Pepsico Case Study

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Strategic Management: Concepts
and Cases
Arab World Edition
Fred R. David
Abbas J. Ali
Abdulrahman Y. Al-Aali

Chapter 3:
The External Assessment

Ch 3 -١

Copyright © 2011 Pearson Education

External Assessment

Every convenience brings its own
inconvenience.
– Arab Saying

“To seize opportunities and overcome
threats and difficulties, we have to actively
confront changing conditions.”
– Abdul Wahab Ben Naser Al Munthery, CEO, AlBatina Group, Oman

Ch 3 -٢

Copyright © 2011 Pearson Education

Figure 3-1

Source: Adapted from Fred R. David, “How Companies Define Their Mission” Long Range Planning 22, no. 3 (June 1988): 40
Ch 3 -٣

Copyright © 2011 Pearson Education

External Assessment (External Audit)
Steps






Gather competitive intelligence
Assimilate information
Evaluate
Resulting in a list of the most important
key external factors

The purpose of performing an external
Assessment is to Identify opportunities and
threats.

External Assessment
• Environmental Scanning
• Industry Analysis

Ch 3 -٥

Copyright © 2011 Pearson Education

External Assessment

Identify & evaluate factors that are beyond the control of a single firm:
• Increased foreign competition
• Population shifts
• Aging society
• Fear of traveling
• Stock market volatility

Ch 3 -٦

Copyright © 2011 Pearson Education

External Assessment
Gather competitive intelligence and information:

•Economic

•Political

•Social

•Governmental

•Cultural

•Legal

•Demographic

•Technological

•Environmenta

•Industry

l

Ch 3 -٧

Copyright © 2011 Pearson Education

External Assessment
Sources of information include:
• Internet
• Libraries
• Suppliers
• Distributors
• Salespersons
• Customers
• Competitors

Ch 3 -٨
Ch 3 -٨

Copyright © 2011 Pearson Education

Performing External Assessment
Key Factors:
Vary over time

- Vary by industry

Variables
• Market share
• Breadth of competing products
• World economies
• Foreign affiliates





Ch 3 -٩

Price competitiveness
Interest rates
Pollution abatement
Technological advancements
Population shifts
Copyright © 2011 Pearson Education

Performing External Assessment

Long-term Orientation

External
Factors

Measurable
Applicable to
Competing Firms
Hierarchical

Ch 3 -١٠

Copyright © 2011 Pearson Education

Industrial Organization (I/O) View

Industry factors are more important than internal factors
as performance is determined by industry forces.
Research has found that approximately 20% of a firm’s
profitability can be explained by the industry, whereas
36% of the variance in profitability is attributed to the
firm’s internal factors.

Ch 3 -١١
Ch 3 -١١

Copyright © 2011 Pearson Education

I/O Perspective Firm Performance

Industry Properties
Economies of Scale
Barriers to Market Entry
Product Differentiation
Level of Competitiveness

Ch 3 -١٢

Copyright © 2011 Pearson Education

Economic Forces



Two-income households in the Arab world



Uncertainties and fluctuations in oil prices



Trends in the dollar’s value



High worldwide demand for oil



Resource-poor, labor-abundant countries in the region

Ch 3 -١٣

Copyright © 2011 Pearson Education

Ch 3 -١٤

Copyright © 2011 Pearson Education

Social and Demographic Forces

Social and democratic forces have a major
impact on:
• Products
• Services
• Markets
• Customers

Ch 3 -١٥
Ch 3 -١٥

Copyright © 2011 Pearson Education

Social and Demographic Forces
Arab World Facts
• High rate of birth
• Youth segment is one of the largest and fastestgrowing
• 60 % of the population is under 25 years of age
• Life expectancy has advanced substantially
• Widening gap between rich & poor
• 2050 = 25% population > 60 years or older

Ch 3 -١٦
Ch 3 -١٦

Copyright © 2011 Pearson Education

Source: Based on World...
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