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Lecture 2
EXTERNAL ENVIRONMENT ANALYSIS

Dr
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ac
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Macro external environment analysis:
PESTEL framework
2
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Strategic groups

The External Environment

4

PESTEL Analysis (STEEP)
How macro-environmental factors might impact an industry

Political
Economic
Social
Technological
Ecological

Legal

•Changes in government policy
•Changes in attitudes (e
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to free markets or trade)
•Trends in rates of growth, employment, inflation;
•Trends in spending power and wealth distribution
•Long term trends in exchange rates and their volatility
•Demographic trends
•Movements in social attitudes
•New types of products and service
•Emerging production and communication technologies
•Emerging obligations and expectations for firms

•Trends in formal and informal regulation and deregulation

•

Russia

• Japan
• Name: Makudonaldo

Evaluate PESTEL factors

Evaluate PESTEL factors
1
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Urgency
High = must be dealt with as soon as possible
Low = very little relevant in the near future

Industry Environment
The set of factors directly influencing a firm and its
competitive actions and competitive responses

Threat of new entrants
Power of suppliers
Power of buyers
Threat of substitutes
Intensity of rivalry among competitors

© 2007 Thomson/South-Western
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2–8

Industry Structure – Five Forces
Determinants of New Entry Threat
Capital requirements
Economies of scale
Absolute cost advantages - learning curve effects
Product differentiation
Access to distribution channels
Legislation

Determinants of Supplier Power
Supplier concentration
Importance of volume to supplier
Switching costs
Presence of substitute inputs
Threat of forward integration

Determinants of Substitution Threat
Relative price performance
Switching costs
Buyer propensity to substitute

Determinants of Buyer Power
Bargaining leverage
Buyer concentration versus firm
concentration
Buyer volume
Buyer information
Buyer switching costs
Ability to backward integrate
Price sensitivity
Fraction of buyer’s costs
Importance to buyers quality
Buyer’s own margin position
Rivalry Determinants
No/balance of competitors
Industry growth rate
Fixed costs/overcapacity
Product differentiation
Exit barriers
Diversity of competitors
Source: Porter, 1980

Is Pepsi Cola a substitute for Coca Cola?

https://www
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com/watch?v=N0NpZKaSerg

Exercise
Evaluate the bargaining power of
suppliers and bargaining power of
customers for APPLE

Strategic groups
- Is the group of organizations in an industry working
together by adopting some similar cooperative
strategies in the same market
...

- A strategic group analysis is important for identifying
the appropriate niche market and providing suitable
goods and services to meet the demand
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Foodservice industry

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