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MM 5012 BUSINESS STRATEGY AND ENTERPRISE MODELLING

SUMMARY ASSIGNMENT

R48A

Henny Zahrany 29112551

MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2013

THE EXTERNAL ENVIRONMENT: OPPORTUNITIES, THREATS, COMPETITION, AND COMPETITOR ANALYSIS SUMMARY The General, Industry, and Competitor Environments General environment: composed of dimensions in the broader society that influence an industry and the firms within it. The seven environmental segments are: demographic, economic, political/legal, sociocultural, technological, global, and physical. Industry environment: set of factors that directly influences a firm and its competitive actions and responses; the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors. External Environmental Analysis This analysis has four parts: scanning, monitoring, forecasting, and assessing. Identifying opportunities and threats is an important objective of studying the general environment. Opportunity: condition in the general environment that, if exploited effectively, helps a company achieve strategic competitiveness. Threat: condition in the general environment that may hinder a companys effort to achieve strategic competitiveness. Boundary spanning positions: positions that can obtain general environment information, such as: salesperson, purchasing managers, public relations directors, and customer service representatives, each of whom interacts with external constituents. 1. Scanning 2. Monitoring 3. Forecasting 4. Assessing Segments of the general environment: Demographic, Political/legal segment, Sociocultural, Technological segment, Global segment, Physical environment

Industry Environment Analysis: An industrys profit potential is a function of five forces of competition: the threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors. Strategic groups: A set of firms that emphasize similar strategic dimensions and use a similar strategy. Competitor analysis: in a competitor analysis, the firm seeks to understand: Future objectives, Current strategy, Assumptions, Strengths & weaknesses SUSTAINING COMPETITIVE ADVANTAGE IN THE GLOBAL PETROCHEMICAL INDUSTRY: A SAUDY ARABIAN PERSPECTIVE PORTERS FIVE KEY FORCES MODEL: The competitive forces analysis is made by the identification of five fundamental competitive forces: the entry of competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry among the existing players. INTENSITY OF RIVALRY AMONG EXISTING COMPETITORS Some of the factors that made the rivalry within the industry so intense in petrochemical industry is: Price war in Asian market Oversupply (the storage cost is high) Expensive to store products for longer periods of time If the production capacity is reduced, the cost of production will be higher No differences in terms of quality of the basic product Its costly to switch to another industry

BARGAINING POWER OF SUPPLIER It involved two kind of condition: 1) Other than critical raw material: The bargaining power of the supplier is weak (the switching costs from one supplier to another are low).

2)

For some critical raw materials: Suppliers have high bargaining power, as the nonavailability of these may lead to a shut down in production.

BARGAINING POWER OF CUSTOMERS Some products, such as high pressure LDPE and LLDPE are marketed heavily in China. Exports to China are in the region of more than one million tonnes a year (purchase large portion of products). This gives more bargaining power to customers. THREAT OF ENTRY OF NEW COMPETITORS Petrochemical industry has some commercial attraction to draw out new entrants, one of them is the perception that many petrochemical products sell for significantly higher prices than the cost of their raw materials. But actually, there are some factors that inhibit market entry: High operating costs, Expensive to build and difficult to operate petrochemical plants, Technology. THREAT OF SUBTITUTES Concerns over air emissions, toxic waste and global climatic change can lead to the unpopularity of petrochemical products. An emerging trend is towards biochemical substitution from plant-derived chemicals.

A. What are the main ideas of the reading materials? One of the main challenges for the firms strategic leader is to understand what the external environments effects are on the firm and to predict how its future strategic actions might lead to success. A firms strategic actions are influenced by the conditions in three parts (the general, industry, and competitor) of its external environment. Porters five key forces model is a tool used to analyze the competitive game in an industry. As in the Saudi Arabians Petrochemical industry it has some strength and competitive advantages involved. The environment in petrochemical industry is also volatile, it is extremely critical to analyze its external environment. It is also useful to do the competitor analysis to maintain strategic distinctiveness to gain and sustain a competitive advantage.

B. What are the requirements for implementing the ideas in your own context? First by doing the four process of external environment analysis, scanning, monitoring, forecasting, and assessing. From the process, define every detail of the general environment, especially in the Saudi Arabian case which involved the global market/environment. And next by doing the industry environment analysis, the Porters five forces. It is extremely important for an industry that is highly volatile and has a high rivalry between its competitors. Next by using strategic groups by plotting companies competitive actions and competitive responses along strategic dimensions. Last, by doing competitor analysis through four factors to be analyzed, future objectives, current strategy, assumptions, and strengths & weaknesses. C. What are practical implications for you? The external environment analysis is important for me to enter a business or to maintain in the business. It is not enough to just maintain but also to win, as the external environment could change and influenced how the business will survive. There are several questions as to get successful in the business, for example, how can this business win when there are several other business that try to win the market?. It is also important to analyze the general environment, why we choose this target market and so on. D. What are the lessons learned? By using the external environment analysis we could find many other possibilities or potential business strategy in trying to win the market. What will the company do when there is such a huge threat, or maybe when the raw material is getting extinct?. It takes more effort in the global industry, it needs such strategy that is compatible with the changing global situation. The stakeholders involved also have to be considered, as they are also determined the firms success, for example from the government, the government could create such regulations that could help the firm in nourishing its business.