1. Competing for Advantage
PART II
STRATEGIC ANALYSIS
Chapter 3
The External Environment:
Opportunities, Threats, Industry Competition, and Competitor Analysis

2. The Strategic Management Process
Figure 1.6: The Strategic Management Process – A logical approach for responding to 21st century competitive challenges. Provides an outline of the content of the textbook by each chapter.
Strategic Analysis – highlights the two key sources of information-based inputs to the strategic management process which prepare the firm to develop its strategic direction and the specific strategies it will use to create a competitive advantage.
From the external environment – opportunities and threats
Internally – strengths and weaknesses derived collectively from the firm’s resources, capabilities, and core competencies
An integrated understanding of the firm’s external and internal environments is essential step to the strategic management process.

3. External Environments
Key Terms
General environment
Composed of dimensions in the broader society that influence an industry and the firms within it
Industry environment
Set of factors that directly influence a firm and its competitive actions and competitive responses
Competitor environment
Details about direct and indirect competitors and the competitive dynamics expected impact a firm's efforts to generate above-average returns
External Environments – profoundly influence firm growth and profitability
Major events and conditions generate threats and opportunities for firms which impact strategic action.
To create value, firms must analyze and understand the external environment, which involves acquiring information to build their base of knowledge and capabilities. Firms analyze and use this information about the external environment to select and implement appropriate strategies intended to produce a competitive advantage.

4. The External Environment
Figure 3.1: The External Environment – In combination, the results of analyzing the various environments outside of the firm will influence its strategic intent and actions. An integrated analysis of the environmental areas strengthens the quality of the firm’s strategic efforts.
Discussion points:
General environment
Dimensions in the broader society are grouped into seven segments.
Elements in the general environment cannot be controlled by the firm, but can have profound implications to the company’s performance.
Analysis of the general environment is focused on the future.
Industry environment
Five major factors determine an industry’s profit potential.
The challenge is to locate a position within an industry where the firm can favorably influence those factors or successfully defend against their influence to maximize firm performance and returns.
Analysis of the industry environment is focused on the factors and conditions influencing the firm’s profitability within its industry.
Competitor environment
Firms conduct competitor analysis to gather and interpret information about their rivals.
Analysis of the competitor environment is focused on predicting the dynamics of competitors’ actions, responses, and intentions.

5. External Environmental Analysis
Key Terms
Opportunity
Condition in the external environment that, if exploited, helps a company achieve value creation
Threat
Condition in the general environment that may hinder a company's efforts to achieve value creation
External Environmental Analysis – External environmental analysis is a continuous process used by companies to interpret and understand turbulent, complex, and global environments. Although difficult, companies search for sources of information to reduce the ambiguity and incompleteness of their environmental data.
An important objective of studying the external environment is to identify the opportunities and threats which have strategic significance to the firm.
Discussion points:
Opportunities – competitive possibilities
Example: Walmart in China
Threats – potential constraints
Example: Polaroid, RIM, Laptop PCs
What are some of the sources which can be used by firms to analyze the general environment?
Printed materials
Trade publications
Newspapers
Business publications
Results of academic research and public polls
Publications produced by trade shows, suppliers, custoemrs, and employees of public-sector organizations
External network contacts
People in the firm’s “boundary-spanning” positions who interact with external constituents
Salespeople
Purchasing managers
Public relations directors
Customer service representatives
The external environmental analysis process includes four activities, which are outlined on Slide 6 and on Table 3.2.

6. External Environment Analysis
Key Terms
Scanning
Studying all segments in the general environment
Monitoring
Observing scanned environmental changes to identify important emerging trends
Forecasting
Developing feasible projections of potential events
Assessing
Determining the timing and significance of the effects of environmental changes and trends on the strategic management of the firm
Discussion points:
Scanning
Identifies early signals of potential or already occurring changes in the external environment and aligns with organizational context
Example: Trend toward early retirement in developed countries
Specialized software and Internet tools detect relevant information in the external environment
Example: Amazon.com and Internet “cookies”
Monitoring
Ability to define the meaning of environmental trends and events is critical
Example: Growth of the number of Hispanic Americans
Better prepares firms for timely introduction of new goods and services
Requires identification of important stakeholders, which shift over time
Particularly important when competing in an industry with high technological uncertainty to discover opportunities to successfully commercialize new technologies
Forecasting
Shifts focus from events and trends at a point in time to making projections into the future
Involves anticipating how quickly and how likely changes and trends might be expected to occur within the environment
Accuracy is challenging
Example: P&G and Unilever pricing in response to changes in economic conditions
Assessing
Specifies the implications drawn from the scanning, monitoring, and forecasting efforts made during external environmental analysis
Determines the competitive relevance of data
With accuracy, can provide an opportunity to move ahead of competitors (first mover advantages discussed further in Chapter 6) or expose serious threats before they can damage the firm
What are some forecasting situations which rely on accurately timed projections?
Determining the time required for a new technology to reach the marketplace
Estimating the length of time before corporate training procedures are required to deal with anticipated changes in workforce composition
Establishing how much time will elapse before changes in governmental taxation policies will affect consumer purchasing patterns

7. Components of External Environmental Analysis
Table 3.2: Components of External Environmental Analysis

8. The General Environment
Table 3.1: The General Environment – comprehensive outline of segments and elements
Again, these segments and elements are external to the firm. Although the degree to which each will impact a particular firm varies, they do affect all industries and companies. The challenge for the firm is to thoroughly and effectively analyze the general environment to highlight the most relevant and impactful events and conditions.
The result of this analysis should be recognition and understanding of environmental changes, trends, opportunities, and threats which can be aligned with the company’s core competencies (a matching process which is discussed more fully in Chapter 4).
Key objective of analyzing the general environment is identifying anticipated changes and trends among external elements with a focus on the future.

9. The Demographic Segment
Key Terms
Demographic segment
Segment of the environment concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution
The Demographic Segment – characteristics of populations in the marketplace that organizations consider when analyzing their environments
Demographic segments are now analyzed on a global basis because of the potential effects across country borders and because many firms now compete in global markets.

10. Demographic Characteristics
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
Demographic Characteristics – characteristics of populations in the marketplace with implications for organizational performance
Discussion points:
Population size
Developed versus undeveloped countries
Most heavily populated countries
Imbalanced growth rates across countries
Negative population growth - birthrates
Immigration
Age structure
Growth rates for different age and gender groups in different countries
Aging (increasing life expectancy) trends suggest opportunities to meet needs of older population
Example: Walmart’s prescription drug program
Effects on labor forces
Example: Japanese workforce
Effects on pension plans
Example: Opportunities for financial institutions
Geographic distribution
Regional shifts
Migration to nonmetropolitan areas
Changing tax bases
Varies by country
Effect on location of business operations
Ethnic mix
Varies significantly across regions
Significant opportunities emerging
U.S. Hispanic and Asian markets
Effects on workforce composition
Implications of cultural diversity
Income distribution
Discretionary income varies across groups and nations
Effects on purchasing power
Decline of real income
Dual income trends
Effect of rapid economic growth in China

11. The Economic Segment Key Terms Economic segment
Nature and direction of the economy in which a firm competes or may compete
The Economic Segment – measurements of economic health – changes and trends with strategic implications – that affect a nation’s firms and industries

12. Economic Factors Gross National Product (GNP) Interest rates
Inflation/Deflation
Foreign exchange rates
Trade balances
Economic Factors – aspects of the economy that deserve ongoing attention
Discussion points:
Gross National Product (GNP)
A general indication of the economy’s strength
Often reported per capita or adjusted for inflation
Interacts with other factors
Interest rates and inflation are interconnected
Low interest rates encourage investment, which increases GNP
Increased production and demand for supplies can fuel inflation
Interest rates at which banks can borrow from the U.S. government is set by the U.S. Federal Reserve and influences other interest rates
Government attempts to manage inflation and minimize downward economic cycles
Global economy has increased interconnectedness amongst national economies
Trade balance and foreign investment effects of U.S. consumerism
Extended reach of Chinese and Indian firms
Effect of inflation and trade surpluses on foreign exchange rates, investments, and earnings

13. The Political Segment Key Terms Political/legal segment
Arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations
The Political/Legal Segment – Organizations try to influence government bodies, whose constantly changing influences affect the nature of competition through laws, regulations, and policies. Government actions can affect business operations and industry profitability. It is often necessary to develop a political strategy to influence government policies and actions which impact the firm.
Discussion points:
Penalties can be harsh
New administrations and political trends bring new business-related policies and philosophies
Antitrust laws
Taxation laws
Industry regulation
Labor training and educational policies
Global trade policies
Risks in developing countries
Examples: Uncertainty in the Middle East and economic crises in the EU

14. The Sociocultural Segment
Key Terms
Sociocultural segment
Segment of the environment concerned with a society's attitudes and cultural values
The Sociocultural Segment – Values and attitudes form the cornerstone of societies in which businesses operate. They vary across countries.

15. Sociocultural Considerations
Healthcare
Workforce diversity
Changing attitudes toward work
Saving and retirement planning
Concern for the environment
Concern for quality of work life
Residential decisions
Shifts in product/service preferences

16. The Technological Segment
Key Terms
Technological segment
Segment of the environment that includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials
The Technological Segment – Pervasive and diversified in scope, technological changes are producing new products, processes, and materials which affect many sectors of society.

17. Technological Issues Rapid pace of technological change
Impact of the Internet on business practices
Impact of wireless communications on business practices.
Internal development versus external sources of new technology
The Technological Segment – technological trends impacting businesses today
Discussion points:
Firms that adopt new technology early often achieve higher market shares and earn higher returns.
The Internet is at the heart of the increasing rate of technological change and diffusion, changes in IT, and increasing knowledge intensity.
Among its many valuable uses, the Internet provides access to excellent sources of data and information to decipher the external environment.
A competitive advantage may accrue to companies which derive full value from the Internet in terms of e-commerce activities, transactions, and work flow processes.
Wireless communication facilitates the diffusion of other technologies and knowledge critical to achieving and maintaining competitive advantages.

18. The Global Segment Key Terms Global segment
Segment of the environment that 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 – Recall from Chapter 1 that globalization is the increasing economic interdependence among countries.

19. Global Interdependence
Increase and ease in the flow of goods, services, financial capital, and knowledge across borders
Opening of economically maturing markets
Extended reach and potential for firms
Global Interdependence – Globalization of business markets creates opportunities for businesses today.

20. Global Challenges
The low cost of goods developed in countries with extremely low wage rates threatens industries in higher wage nations.
There are risks are associated with investing in less economically mature markets.
Different sociocultural and institutional attributes need to be recognized when expanding into global markets.
Global Challenges – Highlights the necessity of a top management team with experience, knowledge, and sensitivity to effectively understand this environmental segment and to build relationships with key stakeholders in other countries.

21. The Physical Environment Segment
Key Terms
Physical environment segment
Segment of the environment that involves changes to the physical environment and business practices to respond to or prevent those changes
The Physical Environment Segment – Concern is with sustaining the physical environment, with a particular focus on ecological, social, and economic systems (or sustainability). Many firms are now developing sustainability strategies and integrating them with their corporate strategies.
Discussion points:
Global warming
Greening strategies to minimize negative effects on the natural environment
Government incentives
Green or economically-friendly products
Conservation efforts
Financial implications for firms

22. Industry Environment Analysis
Key Terms
Industry
Group of firms producing products that are close substitutes
Market microstructure
Term referring to competition for the a group of customers who value location and firm capabilities when making buying decisions
Industry Environment Analysis – Compared with the general environment, the industry environment more directly affects the firm’s value creation and return on investment level. In the pursuit of value creation and above-average returns, firms compete. In the course of competition, they influence one another and the industry itself.
Norms of behavior (practices), unique sets of resources, specific skill requirements, and success requirements evolve within individual industries.
The Five Forces of Competition model provides a method for understanding the mix of acting strategies that influence an industry and offers a suggestion for appropriate strategies to employ while operating within a particular industry. This model best describes the competitive situation in an industry and yields an understanding of the intensity of industry competition and the long-term profit potential of the industry.
A focus on customers and geographic boundaries, rather just specific industry boundaries, enhances the analysis of the industry environment.

23. Five Forces Model of Competition
Figure 3.2: Five Forces Model of Competition – expands the arena for competitive analysis by broadly identifying current and potential competitors based on possible customer groups and the firms which serve them
Understanding market microstructures is important because industry boundaries are blurring, and research suggests that different geographic markets for the same product can have considerably different competitive conditions.

24. Five Competitive Forces
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products
Intensity of rivalry among competitors
Five Forces Model of Competition – A firm assesses the industry environment in which it operates by looking at a set of five key factors and the interaction among these factors to determine the profit potential of the industry.
Michael Porter’s Five Forces Analysis is the framework for this assessment.

25. New Entrants Threat to current competitors Likelihood of entry
Market share
Production capacity
Earnings
Likelihood of entry
Barriers
Expected retaliation
New Entrants – threaten the market share of existing competitors by bringing additional production capacity into the industry
Discussion points:
Additional production capacity
Holds consumer costs down unless demand is increasing
Results in less revenue and lower returns for competing firms
New entrants motivated to gain a large market share
Force existing competitors to be more efficient and to compete in new ways
The likelihood that firms will enter an industry is a function of several factors.
Barriers to entry – place new competitors at a disadvantage and provide existing firms with higher returns (discussed more fully in the following slides)
Expected retaliation from current industry participants

26. Market Entry Barriers Economies of scale Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost advantages independent of scale
Government policy
Expected retaliation
Market Entry Barriers – Firms work to increase entry barriers in their industry, and potential entrants seek markets with limited barriers and attractive potential for profits.
Discussion points:
Economies of scale
Marginal improvements in efficiency with incremental increases in size
As the production quantity goes up, unit costs of manufacturing decline
Yield high volume, low cost production advantages for existing firms
Can be developed in most business functions
Increase flexibility for the firm
New entrant dilemma: enter small and face cost disadvantages or enter big and invite retaliation
Mass customization
Reduces the potential of economies of scale as an entry barrier
Customized products not manufactured in volumes necessary to achieve economies of scale
Flexible manufacturing systems enable customization on a grand scale
Even quick responsive individualization is available to meet very specific customer demands
Product differentiation
Can generate a strong customer following that is difficult to overcome
Product distinctiveness can generate loyalty to both the product and the company which produces it
Substantial resources are often required to overcome existing customer loyalties
Even lower prices might be necessary to attract customers to a new brand
Either of these might reduce the potential return and desirability of entering a market
Capital requirements
Competing in a new industry can demand substantial resources to invest in physical facilities, inventory, marketing, and other critical business functions
Switching costs
One-time costs incurred by customers to change to a new product supplier
Customer loyalty programs are designed to increase switching costs – real or perceived
The more established the relationship, the higher the cost of switching to an alternative product offering because of the trust and cooperation which develop between parties over time
Access to distribution channels
May be restricted by existing relationships between manufacturers and their established distribution networks
Can be a strong barrier to entry, particularly in consumer nondurable goods industries and in international markets
Practices to entice retailers or distributors to carry a new product (such as price breaks or cooperative advertising programs) can reduce potential returns
Scale-independent cost advantages
Valuable when competitors cannot duplicate
Successful competition requires new entrants to reduce the strategic relevance of such advantages
Example: Overcoming location advantages through delivery or superior service
Government policies
When entry is controlled by licensing and permit requirements
When regulation and oversight influence industry behavior
Some efforts are meant to ensure a mandatory level of quality or to protect jobs
Antitrust regulation can draw sharp criticism for firms believed to use excessive measures to restrict market entry
Example: Microsoft
Expectation retaliation
Anticipated reactions from existing firms with a major stake in the industry
Swift and vigorous competitive response can interfere with decisions to enter a market
Unserved market niches or neglected segments are an exception
Small entrepreneurial firms are well-suited to identify and serve neglected market segments
Example: Honda’s entry into a neglected small engine market niche
What are some methods of achieving product differentiation?
Providing exceptional service to the customer
Effective advertising campaigns
Being the first to market a good or service
Provide some examples of high and low switching costs.
Changing to a new type of soft drink carries no switching costs with it.
Buying new production equipment may involve additional employee training.
The switching costs associated with changing schools increases the longer a student is engaged in a program.
Some psychological costs are involved with ending or beginning new supplier relationships.
What are some examples of cost advantages which are unrelated to economies of scale?
Proprietary product technology
Favorable access to raw materials
Desirable locations
Government subsidies
Describe some industries where entry is affected by governments.
Liquor retailing
Banking
Trucking and transportation
Airline
Utilities
What type of conditions increase the likelihood of swift and vigorous retaliation by existing industry participants?
Fixed assets with few or no alternative uses
Availability of substantial resources to make a strong response
Slow or constrained industry growth

27. Bargaining Power of Suppliers
Supplier concentration
No substitutes
Small customers
Critical product
High switching cost
Threat of forward integration
Bargaining Power of Suppliers – Several factors influence the ability of suppliers to exert power over firms competing within an industry.
Discussion points:
The group of suppliers is dominated by a few large companies and is more concentrated than the market to which it sells.
Satisfactory substitute products are not available to firms in the industry.
Customers in the industry do not represent a significant portion of the suppliers' sales.
Suppliers' goods are critical to the buyers' marketplace success.
There is a high switching cost for changing to a new supplier's product.
A credible threat of forward integration into the customer’s industry exists, especially if backed by substantial resources and/or a highly differentiated product.
A positive, trusting relationship built between the buyer and supplier over time can provide positive benefits of supplier dependency. Even with such a relationship established, the risk of major supply disruption can be severe if a supplier elects to exercise its power in disadvantageous ways.
Example of low supplier bargaining power: Automobile manufacturing industry

28. Bargaining Power of Buyers
Large buyers in industry
Large portion of firm’s sales
Low switching costs
Standardized product
Threat of backward integration
Bargaining Power of Buyers – Several factors provide buyers with the ability to exert power over suppliers in an industry. Buyers are driven by the desire to lower the price of products to the lowest point possible in an industry. To reduce their costs, they bargain for higher quality, greater service levels, and lower prices. These outcomes are achieved by encouraging competitive battles among industry firms.
Discussion points:
Buyers are purchasing a large portion of the industry's total output.
Sales to buyers represent a significant portion of the selling firm's revenues.
Switching costs from one product to another are low or non-existent.
Industry products are undifferentiated or standardized.
Buyer poses a credible threat of integrating backward into the seller’s business.
Buyer bargaining power has increased in many industries because of greater access to information and alternatives from the Internet.
Customers do, however, develop relationships and loyalty with suppliers who are responsive to satisfying their needs, giving companies a means of overcoming buyer power.

29. Threat of Substitute Products
Few switching costs
Lower price
Equal or higher quality and performance capabilities
Threat of Substitute Products – goods or services from outside an industry that perform similar or same functions as industry products
An industry faces dangers when goods or services from outside of the industry can easily substitute, with little switching costs, the products that they are offering in their industry at lower prices or equivalent performance qualities.
Example: NutraSweet as a sugar substitute
What are some examples of substitute products?
substitution for fax machines
Plastic substitution for glass containers
Tea substitution for coffee
Satellite substitution for cable services
Internet substitution for newspapers

30. Competitive Rivalry
Intensifies when a firm is challenged or recognizes an opportunity to improve its market position Visible dimensions: - Price - Quality - Innovation
Competitive Rivalry – Firms in an industry usually differ in resources and capabilities and seek to differentiate themselves from competitors in ways that customers value and that provide them with a competitive advantage.

31. Intensity of Rivalry Numerous or equally-balanced competitors
Slow industry growth
High fixed costs or high storage costs
Lack of differentiation or low switching costs
High strategic stakes
High exit barriers
Intensity of Rivalry among Competitors – Industry firms are interdependent, and actions taken by one company usually invite a competitive response. Certain conditions intensify the level of competitive rivalry among industry participants.
What economic, strategic, or emotional factors cause companies to continue to compete in an industry even though the returns on invested capital are low or negative?
They have significant investments in specialized assets (assets with values linked to a particular business or location)
Fixed costs of exit (such as labor agreements)
Strategic interrelationships or mutual dependence between business units (like shared facilities and access to financial markets)
Emotional commitments (behavior driven by career concerns, loyalty to employees, etc.)
Government and social restrictions (more common outside of the U.S., where job losses and regional economic effects invite government involvement)

32. Complementors Key Terms Complementors
Companies that sell complementary goods or services that are compatible with the focal firm's own product or services
Complementors – sometimes labeled a sixth industry force which impacts competition
Discussion points:
Include suppliers and buyers with a strong “network” relationship with the focal firm
Can solidify a competitive advantage
Example: Google
Create value by adding value to the sale of a firm’s good or service
Example: Airlines as complementors to the hotel industry or engineering schools as complementors to the high-tech industry
Can also harm competitiveness of a firm
Example: Poor airline performance negatively impacting hotel and destination business or falling new home sales negatively impacting furniture and home appliance industries

33. Interpreting Industry Analysis
Unattractive Industry
Attractive
Industry
Low entry barriers
High entry barriers
Powerful buyers
Limited buyer power
Powerful suppliers
Limited supplier power
Good product substitutes
Poor product substitutes
Intense rivalry
Moderate rivalry
Interpreting Industry Analysis – Industry characteristics determine the potential for competing firms to create value and earn above-average returns.

34. Interpreting Industry Analysis
The five forces competitive analysis suggests the attractiveness of an industry and determines the potential for above-average returns over the long-term based on the level of competition observed.
Interpreting Industry Analysis – In general, the stronger the competitive forces are, the lower the profit potential for industry firms.
It is becoming increasingly important to consider international factors and the implication of globalization as they relate to success in an industry.
Armed with this information, firms are equipped to devise strategies for dealing with each of the forces that diminish profit potential.

35. Analysis of Direct Competitors
Key Terms
Strategic group
Set of firms emphasizing similar strategic dimensions which result in the use of similar strategies
Strategic dimensions
Areas that firms in a strategic group treat similarly
Analysis of Direct Competitors – take the results of the five forces analysis forward to understand the positions, intentions, and performance of direct competitors, including the closest of these competitors which form a strategic group
Firms take the insights from their general and industry environment assessments and combine them with analysis of the competitor environment to define strategic intent and to locate a position within the industry where the environment can be favorably influenced to increase the likelihood of success.
Name some examples of strategic dimensions.
Extent of technological leadership
Product quality
Pricing policies
Distribution channels
Customer service

36. Strategic Groups
The strengths of the five industry forces differ across strategic groups.
Strategic groups differ in performance.
Strategic group membership remains relatively stable over time, enhancing analysis.
Patterns of competition are evident within strategic groups.
Strategic Groups – The notion of strategic groups can be useful for analyzing an industry’s competitive structure.

37. Strategic Group Dynamics
Intra-strategic group rivalry is more intense than inter-strategic group rivalry.
Organizations in a strategic group:
Occupy similar positions in the market
Offer similar goods to a similar set of customers
Often use similar production technology and organizational processes
The more similar strategies are across strategic groups, the greater the level of expected rivalry.
Strategic Group Dynamics – Competition between firms within a strategic group is greater than the competition between a member of a strategic group and companies outside of the group.
Discussion points:
Intra-strategic group competition exceeds inter-strategic group competition.
Membership in a strategic group partially defines the essential characteristics of firms' strategies.
These characteristics can lead to intense competitive rivalry.
The more intense the rivalry, the greater the threat to each firm’s profitability.
Implications are that strategic group dynamics increase the threat to industry profitability.
Using strategic groups to understand an industry’s competitive structure requires the firm to plot competitive actions and responses along strategic dimensions. Example: Strategic groups within the radio industry

38. Understanding Competitors and Their Intentions
Key Terms
Competitor intelligence
Set of data and information the firm gathers to better understand and better anticipate competitors' objectives, strategies, assumptions, and capabilities
Understanding Competitors and Their Intentions – Competitor analysis should focus on each company with which the firm directly competes. While the five forces analysis examines factors that determine the strength of the rivalry among competitors, it does not address the strategic intentions of individual competitors. The greater the intensity of rivalry, the greater the need to understand competitors and their intentions.
Discussion points:
In gathering competitive intelligence, practices must be both legal and ethical.
Industry associations can be a source which defines such practices.
Focus should be on obtaining publicly available information.
Information distributed at trade shows is fair game.
Gathering intelligence fairly and honestly in today’s electronic age is a challenge. The line for appropriate behavior can be blurred.
An appropriate guideline for competitor intelligence practices is to respect the principles of common morality and the right of competitors not to reveal certain information about their products, operations, and strategic intentions.
Despite the importance of studying competitors, evidence suggests that only some firms use formal processes to collect and disseminate competitive intelligence.
Failure to analyze competitors’ future objectives yields incomplete insights about a firm’s rivals.
The firm should also seek public policy intelligence in countries around the world to discover early signs of emerging public policies in the global environment which impact the firm’s strategic decisions.

39. Components of Competitor Analysis
Figure 3.3: Components of Competitor Analysis – A complete study of the four components of competitor analysis should produce a response profile for each competitor. As a result, a firm should be able to understand, interpret, and predict its competitors’ actions and responses.

40. Ethical Question
How can a firm use its “code of ethics” as it analyzes the external environment?

41. Ethical Question
What ethical issues, if any, may be relevant to a firm’s monitoring of its external environment? Does use of the Internet to monitor the environment lead to additional ethical issues? If so, what are they?

42. Ethical Question
What is an ethical issue associated with each segment of a firm’s general environment? Are firms across the globe doing enough to deal with this issue?

43. Ethical Question
Why are ethical practices critical in the relationships between a firm and its suppliers?

44. Ethical Question
In an intense rivalry, especially one that involves competition in the global marketplace, how can the firm gather competitor intelligence ethically while maintaining its competitiveness?

45. Ethical Question
What do you believe determines whether an intelligence-gathering practice is or is not ethical? Do you see this changing as the world’s economies become more interdependent? If so, why? Do you see this changing because of the Internet? If so, how?