CHAPTER 2 :

THE BUSINESS
ENVIRONMENT FOR
COMPETITIVE
STRATEGY
OBJECTIVES:

 • Know the business condition in the external environment;

 • Understand the importance of segmenting the market;
 • Analyze the conditions prevailing in the external and internal environment;
 • Give and enumerate the forces that affects the firms competitiveness;
 • Develop strategic actions to combat the forces that affect competitiveness;
 • Develop action plans that will give average return on investments.

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 THE BUSINESS
ENVIRONMENT
• The general business environment is composed
of dimensions in the broader society that
influence an industry and the firms within it.

• The industry environment is a set of factors that

directly influence the company and its
competitive actions. The corporate challenge is
to identify the present firm’s position against
environmental factors and develop strategies that
will successfully overcome their competitive
influence.
 THE BUSINESS
ENVIRONMENT
• Competitive analyses - refer to the
gathering and interpreting of information
and data about the business environment
and how the other competitors are doing in
the wide landscape of business.
THE FOCUS OF ANALYSES IS ON
THREE IMPORTANT FACTORS:
1. The General Environment
- It focus in seeing the industry in the future and
how it will affect present and future operations.
2. The Industry Environment
- It refers to the analyses of the firm's conditions of
profitability within the industry.
3. The Competitor
- Analyses of the competitors are focused on
predicting the dynamics of competition that are related
to their operational actions, responses and intentions.

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 ANALYSIS OF THE
EXTERNAL ENVIRONMENT
• The firm must have the complete data and
information by which to base their forecast
and program of operation in order to stay
afloat in their business operation.

• An important objective is to study the

general environment in terms of the
corporate opportunities and threats.
EXTERNAL ENVIRONMENT ANALYSES
INCLUDE FOUR IMPORTANT ACTIVITIES:

1. Scanning - It is identifying the signals of potential

changes in the environment that pose threats or
opportunities that needed immediate actions.
2. Monitoring - It is the process of carefully
observing the changes in the environment and
seeing the effects from the scanning of
information.

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EXTERNAL ENVIRONMENT ANALYSES
INCLUDE FOUR IMPORTANT ACTIVITIES:

3. Forecasting - Forecasts are derived from results of the

analysis of the changes in the environment. Forecasting is
the process of developing projections of what might
happen and how quickly the company developed
strategies to be competitive in the changing business
landscape.
4. Assessing - It is the process of determining the timing
and significance of the effects of the environmental
changes and trends on the strategic management of the
company.
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 SEGMENTATION OF THE
GENERAL ENVIRONMENT
• The degree of impact varies in different
industry and the firm has to scan, monitor,
forecast and assess the levels and degrees of
its effect on the company's operational
profitability.

• The company must be able to recognize the

environmental changes, trends, opportunities
and threats and apply the firm's core
competencies to take advantage of the
changing environment.
THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:
1. The Demographic Segment
2. The Economic Segment
3. The Political and Legal Segments
4. The Social and Cultural Segments
5. The Advancement in Technology Segments
6. The World of Business Segments

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THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:
1. The Demographic Segment a. Population Size
• It is concerned with the population's size, age
structure, geographic distribution system, ethnic
b. Age Structure
groups and economic index. c. Geographic
• For strategic competencies the demographic Distribution
segments should be analyzed on the global basis
as it has potential effects across countries. d. The Ethnic Mix
• Globalization becomes the workings not only e. Income
of big corporations but also small companies Distribution
with borderless operations.

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THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:

2. The Economic Segment

- The economic segment refers to the nature and
directions of the country in their economic development.
- Companies operate profitably in a country with
economic stability.

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THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:

3. The Political and Legal Segments

- This segment represents how business organization
tries to influence the government and how the
government influences the flow of trade and commerce.
- These segments constantly change as government
passed laws that protect the interest of their local
industries and the flow of revenue for imported products.

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THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:

4. The Social and Cultural Segments

- This area is concerned with the society's attitudes and
cultural values.
• Attitudes and values differ among nations, and these
play as the cornerstone of the society as they drive the
demographic, economic and technological condition
and change.

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THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:

5. The Advancement in Technology Segments

• The advent of new technology has great effects in the
development of new products, processes and materials
required to produce new kinds of goods.
• This involved the development of new knowledge base
that institutions and higher learning institutions must cope
with in order to strategically answer the demand of the
industry for new kind of workforce.

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THERE ARE SIX SEGMENTS THAT AFFECT
THE OPERATION OF THE FIRM:

6. The World of Business Segments

• The globalization of the business market creates both
opportunities and challenges.
• The present scenario in trade and commerce is the creation of
borderless flow of product and services.
• The nation's development of industries and creation of
investments for the production of goods are challenges not
only for the firm but also for the government.

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ANALYSIS OF THE INDUSTRIAL
ENVIRONMENT
• The industry is a group of firms producing products that are
similar or close substitutes. They are competing for the share of
the market pie, and have influence on the strategy of the other
firms. Industries include a rich mix of competitive strategies in
pursuing their own goals of greater returns.

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ANALYSIS OF THE INDUSTRIAL
ENVIRONMENT
• In the traditional strategy, the firm concentrated on the competitors in
the same product line or category.
• The strategic competencies have changed the landscape of competition,
as the firm must search more broadly to identify current and potential
competitors, and the customers that the firm is serving them.

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 THE FIVE FORCES THAT AFFECT FIRM'S
COMPETIVENESS
1. THE THREAT'S OF NEW The threat of economics
ENTRANTS could be avoided with the
- Firms must monitor new entrants in following strategies:
the industry to maintain market share A. Economic of scale
and profitability. New entrants bring
additional production capacity and B. Product Differentiation
modify existing products, aiming to C. Capital requirements
gain larger market share and improve D. Access to distribution channel
delivery efficiency.
E. Government Regulations

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 THE FIVE FORCES THAT AFFECT FIRM'S
COMPETIVENESS
2.THE POWER OF THE The power of the supplier is
SUPPLIERS powerful under the following:
a. When it is dominated by few large companies
- Suppliers of material inputs
b. When they are more concentrated than the
determine quality products, and
industry it sells
their price increases can impact a
c. When there is no substitute available
firm's profitability and
d. When the industry is not a significant customer
competitiveness. for the supplier
e. When the suppliers' goods are critical to the
firm's success
f. When it poses a threat to integrate forward into
the buyers' industry
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 THE FIVE FORCES THAT AFFECT FIRM'S
COMPETIVENESS
3.THE BUYERS' The consumer group has the
BARGAINING POWER bargaining power under the following:
- The firm aims to maximize a. When they purchase a large volume of the
returns on invested capital, while firms output
buyers seek the lowest price b. When there are available substitutes of
possible. To maintain balance, the similar quality
firm must adjust to buyers' c. When the sales is a significant portion of
bargaining power and satisfy the firm's sales volume
customer needs. d. When the buyer or dealer can be a threat
for backward integration.

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 THE FIVE FORCES THAT AFFECT FIRM'S
COMPETIVENESS
4. THE THREAT OF The threats for product substitute are
SUBSTITUTE PRODUCT based on the following:
- Innovation is crucial in the a. When the substitute product is priced
industrial world, as firms seek new lower
opportunities and substitutes for b. When the quality is better than the existing
existing products. Consumers product
demand limitless satisfaction, and c. When the product is immediately available
firms that fail to innovate risk losing in the market
market share.
d. When service is available

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 THE FIVE FORCES THAT AFFECT FIRM'S
COMPETIVENESS
5. THE POWER OF Factors that intensify the power of
COMPETITION competition:
- Companies engage in competitive 1. The presence of balance competitors.
response, requiring innovation and 2. The slow industrial growth in some
recognizing opportunities to improve sectors.
market position. Firms differ in
3. Higher fixed cost of some firms.
resources and capabilities, seeking to
differentiate themselves. Visible 4. High storage cost of some products.
competitive strategies focus on price, 5. Low product differentiation and
quality, innovation, and service. switching cost.

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 INDUSTRY ANALYSES AND
STRATEGIC ACTIONS
• The five forces of competition guide firm’s in
determining their attractiveness and potential return
on investments.
• Globalization has transformed business landscape,
allowing firm’s to compete with multinational
corporations, new entrants, and small players
• Strategic dimensions such as technological
development, product leaderships, quality, pricing
policy, distribution channels, and customer's service
influence each firm’s competitive advantage.
• Stability in industry groups can help analyze
competitive strategies.
IMPLICATIONS FOR STRATEGIC
ANALYSES
1. Firms supply and service the same kind of customers.
2. The strength of the five industry forces affecting the
firm.
3. The similarities of strategies develop greater rivalry
among firms In the car industry for example, the
competitive dimensions is the development of highbred
cars that both run on electric power or solar energy, and
a combination of the traditional engines.

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 ANALYSIS OF THE
INDUSTRY COMPETITION
• The firm must be able to develop counteraction
and strategy in order to remain afloat in the
industry.
• Critical to an effective analysis of the
competitor's moves is the gathering of data and
information that can help the firm understand its
competitor's intention and strategic actions.
• To gather the needed information, the firm must
set up Competitor intelligence network that will
provide data and information as baseline for
counter strategic actions.
THE FIRM MUST BE ABLE TO SEEK
THE FOLLOWING INFORMATION:

1. The competitors' future objectives

2. The competitors' current strategic actions
3. The competitors' assumptions about the industry
4. The competitors' strength and capabilities or their
weaknesses
5. The government policy for the global market

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THANK YOU
REPORTERS:
 Didato, Saidah P.
 Ngoho, Dian Mae F.
 Palabrica, Jemaima D.
 Payusan, Fidel H.

 Pedrezo, Leah F.