Business Environment :

An Introduction
 An Overview
Business Environment

External Internal

Macro Structure

Micro Culture

Resources
Components of the External Environment
Economic

Demographic
Sociocultural
Industry
Environment

Competitive
Environment
Political/
Legal Global

Technological
Macro Environment:
PEST (PESTEL / PESTLE)
Framework
Politico-legal Factors
Economic Factors
Socio Cultural Factors
Technological Factors
Politico-legal Factors
This is the most important influence on
the regulation of any business.
How stable is the political environment?
Influence the Government Policy / Law on
your business
Government’s position on Marketing Ethics
Government’s policy on the economy
Government’s view on culture under religion
Political Factors - Contd.
Political System is responsible for Law Making.
Immediate laws which affect any business in
general are Central Excise, Sales Tax/ VAT,
Corporate Income Tax, Personal Income Tax &
Service Tax
Environmental Protection Law
Controls if any on Marketing Strategies
Like Marketing / Advertising of Cigarettes,
Tobacco, Alcohol etc.
Political Factors - Contd..

Control on Pricing
like sugar, drugs etc.
Government Policies on the Economy
Role of Public Sector
Role of Private Sector
Role of Joint Sector
Economic Factors

Economic System
Economic Structure
Economic Planning
Economic Policies
Economic Regulations
Economic Functioning
Economic Growth & Development
Economic Factors - Contd.

Avenues for Capital Creation

Size of the Capital Market
Role of the Regulator
Type of the Instruments
Nature of the Investors
Business Cycles
Socio-Cultural Factors
Demographics
Distribution of Income
Caste and Gender Bias
Social Mobility
Life Style Changes
Consumerism
Educational Levels
Religion and Traditions
Language
Socio-Cultural Factors - Contd.

Demographics & Distribution of

Income
Division of population - Male / Female
Age Group of the Population
Disposable Family Income
Disposable Income in the hands of the
different Age Groups
Education Level of the Age Groups
Social Cultural Factors - Contd.

Life Style Changes & Consumerism

Attitude to living
Different Age Groups
In tune with available disposable income
Thrust on taking care of present needs by
spending than saving for the future.
Joint living and nuclear families
Availability of various media tools
Reach of the media to the population
Technological Factors

Advantage of Technology
In terms of Economies of Scale
New Discoveries & Innovations
Speed & Cost of Technology Transfer
Rate of Obsolescence
Other Factors

Judicial System
Insurance System
Banking System
Regulatory System
Infra Structure
Communication
Transportation
COMPONENTS OF MICRO
ENVIRONMENT
Customers
Suppliers : of material and funds
Competitors
Publics
Intermediaries
 Micro Environment:
Five-Forces Analysis
The five forces are environmental
forces that impact on a company’s
ability to compete in a given market.
The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.
Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
 Threat of New Entrants
Economies of Scale

Barriers to Product Differentiation

Entry
Capital Requirements
Switching Costs
Access to Distribution Channels

Cost Disadvantages Independent

of Scale
Government Policy
Expected Retaliation
 Bargaining Power of Suppliers
Suppliers are likely to be powerful if:

Supplier industry is dominated by a

Suppliers exert power
few firms
in the industry by:
Suppliers’ products have few substitutes
* Threatening to raise
prices or to reduce quality Buyer is not an important customer to
supplier
Powerful suppliers
can squeeze industry Suppliers’ product is an important
profitability if firms input to buyers’ product
are unable to recover
cost increases Suppliers’ products are differentiated
Suppliers’ products have high
switching costs
Supplier poses credible threat of
forward integration
 Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

Bargaining Bargaining
Power of Power of
Suppliers Buyers
 Bargaining Power of Buyers
Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases

are large relative to seller’s sales Buyers compete
Purchase accounts for a significant with the supplying
fraction of supplier’s sales industry by:

Products are undifferentiated * Bargaining down prices

Buyers face few switching costs * Forcing higher quality

* Playing firms off of
Buyers’ industry earns low profits
each other
Buyer presents a credible threat of
backward integration
Product unimportant to quality
Buyer has full information
 Porter’s Five Forces
Model of Competition
Threat of
New
Entrants

Bargaining Bargaining
Power of Power of
Suppliers Buyers

Threat of
Substitute
Products
 Threat of Substitute Products

Keys to evaluate substitute products:

Products Products with improving

with similar price/performance tradeoffs
function relative to present industry
limit the products
prices firms
can charge Example:
Electronic security systems
in place of security guards
Fax machines in place of
overnight mail delivery
 Porter’s Five Forces
Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants

Bargaining Rivalry Among Bargaining

Power of Competing Firms Power of
Suppliers in Industry Buyers

Threat of
Substitute
Products
 Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:

Jockeying for strategic position

Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand,
but may be costly to smaller competitors
 Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
The Five Forces are Unique to
Your Industry
Five-Forces Analysis is a framework for
analyzing a particular industry.
Yet, the five forces affect all the other
businesses in that industry.
 Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firm’s Competitors

Industry
Environment

Competitive
Environment
 Competitor Analysis
Assumptions
What assumptions do our
competitors hold about the future Response
of industry and themselves?
What will our
Current Strategy competitors do in the
Does our current strategy support future?
changes in the competitive Where do we have a
environment? competitive
Future Objectives advantage?
How do our goals compare to our How will this change
competitors’ goals? our relationship with
our competition?
Capabilities
How do our capabilities compare
to our competitors?
 Competitor Analysis
Future Objectives What Drives the
How do our goals competitor?
compare to our
competitors’
Where will emphasis
goals? be
placed in the future?
What is the attitude
toward risk?
 Competitor Analysis
Future Objectives What is the competitor doing?
How do our goals What can the competitor do?
compare to our
Where Current
competitors’ goals?Strategy
will emphasis be
placed inHow
the future?
are we currently
What is the attitude
competing?
toward risk?
Does this strategy
support changes in the
competitive structure?
 Competitor Analysis
Future Objectives What does the competitor believe
How do our goals about itself and the industry?
compare to our
Where Current
competitors’ goals?Strategy
will emphasis be
placed in the future?
How are we currently
What is the attitude
competing?
toward risk? Assumptions
Does thisDo
strategy
we assume the future
support changes in the
will be volatile?
competition
What structure?
assumptions do our
competitors hold about the
industry and themselves?
Are we assuming stable
competitive conditions?
 Competitor Analysis
Future Objectives What are the competitor’s
How do our goals capabilities?
compare to our
Where Current
competitors’ goals?Strategy
will emphasis be
placed in the future?
How are we currently
What is the attitude
competing?
toward risk? Assumptions
Does this
Dostrategy
we assume the future
supportwill
changes in the
be volatile?
competition
Whatstructure?
assumptions do our
competitorsCapabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating under
strengths and weaknesses?
a status quo?
How do our capabilities
compare to our
competitors?
 Competitor Analysis
Future Objectives Response
How do our goals What will our competitors
compare to our do in the future?
Where Current
competitors’ goals?Strategy
will emphasis be Where do we have a
placed in the future? competitive advantage?
How are we currently
What is the attitude
competing? How will this change our
toward risk? Assumptions relationship with our
Does this
Dostrategy
we assume the future competition?
supportwill
changes in the
be volatile?
competition
Whatstructure?
assumptions do our
competitorsCapabilities
hold about the
industry and themselves?
What are my competitors’
Are we operating
strengths under
and weaknesses?
a status quo?
How do our capabilities
compare to our
competitors?
Internal Environment

Structure: Chain of command

Culture: Beliefs, Expectations and

Values

Resources: Assets, Skills,

Competencies, Knowledge
ETOP & SWOT Analysis
ETOP SWOT
Environmental Threat and Strengths
Opportunity Profile Weaknesses
Derived after Opportunities
environmental scanning
Threats
The purpose of ETOP and SWOT
Analysis
It is an easy-to-use tool for
developing an overview of a
company’s strategic situation
It forms a basis for matching your
company’s strategy to its situation
 ETOP is the starting point
It provides the “raw material” to do
more extensive internal and
external analysis.
SWOT follows.
It provides an overview of the
strategic situation.
 Opportunities
An OPPORTUNITY is a chance for firm
growth or progress due to a favorable
juncture of circumstances in the
business environment.
Possible Opportunities:
Emerging customer needs
Quality Improvements
Expanding global markets
Vertical Integration
Threats
A THREAT is a factor in your
company’s external environment that
poses a danger to its well-being.
Possible Threats:
New entry by competitors
Changing demographics/shifting demand
Emergence of cheaper technologies
Regulatory requirements
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.