1. Chapter 8 Unlocking the Business Environment Chapter 8 The External Micro Environment By the end of this chapter you should have a better understanding of: what is meant by the external micro environment; what are industry and market structures; how to analyse competition; current and emerging international and ethical issues in the external micro environment.

2. Chapter 8 Unlocking the Business Environment What is meant by the external micro environment? The external micro environment is the industry-specific environment in which an organisation operates. The external micro environment includes customers, competitors, suppliers, human and other resources. The elements of the micro environment are dynamic and interact on a daily basis with the organisation.

3. Chapter 8 Unlocking the Business Environment Industry and market structures Market conditions are generally established by the degree of market concentration on the supply side. Based on the degree of market concentration, market structures can be classified as: monopolies; oligopolies; monopolistic competition; perfect competition. Each market structure has different characteristics in terms of the amount and type of competition, who determines price, and how high or low barriers to entry are for that particular industry.

4. Chapter 8 Unlocking the Business Environment Industry and market structures In addition to considering the market structure of the industry where they operate, organisations need to consider the industry or product life cycle. This refers to the key developmental stages in the life of an industry or product: introductory stage; growth; maturity; decline. Each stage has unique characteristics in terms of market opportunities, growth and profits.

5. Chapter 8 Unlocking the Business Environment Industry and market structures For the purpose of this chapter we will define a market in terms of customers, their need for a product and their ability to purchase or consume. Kotler and Armstrong (2000) classify markets as: consumer; business; reseller; government; international.

6. Chapter 8 Unlocking the Business Environment Industry and market structures Because individual needs and wants vary from one person to the next, in most cases it is necessary to identify groups who share similar buying needs or characteristics. This is called market segmentation. The basic consumer characteristics used for market segmentation are: demographics; socio-economics; geographic location; personality and lifestyle.

7. Chapter 8 Unlocking the Business Environment Analysing competition Michael Porter’s Five Forces model provides a framework to assess competition in an industry or sector by looking at: supplier power; barriers to entry; threat of substitutes; buyer power; degree of rivalry.

8. Analysing competition Chapter 8Unlocking the Business Environment

9. Current and emerging international and ethical issues Globalisation has eliminated many borders for organisations, not only in terms of markets but also of suppliers, manufacturing and human resources, thus totally shaking up the micro environment of many industries. There is increasing concern regarding the power that big buyers have over their suppliers. Chapter 8Unlocking the Business Environment

10. Chapter 8 Unlocking the Business Environment Summary The external micro environment is the industry-specific environment in which an organisation operates. The degree of market concentration can be used to classify markets into monopolies, oligopolies, monopolistic competition or perfect competition markets. Industries and products are said to go through a life cycle that includes four different stages: introduction, growth, maturity and decline.

11. Summary There are many different types of markets in an economy. The basic characteristics used for market segmentation are demographics, geographic location, socio-economics and lifestyle. Michael Porter designed a model that provides a framework to assess competition in an industry or sector by looking at five forces: supplier power, barriers to entry, threat of substitutes, buyer power and degree of rivalry. Chapter 8Unlocking the Business Environment