pesteldg zara

Topics: Barriers to entry, Porter five forces analysis, Strategic management Pages: 6 (613 words) Published: March 22, 2014
Lecture 5
External Environment

Parts of these slides are material developed and copyrighted by Johnson, Scholes & Whittington (2006) and Lynch (2006)

Sustainable Competitive Advantage
• One of the main purposes of analysing
competitors is to explore where and how
sustainable competitive advantage (SCA)
can be generated
• Public service and not-for-profit
organisations may also wish to explore
SCA as they may be in competition for
finance from external bodies
• SCA will probably require elements of both
emergent and prescriptive strategy
approaches to strategy development

The Competitive Advantage Process

Competitive advantage should continuously
challenge an organisation to improve itself
Competitive advantage should be constantly
evolving (dynamic and not static)
Process of development should be built around
current strengths and exploit new areas
Long-term success is achieved by creating a
continuous flow of competitive advantages
A balance between structure and chaos is
Explore new ideas, but also exploit existing

Layers of the External Environment

Understanding the Environment
• Diversity
– Many different influences
• Complexity
– Interconnected influences
• Speed of change
– Particularly IT

Macro-External Environment (1)

Macro-External Environment (2)
• Government stability
• Taxation policy
• Foreign trade regulations
• Social welfare policies
• Business cycles
• GNP trends
• Interest rates
• Money supply
• Inflation
• Unemployment
• Disposable income

Macro-External Environment (3)
• Social mobility
• Lifestyle changes
• Attitudes to work and leisure
• Consumerism
• Government spending on research
• Government and industry focus on technological
• New discoveries /developments
• Speed of technology transfer
• Rates of obsolescence

Macro-External Environment (4)
• Environmental protection laws
• Waste disposal
• Energy consumption
• Competition law
• Employment law
• Health and safety
• Product safety

Macro-External Environment (5)
• Population demographics
• Income distribution
• Levels of education
• International Regulations
• European Union
• Global Business Environment

Key Aspects of PESTEL-DG Analysis

• Not just a list of influences
• Need to understand key drivers of change
• Drivers of change have differential impact
on industries, markets, and organisations
• Focus is on future impact of environmental
• Combined effect of some of the factors
likely to be most important

Porter’s Diamond: The Determinants
of National Advantage

Micro-External Environment:
Porter’s Five Forces

Threat of Entry

Dependent on barriers to entry such as:
• economies of scale
• capital requirements of entry
• access to supply or distribution channels
• customer or supplier loyalty
• experience
• expected retaliation
• legislation or government action
• differentiation

Threat of Substitutes
Reduction in demand for products as customers
switch to alternatives:
• Product for product substitution
–e.g. email for post
• Substitution of need
–e.g. reliable and cheap appliances reduce need
for maintenance services
• Generic substitution
–competition for household income, e.g. cars
versus holidays
–doing without

Buyer Power
Buyer power is likely to be high where there
• a concentration of buyers
• many small operators in the supplying
• alternative sources of supply
• low switching costs
• components/materials that are a high
percentage of cost to the buyer leading to
“shopping around”
• a threat of backward integration

Supplier Power

Supplier power is likely to be high where
there is/are:
• a concentration of suppliers
• customers that are fragmented and
bargaining power low
• high switching costs...
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