1. 8 The competitive, technological, political and sociocultural environments

3. Learning outcomes By studying this section students will be able to:
describe and analyse an organization’s competitive environment
describe and analyse an organization’s technological environment
describe and analyse an organization’s political environment
describe and analyse an organization’s sociocultural environment

4. The external environment
Environment scanning =
monitoring of operating environment.
Strategic drift =
failure of business strategy to keep abreast of environment change.
Operating environment =
competitive and PEST environment.
PEST =
political, economic, sociocultural, and technical environment.

5. The competitive environment
In his book Competitive Strategy (1980), Porter proposes the following model (‘the five forces’) for investigating the competitive environment:
1 the threat of entrants
2 the power of suppliers
3 the power of consumers
4 the threat of substitutes
5 competitive rivalry

6. The threat of entrants
The extent of the threat of new entrants will depend upon barriers to entry such as:
economies of scale (next OHT)
capital and experience barriers to entry
advertising barriers to entry
availability of distribution channels (vertical integration)
anticipated entry wars
natural monopoly conditions
product differentiation barriers

7. Economies of scale

8. How does Coca-cola co attempt to reduce the threat of entrants?
economies of scale
capital and experience barriers to entry
advertising barriers to entry
availability of distribution channels (vertical integration)
product differentiation barriers

9. The power of suppliers
Supplier power is another important aspect of the competitive environment. Suppliers of an organisation’s inputs have a key impact on prices and quality and the greater the power of suppliers, the lower margins will be.
Supplier power is increased by the degree of monopoly or oligopoly in the supplying industry, and whether there are high costs of switching suppliers. Because of this airport operators are often able to exert considerable supplier power when negotiating with airlines.
Supplier power is diminished where the organization buying inputs has large purchasing power.

10. The power of suppliers
Assess the power of suppliers to Emirates Airways
Aircraft suppliers
Airport owners
Fuel suppliers

11. The power of buyers
Where the buyer is a monopsonist (single buyer) or a near monopsonist, considerable power can be exerted over the selling organization.
Competition between suppliers is a key factor that increases buyer power.
The level of buyer knowledge is another important factor.

12. The power of buyers First choice?
But how much power do buyers have in the holiday industry?
What factors affect this?

13. The threat of substitutes
Organizations faced with the threat of substitutes may react in several ways. These include:
price leadership strategies
differentiation strategies
withdrawal or diversification strategies
creating switching costs to prevent loss of customers

14. The degree of competitive rivalry
Competitive rivalry within an industry is increased by the threat of new entrants and the threat of substitutes, but it is also influenced by current conditions in the industry. These include:
whether competitors can cross-subsidize
degree of market leadership and number of competitors
changes in capacity
high storage costs/perishability

15. The technological environment
Technological change offers two key opportunities for leisure and tourism organizations.
First it can lead to cost reductions (next OHT)
Second, technology can provide new products and markets
However, technological change also poses threats where existing products become obsolete in the face of new developments.

16. Effect of technology on LRAC

17. The technological environment
What are the opportunities and threats in the technological environment for airlines?

18. The political environment
Left wing
(e.g. Labour / Democrat parties)
Right wing
(e.g. Conservative / Republican parties)
need to control the free market
pro trade unions
some state ownership of industry
progressive taxation
regulation of industry
higher government spending and taxes
reduce inequality of incomes
provision of jobs a priority
comprehensive welfare state
belief in supremacy of the free market
anti trade unions
private ownership of industry
proportional taxation
minimal state interference
low taxes and government spending
inequality of income as incentive
control of inflation a priority
minimal welfare state

19. The sociocultural environment
Sociocultural factors include the make-up of society, for example in terms of its
population structure
levels of education
social class
attitudes

20. Review of key terms Environment scanning = Strategic drift =
monitoring of operating environment.
Strategic drift =
failure of business strategy to keep abreast of environment change.
Operating environment =
competitive and PEST environment.
PEST =
political, economic, sociocultural, and technical environment.
Barriers to entry =
factors making entry into industry difficult.
Monopsonist =
single buyer.

21. Review of key terms Cross-subsidization = Political power =
using profits from one division to subsidize prices in another division
Political power =
the ability to influence events.
Scenario planning =
developing plans to cope with different views of future.
Crude birth rate =
number of births per thousand population.
Ageing population =
average age of population increasing.

22. 8 The competitive, technological, political and sociocultural environments:
The End