The Industry

Environment
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Industry Environment

This is the environment where the business conducts its various

entrepreneurial activities. It is basically composed of an individual
person, a company and a non-governmental organization or the
government. These three external environmental layers, also called as
the macro environment, have influence on the path, growth, and
survival of the business endeavor. They also define the appropriate
business strategy to be adopted in order for the entrepreneurial venture
to develop, grow, and survive
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Industry Environment

 External environmental layer where the trends and

changes are easily and immediately felt by the
business.
 Considered the immediate environment of the business
where it conducts its various operational activities
 Industry forces include the following:
1.Government 4.Competitors
2.Suppliers 5.Employees
3.Customers 6.Creditors
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Government

 Refers to the system or institution that handles the affairs of a

particular country.
 Since the government usually has jurisdiction over the major
activities happening within its territory, the type of government
system operating in a particular country highly influences business
 Classification/Types of Government:
a. democracy d. monarchy
b. autocracy e. dictatorship
c. republic
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Suppliers

 Individual people or companies that provide the required materials,

parts, or services to the business.
 Play a crucial role in the production of goods and services.
 Can adversely affect the production process by delaying the
delivery of the required raw materials and supplies or services, or
by providing defective materials or inefficient services.
 The entrepreneur must define the criteria in the process of
selecting the supplier
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Customers

 Buyers of the goods or services produced by the business

 The business profits from its transactions with the customers
 The business must constantly evaluate and study the behavior,
tastes, preferences, inclinations, and even future activities of the
customers
 The business must protect its customers in order to win their
loyalty, and to attract new patrons.
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Competitors

 Produce, sell or render products or services which are similar to

those of the business
 Direct Competitors- produce and sell similar products or services
 Indirect Competitors- produce and sell substitute products
 Entrepreneurs must critically evaluate and study, most especially
the direct competitors, and find strategic ways to surpass them in
the production and delivery of goods or services to the customers.
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Employees

 Workers or the business who are highly responsible for the

production of goods and services to the customers
 Ensure the quality and quantity of products and services.
 Backbone of the business
 Selected according to their educational background, character,
experience, skills, and competencies.
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Creditors

 Banks, financial institutions, and financial intermediaries engaged

in the lending of money to the borrower usually for a fee or charge
in the form of interest
 Banks and other financial institutions are major players in the
economy in terms of credit extensions.
 They are likewise the regulatory arm for the flow of money in the
economy
 Entrepreneurs must know the different financial services provided
by banks and other financial instititions.
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Industry Analysis Scanning Tools

 The different forces in the industry environment must be properly
evaluated and analyzed.
 Environmental Scanning Tools
1.SWOT model
2.Forces of competition model
3.Competitive forces matrix
 The primary objective in scanning the industry environment is to
determine the strategic position of the business
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Forces of Competition Model

 Aka the “five forces of competition”
 Popularized by Michael Porter
 The industry environment is a competitive environment. The
business, therefore, cannot do anything else but to compete.
 The business must determine the intensity of competition within its
industry environment since the level of intensity is primarily
dependent on the competitive forces existing within the industry
 The long-term survival of the business is measured by its
successful efforts against competitive forces
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Forces of Competition Model

 The 5 forces competing within the industry are:

1.Potential new entrants
2.Buyers
3.Substitute products
4.Supplier
5.Rivalry among existing firms
 In the revised model, Michael Porter has added “Other
Stakeholders” as another force. These include labor unions,
government, trade associations, and other special interest groups.
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Forces of Competition Model

Threats to
Bargaining
potential
power of the
new
buyer
entrants

Bargaining Threats of
power of substitute
suppliers Rivalry products
among
existing
firms
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Competitive Forces Matrix

 After all the competitive forces have been identified, the

entrepreneur can plot them using the competitive forces matrix, by
which the entrepreneur can view the total perspective of the
competition within the industry where the business operates.
 The possible effects and the intensity of the threat of the
competitive forces can be high, moderate, or low.
 The possible barriers to the competitive forces are the primary
determining factors that measure whether the degree of threat is
high or low
 The relationship between the possible barriers and the threats is
inversely related
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Barriers to the Five Forces of Competition

 The 5 forces are considered threats to the entrepreneurial

venture.
 The intensity of the threat is highly influenced by the level or
degree of barriers affecting the particular force
 The more barriers against the force, the less the intensity of the
threat of such force.
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Barriers to the Five Forces of Competition

Potential New Entrants
 The intensity of its threat will be affected by the presence of the
following barriers:
1. Strict government policy
2. Substantial capital requirement
3. Economies of scale
4. High cost of product differentiation
5. High switching cost
6. Difficulty in accessing distribution channels
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Barriers to the Five Forces of Competition

Buyers
 The threat of buyers’ bargaining power will be less if the following
factors exist:
1. The buyer has the potential for backward integration
2. The cost of switching the supplier cost is minimal
3. The buyer purchases large portions of the seller’s product
or services
4. There are several suppliers available in the market
5. The product represents a high percentage of the buyer’s
cost
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Barriers to the Five Forces of Competition

Suppliers
 The intensity of the threat of the suppliers is strong if the following
factors hold true:
1. The product or service is unique
2. The switching cost is very high
3. Suppliers in the industry are few, but the sales volume is
high
4. Substitute products are not readily available in the market
5. The supplier has the ability for forward integration
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Barriers to the Five Forces of Competition

Rivalry Among Existing Firms
 The intensity of rivalry among existing firms in the industry is
attributable to the following factors:
1. Number of competing firms
2. Rate of industry growth
3. Characteristics of the products or services
4. Amount of fixed cost
5. Increased capacity
6. Diversity of rivals
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Barriers to the Five Forces of Competition

Substitute Products
 The substitute products can pose great threats in the industry
environment if the following factors are present:
1. The price of the substitute product is substantially lower
2. Preferences and tastes of customers easily change
3. The quality of substitute products dramatically improve
4. Switching cost is low
5. Product differentiation is hardly noticeable
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Thank you for

listening