Exploring The External Environment: Opportunities, Threats, Competition and Competitor Analysis

The external environments affect firm strategy and also influence the firms revenue. The external environment could result both positive and negative effect for the firm. This

summary will focus on how to analyze the external environment then match with knowledge about internal organization as foundation for forming the firms vision, mission, and identifying and implementing suitable strategic action. Generally, there were three analysis to exploring the external environment that will effect to the formulation of companys strategy:

a. Analysis of general environment

to understand the general environment which

composed of dimensions in the broader society that influences an industry and the firm with in. The dimension consists of seven segment such as: demographic, economic, political/legal, socioculture, technological, global, and physical. Firm could not control the general environment directly. Therefore, firm need to gather the complete information to understand all segments and their implication to formulating and implementation Firms strategy. Result of general environment analysis will help firm to know the opportunities and threats. The component to analyze external environment:  Scanning : study of all segment in general environment to Identify early signals of environmental changes and trends  Monitoring : detecting meaning through ongoing observation of environmental changes and trends  Forecasting : developing projections of anticipated outcome based on monitored change and trends  Assessing : determining the timing and importance of environment changes and trends for firms strategies and their management.

b. Anal i

Industry environment

t anal
Porters Five Forces Model

set of factor t at directl

infl ences a firm and its competiti e actions and responses. Fi e forces model developed by Porter is generally used to analyze industry environment as a tools to analyze t e attractiveness of an industry.

c. Analysis of competitors

focused on predicting competitors action, response and

intentions so it helps us to prepare and anticipated response profile for each competitor . Firm should understand the following things:  Competitors future objectives  Competitors current strategy (ongoing strategy)  Competitor assumption (believes about the industry)  Competitors capability (strengths and weaknesses) To deepen the understanding about external environment factors that will influence firms strategy; the following is the summary about petrochemical industry in perspective. rab audi

Case Summary Articles Title: Sustaining competitive advantage in the global petrochemical industry: a Saudi Arabian Perspective Kingdom of audi rabia as the leading country that produced andexported petrochemical in the world market. In the decline of global economic, growth. The competitiveness of audi audi rabia performed economic

rabia was decline so that must use comparative rab audi petrochemical gives the large

advantage to remain competitive. Production of

contribution to all of petrochemical industry in the world (more than 5% of the world production). However, the local consumption is low, so that about 76% their petrochemical production is being exported. The following is the strengths and weakness of petrochemical industry:
2

audi

Strengths  Low cost of feed-stock and utilities  Low cost due to economic of scale  Lower initial cost  Presence of efficient infrastructure Business ssue

Weakness Lack of technological Lack of management expertise and personnel Lack of marketing approach and product development

Based on the strengths and weaknesses, we can see that Saudi petrochemical industry were depend on the comparative advantage rather than the support of competitive advantage to sustain in global competition. Therefore, we should formulate the strategy which able to improve the competitive advantage. The following is Porters five force model describe about industry environment that will help to develop suitable strategy for Saudi petrochemical industry. Porters Five Force Model ndustry Environment Analysis of Saudi Arabia Petrochemical

Threat of entry of new competitors

y Investment requirement : high y Large and complex operational y High energy input and specialized management y Raw material : controlled by several firms y High technology

Bargaining Power of Supplier

y Availability of inputs: scattered around the globe y Low cost to change supplier y Reasonable price and obtaining credit facilities y Critical raw material : no substitute of aluminum alkyls high threat

Rivalry Between Firms

y SABIC, Exxon, Shell, BASF, Dow, Mitsubishi in y Equal size and market power y oversupply Expensive storage cost y Diversity : no differentiation y Buyer switching cost: low y Exit barrier: too high due to high investment

Bargaining Power of Customers

y Customer: domestic and foregin (Gulf nations, Indian Sub-continent, Far East, Middle East, Europe, Japan) y Industry dependence on one nation, China, that give more bergaining power to customer y Saudi industry should find alternative market

Threat of Substitute y Environmental concerns biochemical substitution

Based on the above analyze, there are some alternatives strategy to against the external environment condition, such as:  Increase the effort in marketing and distribution Penetrated global market, not only in China but also in Far East and South East Asian regions.  Increase the research and development division To modify scarce input and manufacturing process that safe for environmental and also explore the new technology to support the operation.  Human resources improvement Develop the technical and managerial skills of local employees  Increase productivity and cut loss thorugh merge the small and medium firms to strengthen capital base

Lesson Learned From this explanation about external environment and the case about Arab Saudi petrochemical industry, the lesson learned and practical implication are:
y

In external environment analysis, we should analyze from the most widely dimension like general environment until the specific external factors like the competitors action and direction. We have to realize that external factors will influence our firm directly and indirectly. Then the result of external analysis able to use as basic information to formulate firms strategy

Firm has to formulate strategy based on the external factor and also really know and match with their direction and their capacity to achieve the firms objectives. Inappropriate strategy will dangerous the sustaining competitive advantage.

Porters model give the illustrate of the Saudi petrochemical industry environment and the result of the analysis able to help petrochemical firms to formulate the strategy. Furthermore, firm should not only consider Porters model, but also consider the general environment and competitor analysis.

Firm cannot control the external environment; however, firm should collect and analyze external data then formulate the firms strategy to against the threats and to capture the opportunities.

References
Al-Ghamdi, S., & Sohail, M. (2006). Sustaining competitive advantage in the global petrochemical industry: a Saudi Arabian perspective. J. International Business and Entrepreneurship Development . Ireland, D. (2009). The Management of Strategy Concepts and Cases. Canada: South-Western CENGAGE Learning. QuickMBA. (2010). Retrieved: February 9, 2011, from Quick MBA: http://www.quickmba.com/strategy/porter.shtml