‘THE BUSINESS ENVIRONMENT An integral understanding of the business environment will make the executives understand the present and future of the firm’s direction and growth. The general business environment is composed of dimensions in the broader society that influence an industry and the firms within it. The industry environment is a set of factors that directly influence the company and its competitive actions. The profit potential of the company is determined by the different factors in the environment that influence its operational competitive advantage. The corporate challenge is to identify the present firm’s position against the environmental factors and develop strategies that will successfully overcome their competitive influence. The success of the business operation is dependent on the capacity to favorably influence the business environment _ and earn the desired profit. Competitive analyses refer to the gathering and interpreting of information and data about the business environment and how the other competitors are doing in the wide landscape of business. Understanding the playing field complements the insights and study of the firm's position within the total environment that will generate possible alternatives in the conduct of business operation. The focus of analyses is on three important factors: 1, The General Environment The general’ environmental focus is seeing the industry in the future and how it will affect present and future operations. The general business Iandscape is wide and open for exploration, and seeing the business condition miles ahead is an important factor in the survival of business. 2. The Industry Environment It refers to the analyses of the firm’s conditions of profitability within the industry. The analyses will generate data on the firm’s capability to compete within the business industrial community on its products and services based on the programmed vision and mission. 3. The Competitor “Analyses of the competitors are’ focused on predicting the dynamics of competition that are related to their operational actions, responses and intentions. Seeing how the competitors operate will give insights on what strategies will most likely overcome the market competitions. Combining the results of the analyses of the three elements, the firm will be able to understand the external environment that will influence its strategic intent, vision and mission and the strategic actions. The firms’ performance in the field of business will improve when the three elements are integrated as they see the total effect of the external environment in their corporate operation. Scanned wth G camscannerANALYSIS OF THE EXTERNAL ENVIRONMENT The environment of business in the world’s landscape is highly turbulent, complex and uncertain. The firm must have the complete data and information by which to base their forecast and program of operation in order to stay afloat in their business operation. An important objective is to study the general environment in terms of the corporate opportunities and threats. Opportunities are conditions in the general environment that make the company competitive while threats are conditions that hinder the company to overcome strategic competencies of the various competitors. External environment analyses include four important activities: 1. Scanning The process entails the study of all segments in the general environment, It is identifying the signals of potential changes in the environment that pose threats or opportunities that needed immediate actions. Scanning is generally important in highly volatile business environment. Jt is important to analyze the data carefully as the source of information is usually incomplete and ‘unconnected. 2. Monitoring Ais the process of carefully observing the changes in the environment and seeing the effects from the scanning of information. It is important to detect meanings in the changes of events and trends. The trends and events are opportunities that should be explored by the firm and determine the degree of corporate adjustments. Monitoring the changes in technological innovations is important as today’s business changes so rapidly with new technology in the production of products and services. Forecasting Forecasting’is the result of scanning and monitoring. Forecasts are derived from results of the analysis of the changes in the environment. Forecasting is the process of developing projections of what might happen and how quickly the company developed strategies to be competitive in the changing business landscape. Timely actions and immediate response is necessary as innovations change rapidly in the market competition. It may- deal in the changes and training of the workforce, and the development of new marketing strategies to reach the consumers before the competitors get the market niche. 4, Assessing It is the process of determining the timing and significance of the effects of the environmental changes and trends on the strategic management of the company. The objective of assessments to understand the general environment and to specify the actions that will be implemented to adjust to the changes‘in the environment, The absence of assessment will leave the data useless as the 24SEGMENTATION OF THE GENERAL ENVIRONMENT The general ehvironment is composed of segments that are external to the firm. The degree of impact varies in different industry and the firm has to scan, monitor, forecast and assess the levels and degrees of its effect on the company’s operational profitability. The company must be able to recognize the environmental changes, trends, opportunities and threats and apply the firm’s core competencies to take advantage of the changing environment. - There are six segments that affect the operation of the firm: 1. The Demographic Segment It is concerned with the population's size, age structure, geographic distribution system, ethnic groups and economic index. For strategic competencies the demographic segments should be analyzed on the global basis as it has potential effects across countries. Globalization becomes the workings not only of big corporations but also small companies with borderless operations. a. Population Size The world’s population is still in the rise except in the United States and in some European countries where couples are averaging with two children. India and China have the biggest population index; but by the year 2050, the growth in population is expected to narrow down as population control begins to take effect. Countries are beginning to realize that the land area to produce food is not enough to feed the growing population. The population growth and decline are challenges for corporate strategy to maintain the production of goods at levels that will supply the needs of the population in the years to come. b. Age Structure There are more babies born in developing countries like the Philippines. The growth rate'in population is still between 2.5 percent to more than 3 percent driving growth to 100 million people in 2014. The middle-age groups dominate the population of most countries and these are challenges to the corporate business to provide them not only their basic needs but also some of their wants. While in some countries, the population life span increases due to advancement in medical care and better lifestyle, the challenges ate focused on providing senior citizens with lower-priced products. ©. Geographic Distribution The development of more urban centers and the migration of people from the rural areas to urban centers are both opportunities for corporate strategies. The employment opportunities for most people in the urban Scanned wth G camscannerareas are signals for increase production of more goods and services. The growth of communication linkages due to increase in speed of technology in the computer age would enable the people to work at home. The worlds become.a touch of the finger and movement becomes lesser as linkages become faster. d. The Ethnic Mix In the Philippine business community, some Muslim businessman dominates the retail trade in some small shopping centers. The educated ethnic group begins to move from their mountain residence to the more populated centers to a make living. Workforce diversity is a sociological issue. The migration of Filipinos to work abroad is a corporate challenge for a more effective management system that will integrate the heterogeneous talents of mix group of workers. Technical Filipino workers abroad are admired for their talents and dedication at work. e. Income Distribution The income distribution across populations is of interest to firms as itis the determinant of purchasing power for products and services. The living standards of most people in the world have increased overtime due to dual career of husband and wife, and this affected their buying habits for more goods and services. Of interest to the firms are the average income of households and individuals. The economic condition of the population determines the development of business opportunities for the firms. 2. The Economic Segment The economic segment refers to fe nature and directions of the country in their economic development. Companies operate profitably in a country with economic stability. The globalization of business considers the economic stability of the host country. The other surrounding nations’ economic perspectives are the other firms’ consideration as the barriers to business communication became within the touch of the finger. There is the domino effect when the economy of one country slows down. Nations depend on other countries for material inputs in the production of goods. The recession in one country affects the other country in general as businesses in the global market become stagnant. While the United States economic recession did not hurt much the economies of the Asian region, the other business communities are in standstill position. 3. The Political and Legal Segments Itis the arena in which business organization operates and interest groups compete for attention and resources, It also deals with the voice of overseeing the implementation of the laws of the country which has something to do with 26 ‘Scanned with |CamScannerthe developing highly developed ‘countries believe Scanned with |CamScanner™new knowledge base that institutions and higher learning institutions must cope with in order to strategically answer the demand of the industry for new kind of workforce. It is vital for business organization to study the changes in technology to develop competitive advantage. Firms and business organizations that develop new technology and new products have the greater advantage in higher market share and eam considerable advantage. The role of top executives is to scan’and' monitor the development of new technology and endeavor to identify the possible substitute for new system and products that will give them the higher competitive market share. The emerging fast faces of communication through the Internet open up the business highway for the marketing of product and service. Companies and individual customers could have an easy access to information and make easy transactions using the information highway. This has greatly changed the medium of business communication and this poses a great challenge in the creation of greater competitive advantage. 6. The World of Business Segments The globalization of the business market creates both opportunities and challenges. The present scenario in trade and. commerce is the creation of borderless flow of product and services. In the Asian Region countries are grouping together to create a free flow not only of information but the products and services with less barriers on tariff and fees. The same is true in European Union and other regions of the globe as they believe globalization will help in the development of the world economy. It is a great challenge not only for the firm but also for the country in general, as globalization needs the development of infrastructure. Transport facilities must be developed and the necessary investment in the development of economic structures must be put in place. The nation’s development of industries and creation of investments for the production of goods are challenges not only for the firm but also for the government. The investment climate must be conducive to investors through transparent transactions and this needs government incentives while protecting the interest of its nationals. Effective governance and political well pose the challenges to national leadership as well as those in the rural sectors where new industries could be developed. Industrialization and globalization are two important components of development as the creation of more job opportunities and increased income of the labor force create new tax base for the important government social services in health and education. ANALYSIS OF THE INDUSTRIAL ENVIRONMENT The industry is a group of firms producing products that are similar or close substitutes. They are competing for the share of the market pie, and have influence on ‘Scanned with |CamScannerthe strategy of the other firms. Industries include a rich mix of competitive strategies in pursuing their own goals of greater returns. Advancement in technology plays a greater role in the competitive advantage of the firm not only in terms of product innovation but also in the use of internet communication to penetrate the more affluent market. The industry environment has a more direct effect on the firm’s strategic competencies and the above average return on investments. The intensity of market competition and the industry profit potential could be measured in terms of long- run return of investments. In the traditional strategy, the firm concentrated on the competitors in the same product line or category. The strategic competencies have changed the landscape of competition, as the firm must search more broadly to identify current and potential competitors, and the customers that the firm is serving them. In the market microstructure, the customers are influenced by the location of firm and its capabilities to serve their needs. THE FIVE FORCES THAT AFFECT FIRM’S COMPETIVENESS: 1. THE THREAT OF NEW ENTRANTS Firms must always be on watch with possible new entrants in the industry as it will affect their market share and at the same time their profitability. New entrants usually bring in additional production capacity and make modified products that may be the same or more superior to the existing product of the firm. New entrants usually have a keen interest in gaining a larger market share and force competitors to be more efficient and effective in the delivery goods to their customers. ; ‘The threat of new entrants could be avoided with the following strategies: a. Economies of Scale It refers to the marginal improvement in efficiency that the firm experiences as it incrementally increases in size. When the quantity of product produced overtime increases, the cost of production per unit decreases, hence the firm can lower the price or maintain a higher return on investment. This will drive new entrants to penetrate the market as competition will make it difficult for them to make the desired profit. Competitive retaliation will make big or small scale entrants face the risk of the economies of scale. b. Product Differentiation Itis the customer’s perception that the product entering the market first is unique and thus captures customer's loyalty and patronage, An example is Jollibee Chicken Joy that has captured the taste of children. In cars, the Honda brand was perceived to be superior in quality and workmanship and has the higher resale value than any other brand. Customers valuing ‘Scanned with |CamScannerproduct uniqueness tend to become loyal to the product and the company that produces it. Intensive advertising and promotion has inculcated in the mind of the customers the product attributes and this will make new entrants difficult to erase the customer's perception. c. Capital Requirements Capital requirement is needed for the firm to enter a new market, Investments in terms of resources, manpower skills and new technology needed huge investments and the risk of overcoming those in the market is great. The market opportunity may be attractive but the risk is greater as it will require new system of marketing, promotional strategies, and newness in product features and innovation. To compete with an existing industry, some organization buy out existing firms and develop new strategies to compete competitively by introducing new production system and more efficient manufacturing and marketing strategy. d. Access to Distribution Channel Access to distribution charinels can be a strong entry barrier for new entrants as the old firm has established foothold on their distributors who have developed loyalty over time. This could be particularly true with consumer products where some shelves and facilities are provided by the firm and it will be difficult for new entrants to occupy new spaces. For new entrants in these types of products, new entrants have to make a price break or cooperative advertising, which will in tum add expenses and reduce profit or even incur losses. e. Government Regulations The government policy on licensing and permit requirement can also control new entrants to an industry. This could be true in industry where franchising regulations is required like operating transport business especially in saturated routes, The government regulations on quality service and the capital requirements would discourage new entrants. For new entrants to enter this market, they need to buy existing lines, y franchise and improve their facilities and service which will require huge investments. 2. THE POWER OF THE SUPPLIERS ‘The suppliers of material inputs in the production of goodsare determinants of quality products. Suppliers can exert power to the industry to increase their prices that will affect the firm's profitability. Increase in material inputs would mean adjustments in price that will affect the competitiveness of the firm. ‘Scanned with |CamScanner‘The power of the supplier is powerful under the following: a. When it is dominated by few large companies b. When they are more concentrated than the industry it sells c.. When there is no substitute available d, When the industry is not a significant customer for the supplier e. When the’suppliers’ goods are critical to the firm’s success £. Whenit poses threat to integrate forward into the buyers’ industry. 3. THE BUYERS’ BARGAINING POWER The firm’s objective is to maximize returns on their invested capital as business operates for the desired profit. On the other hand, buyers would like to maximize the value of their hard earn money by bargaining for the lowest price possible. To maintain the equitable balance, the firm has to adjust to the buyers’ bargaining power and satisfy customer needs a8'substitute products could be available in the market. ‘The consumers group has the bargaining power under the following; a. When they purchase a large volume of the firms output b. When there are available substitute of similar quality c. When the sales is a significant portion of the firm’s sales volume 4 . When the buyer or dealer can be a threat for backward integration, The consumer with the power of the internet can search within the touch of the finger for product substitutes and compare price and product specifications. They can make direct orders from available dealers or suppliers without the aid of sales people who are paid extfa commissions that make the prices higher. Buyers can order from their homes without extra effort of traveling and hustling in traffic congestions. 4. THETHREAT OF SUBSTITUTE PRODUCT The industrial world is full of innovations and firms seek new opportunities. There are many firms looking for new products to make business by studying substitutes to existing products in the market, Firms that do not innovate will lose their market as innovation is the byword of the industry. Consumers are looking for new and innovative products and their level of satisfaction is limitless. This is true in cellular phones where competing brands have to update and innovate overtime their product features. Beverages and alcoholic drinks find a lot of substitutes that consumers can switch preferences with the use of the 31 Scanned with Bcamscannerom advertising media. In the field of medicine, generic products come into surface that compete with branded drugs manufactured by multinational companies, ‘The threats for product substitute are based on the following; a. When the substitute product is priced lower b. When the quality is better than the existing product c. When the product is immediately available in the market d. When service is available 5. THE POWER OF COMPETITION The actions taken by one company invite counter reaction by the other firm. Competitive ‘gsponse is an active reaction that forces the company to make innovations. Competitive rivalry intensifies when a firm is challenged by a competitor's actions and an opportunity to improve its market position is recognized. Firms differ in resources and capabilities, and seek to differentiate themselves from their competitors as they rarely operate homogeneously. The visible competitive strategy is on price, quality, innovation.and service. Factors that intensify the power of competition: The presence of balance competitors ‘The slow industrial growth in some sectors Higher fixed cost of some firms High storage cost of some products Low product differentiation and switching cost 98 ee INDUSTRY ANALYSES AND STRATEGIC ACTIONS ‘The five forces of competition are guidelines for firms to develop insights required to determine the firm’s attractiveness in terms of its potential to earn adequate return on their investments. The environment of business conditions that interplay in the competitiveness of the firm must be analyzed in terms of data available to the firm. Globalization and the international market for product and services have changed greatly the landscape of business. Firms compete not only with multinational corporations but also with new entrants and small players. The country’s barriers no longer restrict structures in the flow of goods and it enhances the chances of success for new ventures as well as the well-established firms Firms with similar products and services develop strategic groupings and intense competitions exist. The extent of technological development, product leaderships, quality, pricing policy, distribution channels, and customer's service are some of the strategic dimensions that interplay for each firm’s competitive advantage. Groups in ‘Scanned with |CamScannerthe industry remain stable overtime in performance and analysis of their competitive strategy could be made easier for the other groups within the industry. Implications for strategic analyses 1. Firms supply and service the same kind of customers 2. The strength of the five industry forces affecting the firm 3. The similarities of strategies develop greater rivalry among firms In the car industry for example, the competitive dimensions is the development of highbred cars that both run on electric power or solar energy, and a combination of the traditional engines. Electronics and other innovative features are added perks for buyers of SVB’s and small compact cars that are economically efficient and convenient for city driving. Other factors in these dimensions are pricing decisions, product quality, efficiency and performance, and the distribution channels. While brand loyalty and patronage interplay, customers are now aware of other dimensions that they switch to in other brands for a change. ANALYSIS OF THE INDUSTRY COMPETITION The cofpetitors’ environment is the final stage in the analysis as it directly affects the firm's position in the industry. The intense rivalry creates a strong need to understand the moves of the competitors. The firm must be able to develop counteraction and strategy in order to remain afloat in the industry. Critical to an effective analysis of the competitor's moves is the gathering of data and information that can help the firm understand its competitor's intention and strategic actions. To gather the needed information, the firm must set up Competitor intelligence network that will provide data and information as baseline for counter strategic actions. The firm must be able to seek the following information: . The competitors’ future objectives .. The competitors’ current strategic actions 1 2. 3. The competitors’ assumptions about the industry 4. The competitors’ strength and capabilities or their weaknesses 5. . The government policy for the global market Competing against rivals in the industry needs these insights to'create the quality of strategic decisions. Competitor's intelligence network will play an important role in the firm’s effort to reach reasonable objectives of becoming the top within the industry. Strategic actions need top leadership discussions with operating managers for them to fully understand the actions of the firm and seek their cooperation and concerted effort for strategic implementation. 33 Scanned with @ camscanner