Analyzing the External Environment
External Analysis and the Wine Industry*
Analyzing the External environment is important in the strategic decision making for the organization in that these factors will affect the company’s choice of direction and its internal processes. There are two specific categories of the external environment factors that will be discussed, the remote environment and the industry environment. The remote environmental factors important to the success of the organization are the economic, political, technological factors. In order to create their strategic action plan, the company must also have a clear understanding of its competitive forces included in the industry environmental factors. The factors the company must look at are the entry barriers including capital requirements and policies regarding distribution channels. Remote environmental factors are created without the actions of the company. These factors may present the organization with opportunities, threats, and constraints that the company has no control of. One area of the environment that directly affects the company is the economic trend factors. As an example wine may be considered a luxury item, the health of the economy is important to the company. In an economic downturn, consumer spending is lowered and therefore, consumers are less willing to spend their money on a luxury good, and more apt to buy products that are a necessity. For example, California is the largest market for many wineries in the California market. During the 2001 - 2002 timeframe, the economy in Northern California has weakened based on the failing dot.com and other internet businesses. Restaurants in these areas that were once prospering because of the strong economic forces are now closed. Also, retail stores in these geographic areas are not turning inventories as fast, and therefore, not purchasing the wine at the same levels. In effect, wine case sales in Northern California are down 5% over last year to date. Other remote
Analyzing the External environment is important in the strategic decision making for the organization in that these factors will affect the company’s choice of direction and its internal processes. There are two specific categories of the external environment factors that will be discussed, the remote environment and the industry environment. The remote environmental factors important to the success of the organization are the economic, political, technological factors. In order to create their strategic action plan, the company must also have a clear understanding of its competitive forces included in the industry environmental factors. The factors the company must look at are the entry barriers including capital requirements and policies regarding distribution channels. Remote environmental factors are created without the actions of the company. These factors may present the organization with opportunities, threats, and constraints that the company has no control of. One area of the environment that directly affects the company is the economic trend factors. As an example wine may be considered a luxury item, the health of the economy is important to the company. In an economic downturn, consumer spending is lowered and therefore, consumers are less willing to spend their money on a luxury good, and more apt to buy products that are a necessity. For example, California is the largest market for many wineries in the California market. During the 2001 - 2002 timeframe, the economy in Northern California has weakened based on the failing dot.com and other internet businesses. Restaurants in these areas that were once prospering because of the strong economic forces are now closed. Also, retail stores in these geographic areas are not turning inventories as fast, and therefore, not purchasing the wine at the same levels. In effect, wine case sales in Northern California are down 5% over last year to date. Other remote