they
will be able to force down prices and reduce the profits of firms that provide
the product

1. How large are your buyers? Are they buying huge volume?
2.How many companies are there for the buyer to choose from?
3.Do you depend only on a few buyers to sustain your sales?
4.How hard is it for the buyers to switch?
5.Are the buyers purchasing from you as well as your competitors?
6.Do the buyers are likely to enter your business ?
MBA | Corporate & Business Strategy| Nalin Anthony
 Score Card : The power of Buyers

Factor Favorable (F) Unfavorable (UF)

The size of the buyer & volume of purchase
No of options available for buyer
Your dependency on few buyers
Buyer’s switching cost, high or low ?
Do your buyers deal with your rivals ?
Can buyer enter into your business

Overall Power of Buyers

MBA | Corporate & Business Strategy| Nalin Anthony
 Bargaining power of Suppliers (Supplier power)

The stronger the power of suppliers in an industry the more difficult it is for
firms within that sector to make a profit because suppliers can determine
the terms and conditions on which business is conducted.

1.Are there substitutes for your supplies?

2.Do your suppliers serve multiple industries?
3.Do you have high switching cost to use another suppliers?
4.Do suppliers have the capacity to enter your business?
5.Does your company capable to enter the supplier’s business?
MBA | Corporate & Business Strategy| Nalin Anthony
 Score Card : The power of Suppliers

Factor Favorable (F) Unfavorable (UF)

Overall Power of Suppliers

MBA | Corporate & Business Strategy| Nalin Anthony

 Threat of Substitutes
This measures the ease with which buyers can switch to another
product that does the same thing. The ease of switching depends on
what costs would be involved and how similar customers perceive the
alternatives to be.

1.How many close substitutes are available?

2.How pricy are the substitutes?
3.What is the perceived quality of the substitutes?

MBA | Corporate & Business Strategy| Nalin Anthony

 Score Card : Threat of Substitutes

Factor Favorable (F) Unfavorable (UF)

Overall Threat of Substitutes

MBA | Corporate & Business Strategy| Nalin Anthony

 Industry Rivalry
Direct competitors competing for market share. This measures the
degree of competition between existing firms. The higher the degree
of rivalry the more difficult it is for existing firms to generate high
profits.
1.How many close competitors exist & what size are they?
2.What is the industry structure? Fragmented, oligopoly or monopoly ?
3.What is the current industry growth rate?
4.How high are the exit barriers, committed fixed cost?
5.How diversified & aggressive (SOV, SOM) are your competitors?
MBA | Corporate & Business Strategy| Nalin Anthony
 Score Card : Industry Rivalry

Factor Favorable (F) Unfavorable (UF)

Overall Power of Industry Rivalry

MBA | Corporate & Business Strategy| Nalin Anthony

 Final Score Card of Five Industry Forces

Force Status Favorable /

Unfavorable
Revelry
Threat of New Entry
Buyer's Power
Supplier’s Power
Substitutes
Overall Industry Attractiveness

MBA | Corporate & Business Strategy| Nalin Anthony

 Market Structures

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 Market Structures

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 Strategic Group Mapping

A strategic group is a concept used in strategic management that

groups companies within an industry that have similar business
models or similar combinations of strategies

DI
High

D2
Low High
MBA | Corporate & Business Strategy| Nalin Anthony
 Fashion- Clothing

MBA | Corporate & Business Strategy| Nalin Anthony

 Automobile

MBA | Corporate & Business Strategy| Nalin Anthony

 Discussion Points

1. What are the key opportunities and threats in your firm’s external environment ?

2. What options are available to minimize negative impacts of the five industry forces

3. What forces that are favourable today are likely to become more intense in the
future ?

4. What broad market is your firm belongs to and what is it’s strategic group?

MBA | Corporate & Business Strategy| Nalin Anthony