General Environment Analysis

Trouble at Amana In 1967, Amana introduced the first microwave, and gained 60% of the market. A decade later, its market share declined to 6%. WHY? Mis-forecast: microwave will SUBSTITUTE for traditional ways of cooking Misunderstood the market: assumed that the market DOESN ’ T care about the price Unprepared for new entrants: Low priced Japanese competitors

Layers of the business environment

Environment and Management Economic Political Technological Social BUSINESS POLICIES AND MANAGEMENT STYLE Global Demographic

Macroenvironment – PEST (2) Political Government stability Taxation policy Foreign trade regulations Social welfare policies Economic Business cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable income

The Political Environment in Asia Pacific Countries

Ranking On “ Easy To Do Business ” Rank 155 countries Based on various indicators Surveys law firms/ organizations

Which indicators make up the ranking? Starting a business Procedures, time, cost and minimum capital to open a new business Dealing with licenses Procedures, time and cost of business inspections and licensing (construction industry) Hiring and firing workers Difficulty of hiring index, rigidity of hours of index, difficulty of firing index, hiring cost and firing cost Registering property Procedures, time and cost to register commercial real estate Getting credit Strength of legal rights index, depth of credit information index

Which indicators make up the ranking? (con.) Protecting investors Indices on the extent of disclosure, extent of director liability and ease of shareholder suits Paying taxes Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit Trading across borders Number of documents, number of signatures and time necessary to export and import Enforcing contracts Procedures, time and cost to enforce a debt contract Closing a business Time and cost to close down a business, and recovery rate

IFC Rank Countries on “ Easy to do Business ”, New Zeala 2. Singapore 3. U.S.A. 7. Hong Kong 10.Japan 20. Thailand 21. Malaysia 27. Korea 35.Taiwan 91. China 99. Vietnam 114. Philippines 115. Indonesia 116. India Singapore 2. New Zealand 3. U.S.A. 5. Hong Kong 11.Japan 18. Thailand 23. Korea 25. Malaysia 47.Taiwan 93. China 104.Vietnam 126. Philippines 134. India 135. Indonesia

WB ’ s Ranking on Corruption Rank 146 countries Based on different types of surveys (institutions, managers, etc.)

WB ’ s Ranking on Corruption 2. New Zealand71. China 5. Singapore90. India 16. Hong Kong102. Philippines 24. Japan102. Vietnam 35. Taiwan133. Indonesia 39. Malaysia 47. South Korea 64. Thailand

The Political Environment Map Low corruption High corruption Easy Difficult NZ Singapore HK Japan Taiwan Malaysia SK Thailand China India Vietnam Indonesia Philippines

STOP AND THINK! What are examples of products that are most sensitive to political environment? What products are least sensitive? How do firms adjust their marketing effort when products are very sensitive to the political environment?

Macroenvironment – PEST (3) Socio-cultural Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Consumerism Levels of education

Macroenvironment – PESTEL (4) Legal Competition law Employment law Health and safety Product safety Technological Government spending on research Government and industry focus on technological effort New discoveries /developments Speed of technology transfer Rates of obsolescence

Key Aspects of PESTEL Analysis Not just a list of influences Need to understand key drivers of change Drivers of change have differential impact on industries, markets, and organisations Focus is on future impact of environmental factors Combined effect of some of the factors likely to be most important

INDUSTRY ANALYSIS

Which Industries Are More Attractive? Banking Garment Restaurant

The Five Forces Framework

Five Forces Analysis (1) The threat of entry... Potential entrants are competitors who are NOT YET in the industry, but may enter in the future Dependent on barriers to entry such as: economies of scale capital requirements of entry access to supply or distribution channels customer or supplier loyalty experience expected retaliation legislation or government action differentiation Which one has more potential for new entry? Banking Garment Management Consulting

Which one has more threats of substitute? Banking Garment Management Consulting Threat of substitutes Reduction in demand for products as customers switch to alternatives: Product for product substitution e.g. for post substitution of need e.g. reliable and cheap appliances reduce need for maintenance services generic substitution competition for household income, e.g. cars versus holidays Five Forces Analysis (2)

Buyer power is likely to be high where there is / are: a concentration of buyers many small operators in the supplying industry alternative sources of supply low switching costs possible integration backward by the buyer Five Forces Analysis (3) Which one has strong buyer power? Banking Garment Management Consulting

Suppliers are those who supply inputs to the firms in the industry Supplier power is likely to be high where there is / are: a concentration of suppliers customers that are fragmented and bargaining power low high switching costs powerful supplier brand possible integration forward by the supplier Five Forces Analysis (4) Which one has strong supplier power? Banking Garment Management Consulting

Competitive Rivalry is likely to be high when: competitors are in balance there is slow market growth (product life cycle) there are high fixed costs in an industry there are high exit barriers markets are undifferentiated Five Forces Analysis (5) Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors Which one has intensive competition? Banking Garment Management Consulting

Five Forces Analysis: Key questions and implications Are some industries more attractive than others? (weaker forces) What underlying forces in the macroenvironment drive the competitive forces? Will competitive forces change? What are the strengths and weaknesses of the competitors in relation to the competitive forces? Can competitive strategy influence competitive forces? (e.g. build barriers to entry)

Key Aspects of 5-Forces Analysis Use at level of strategic business units (SBU) Define the industry/market/sector Don ’ t just list the forces: derive implications for industry/organisation Note connections between competitive forces and key drivers in macroenvironment Establish interconnections between the five forces Competition may disrupt the forces rather than accommodate them

The Life-Cycle Model

Real Estate Bubble What appears as problems in the video? Why? Conduct environment analysis for a Real Estate Bubble business to explain what going on Any lessons for Vietnam?