THE EXTERNAL ENVIRONTMENT : OPPORTUNITIES, THREATS,

COMPETITION, AND COMPETITOR ANALYSIS

The firms external environment is challenging and complex. Because of the external
environments effect on performance, the firm must develop the skills required to identify
opportunities and threats existing in that environment. A firms external environment
creates both opportunities and threats. An opportunity is a condition in the general
environment that if exploited effectively, helps a company achieve strategic
competitiveness. And the opposites of opportunity is threat, A threat is a condition in the
general environment that may hinder a companys efforts to achieve strategic
competitiveness.
Regardless of the industry in which they compete, the external environment influences
firms as they seek strategic competitiveness and the earning of above-average returns.
The understanding about conditions in its external environment that the firm gains by
analyzing that environment is matched with knowledge about its internal organization as
the foundation for forming the firms vision, developing its mission, and identifying and
implementing strategic actions.
Most firms face external environments that are highly turbulent, complex, and global
conditions that make interpreting those environments difficult. To cope with often
ambiguous and incomplete environmental data and to increase understanding of the
general environment, firms engage in external environmental analysis. This analysis has
four parts:

Scanning: Identifying early signals of environmental changes and trends

Monitoring : Detecting meaning through ongoing observations of environmental

changes and trends.

Forecasting : Developing projections of anticipated outcomes based on monitored

changes and trends.

Assessing : Determining the timing and importance of environmental changes and
trends for firms' strategies and their management

we can categorize the external environment into three categories, which are:
1. General
General environments is composed of dimension in the broader society that
influence an industry and the firms within it. Firms cannot directly control the
general environment's segments. We can group the general environment into
seven segments, namely :
A. Demographic segment
The Demographic segment is concerned with :
Population size, Age structure, Geographic distribution, Ethic Mix,
Income distribution.
B. Economic segment
The economic refers to nature and direction of the economy in which a
firm competes or may compete, and concerned with:
Inflation rates, Interest rates, Trade deficits or surpluses, Budget deficits or
surpluses, Personal saving rate, Business savings rates, GDP.
C. Political/Legal segment
The political/legal segment is the arena in which organizations and interest
groups compete for attention, resources, and a voice in overseeing the
body of laws and regulations guiding interactions among nations as well as
between firms and various local governmental agencies.
Antitrust laws, Taxation Laws, Deregulation philosophies, Labor training
laws, Educational philosophies and policies.
D. Sociocultural segment
The Sociocultural segment is concerned with society's attitudes and
cultural values.
Women in the workforce, Workforce diversity, Attitudes about the quality
of work life, Shift in works and career preferences, Shift in preferences
regarding product and service characteristics.
E. Technological segment
The Technological segment includes the institutions and activities
involved with creating new knowledge and translating that knowledge into

new outputs, products, processes, and materials. Technological segment

concerned with :
Product innovations, Applications of knowledge, Focus of private and
government-supported R&D expenditures, New communication
technologies.
F. Global segment
The global segment includes relevant new global markets, existing
markets that are changing, important international political events, and
critical cultural and institutional characteristics of global markets. The
global segment concerned with :
Important political events, Critical global markets, Newly industrialized
countries, Different cultural and institutional attributes.
G. Physical environment segment.
The physical environment segment refers to potential and actual changes
in the physical environment and business practices that are intended to
positively respond to and deal with those changes. The physical
environment segment concerned :
Energy consumption, Practices used to develop energy sources,
Renewable energy efforts, Minimizing a firm's environmental footprint,
Availability of water as a resource, Producing environmentally friendly
products.
2. Industry
Industry environments is the set of factors that directly influences a firm and its
competitive actions and competitive response; 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. Focused of industry environment is on the
factors and conditions influencing an industry profitability potential. Industry
environment has more directly affect the firm than general environment.
To make comprehensive industry environment analysis, we can use the five forces
of competition model from Porters. Five forces of competition model have five
fundamental competitive forces, namely :
A. Threats of new entrants
Identifying new entrants is important because they can threaten the market
share of existing competitors. One reason new entrants pose such a threat

is that they bring additional production capacity. Unless the demand for a
good or service is increasing, additional capacity holds consumers costs
down, resulting in less revenue and lower returns for competing firms. The
likelihood that firms will enter an industry is a function of two factors:
barriers to entry and the retaliation expected from current industry
participants.
B. Bargaining power of suppliers
Increasing prices and reducing the quality of their products are potential
means suppliers use to exert power over firms competing within an
industry. If a firm is unable to recover cost increases by its suppliers
through its own pricing structure, its profitability is reduced by its
suppliers actions. A supplier group is powerful when :
It is dominated by a few large companies and is more
concentrated than the industry
to which it sells.
Satisfactory substitute products are not available to industry
firms.
Industry firms are not a significant customer for the supplier
group.
Suppliers goods are critical to buyers marketplace success.
The effectiveness of suppliers products has created high
switching costs for industry
firms.
It poses a credible threat to integrate forward into the buyers
industry. Credibility is enhanced when suppliers have substantial
resources and provide a highly differentiated product.
C. Bargaining power of buyers
To reduce their costs, buyers bargain for higher quality, greater levels of
service, and lower prices. These outcomes are achieved by encouraging
competitive battles among the industrys firms. Customers (buyer groups)
are powerful when :
They purchase a large portion of an industrys total output.
The sales of the product being purchased account for a significant
portion of the sellers annual revenues.
They could switch to another product at little, if any, cost.

 The industrys products are undifferentiated or standardized, and

the buyers pose a credible threat if they were to integrate backward
into the sellers industry.
D. Threat of substitute product
Substitute products are goods or services from outside a given industry
that perform similar or the same functions as a product that the industry
produces. In general, product substitutes present a strong threat to a firm
when customers face few, if any, switching costs and when the substitute
products price is lower or its quality and performance capabilities are
equal to or greater than those of the competing product.
Differentiating a product along dimensions that customers value (such as
quality, service after the sale, and location) reduces a substitutes
attractiveness.
E. Rivalry among competing firms
Competitive rivalry intensifies when a firm is challenged by a competitors
actions or when a company recognizes an opportunity to improve its
market position. Firms within industries are rarely homogeneous; they
differ in resources and capabilities and seek to differentiate themselves
from competitors. Common dimensions on which rivalry is based include
price, service after the sale, and innovation.
3. Competitor
Competitor analysis informs the firm about the future objectives, current
strategies, assumptions, and capabilities of the companies with which it competes
directly. A thorough analysis examines complementors that sustain a competitors
strategy and major networks or alliances in which competitors participate. When
analyzing competitors, the firm should also identify and carefully monitor major
actions taken by firms with performance below the industry norm.
Competitor analysis is focusing on each company against which a firm directly
competes. Competitor analysis have four dimension. To do competitor analysis
firm must do competitor intelligence. Competitor intelligence is the set of data
and information the firm gathers to better understand and better anticipate
competitor, objective, strategies, assumption, capabilities. In competitor analysis,

the firm Gathers intelligence not only about its competitors, but Also regarding
public policies in countries around the world. Such intelligence facilitates an
understanding of the strategic posture of foreign competitors. Through effective
competitive intelligence and public policy, the firm gains the insights needed to
the make effective strategic decisions about how to Compete against its rivals.
Capabilities
1.How are we currently competing ?
2.How do we rate compared to our
competitors?

Current Strategy
1.How are we currently competing ?
2.Does
strategy support changes
in
Future their
Objectives
1.How
the
competitive
structure?
do our goals compare with our
competitors' goals?
2.Where
will emphasis be placed in the
Assumptions
future?
1.Do We assume the future will be
3.What
volatile?is the attitude toward risk?

Response
1.What will our competitors do in the
future?
2.Where do we hold an advantage over
our competitors?
3.How will this change our relationship
with our competitors?

2.Are we operating under a status quo?

3. What assumptions do our competitors
hold about the industry and themselves?

Kasus arab
Merubah bisnis, menjadi bisnis hulu ke hilir
Tidak hanya menjual produk mentah, tapi sudah diolah
Konsumsi local rendah
Market share terbesar
Biaya utilitas rendah
Kurang masalah teknologi, skill
Banyak joint venture
Bergantung pekerja asing
High cost technology
Orang arab malas