8/6/2019 PresUniv.lect 03.SM
1/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
CHAPTER 3: THE
EXTERNALENVIRONMENT
8/6/2019 PresUniv.lect 03.SM
2/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
THE FIRMS EXTERNAL
ENVIRONMENT
THE FIRM
Operating Environment (Global and Domestic)
Competitors LaborSuppliers
Customers
Industry Environment (Global and Domestic)Entry barriers
Supplier power
Buyer power
Substitute availability
Competitive
rivalry
Creditors
Remote Environment (Global and Domestic)EconomicSocial
Political
Technological
Ecological
8/6/2019 PresUniv.lect 03.SM
3/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
ECONOMIC FACTORS
Concern the nature and direction of economy in
which a firm operates Types of factors
General availability of credit
Level of disposable income
Propensity of people to spend Prime interest rates
Inflation rates
Trends in growth of gross national product
8/6/2019 PresUniv.lect 03.SM
4/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
SOCIAL FACTORS
Include beliefs, values, opinions, and lifestyles of
people Recent social trends
Entry of large numbers of women into labor market
Accelerating interest of consumers and employees in
quality-of-life issues
Shift in age distribution of population
8/6/2019 PresUniv.lect 03.SM
5/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
P
OLITICAL FACTORS
Define legal and regulatory parameters withinwhich firms must operate
Types of factors
Fair-trade decisions
Antitrust laws
Tax programs
Minimum wage legislation
Pollution and pricing policies
Administrative jawboning
8/6/2019 PresUniv.lect 03.SM
6/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
TECHNOLOGICAL FACTORS
Focus on technological changes affecting industry
Types of changes
New products
Improvements in existing products
Manufacturing and marketing techniques
Role of technological forecasting
Foresees advancements and estimating their impact onorganizations operations
Alerts managers to impending challenges andpromising opportunities
8/6/2019 PresUniv.lect 03.SM
7/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
ECOLOGICAL FACTORS
Involve relationships among human beings andother living things and air, soil, and water
Current concerns Global warming
Loss of habitat and biodiversity
Air, water, and land pollution
Responsibilities of firms
Eliminating toxic by-products of current manufacturingprocesses
Cleaning up prior environmental damage
8/6/2019 PresUniv.lect 03.SM
8/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
OPERATING ENVIRONMENT
The operating environment, also called the competitive
or task environment, comprises factors in the
competitive situation that affect a firms success in
acquiring needed resources or in profitably marketing
its goods and services
8/6/2019 PresUniv.lect 03.SM
9/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
FACTORS IN THE OPERATING
ENVIRONMENT
Firms competitive position The composition of its customers
Its reputation among suppliers and creditors
Its ability to attract capable employees
8/6/2019 PresUniv.lect 03.SM
10/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
CRITERIA USED IN CONSTRUCTING
COMPETITOR PROFILES
Market share
Breadth of product line
Effectiveness of salesdistribution
Proprietary and key-accountadvantages
Price competitiveness
Advertising and promotioneffectiveness
Location and age of facility
Capacity and productivity
Experience
Raw material costs
Financial position
Relative product quality R&D advantages position
Caliber of personnel
General images
Customer profile
Patents and copyrights Union relations
Technological position
Community reputation
8/6/2019 PresUniv.lect 03.SM
11/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
CUSTOMERPROFILES
Improves ability of managers to
Plan strategic operations Anticipate changes in size of markets
Reallocate resources to support forecasted shifts in
demand patterns
Two approaches to market segmentation
Traditional segmentation approach Exhibit 3-14
Industrial market segmentation Exhibit 3-15
8/6/2019 PresUniv.lect 03.SM
12/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
MAJOR SEGMENTATION
VARIABLES FOR CONSUMER
MARKETS
Geographic Variables
Region County size
City or SMSA size
Density
Climate
Psychographic Variables
Social class Lifestyle
Personality
8/6/2019 PresUniv.lect 03.SM
13/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Demographic Variables
Age Sex
Family size
Family life cycle
Income
Occupation
Education
Religion
Race
Nationality
Behavioral Variables
Occasions Benefits
User status
Usage rate
Loyalty status
Readiness stage
Attitude toward product
MAJOR SEGMENTATION VARIABLES
FOR CONSUMER MARKETS
8/6/2019 PresUniv.lect 03.SM
14/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
MAJOR SEGMENTATION
VARIABLES FORINDUSTRIAL MARKETS
Demographic
Industry
Company size
Location
Operating
Technology
User-nonuser status
Customer
capabilities
8/6/2019 PresUniv.lect 03.SM
15/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
Purchasing Approaches
Purchasing-function organization
Power structure
Nature of existing relationships
General purchase policies Purchasing criteria
MAJOR SEGMENTATION
VARIABLES FOR
INDUSTRIAL MARKETS
8/6/2019 PresUniv.lect 03.SM
16/19
8/6/2019 PresUniv.lect 03.SM
17/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
FACTORS RELATED TO ASSESSING
RELATIONSHIP WITH SUPPLIERSHow costly are shipping charges?
Are suppliers competitive in terms
of production standards?
Are suppliers prices
competitive? Do they offer
quantity discounts?
In terms of deficiency rates, are
suppliers abilities, reputations,
and services competitive?
Are suppliers reciprocally
dependent on the firm?
8/6/2019 PresUniv.lect 03.SM
18/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
FACTORS RELATED TO ASSESSING
RELATIONSHIP WITH CREDITORS
Do creditors fairly value and willingly accept firmsstock as collateral?
Do creditors perceive firm as having an acceptablerecord of past payment?
A strong working capital position? Little or no
leverage? Are creditors loan terms compatible with firmsprofitability objectives?
Are creditors able to extend necessary lines of credit?
8/6/2019 PresUniv.lect 03.SM
19/19
McGraw-Hill/Irwin 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
FACTORS RELATED TO ACQUIRING
NEEDED HUMAN RESOURCES
A firms access to needed
personnel is affected by
Reputation as an
employer
Local employment
rates
Availability of people
with needed skills