1. COMPETITIVE ADVANTAGE UNIT – II

2. EXTERNAL ENVIRONMENT Any organization before they begin the work of strategy formulations, it must scan the external environment to identify possible opportunities and threats and its internal environment for strengths and weaknesses. Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environment to key people within the corporation.

3. EXTERNAL ENVIRONMENT The major four environmental dimensions are as follows 1. Economical factors 2. Technological factors 3. Political factors 4. Socio-cultural factors

4. EXTERNAL ENVIRONMENT Economical factors GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/revaluation Energy availability and cost Disposable and discretionary income

5. EXTERNAL ENVIRONMENT B Technological factors Government spending for R&D Technological efforts Patent protection New products Technology transfer Automation Internet availability Infrastructure

6. EXTERNAL ENVIRONMENT Political and Legal factors: Antitrust regulations Environment protection laws Tax laws Special incentives Foreign trade regulations Attitude towards foreign companies Laws on hiring and promotion

7. EXTERNAL ENVIRONMENT Socio-Cultural factors Life style changes Career expectations Consumer Activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies Birth rates

8. Porter’s Five Forces Model Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. intensity of competitive rivalry “An industry’s profit potential is largely determined by the intensity of competitive rivalry within that industry.”

9. Porter’s Five Forces

10. Porters Five Forces … Entry * Threat of Entry Suppliers * Bargaining Power of Suppliers Buyers * Bargaining Power of Buyers Substitute Products * Development of Substitute Products or Services Rivalry * Rivalry among Competitors

11. Entry Barriers to Entry … capital requirements economies of scale … large capital requirements or the need to gain economies of scale quickly. customer loyalty brand preferences. … strong customer loyalty or strong brand preferences. distribution raw materials … lack of adequate distribution channels or access to raw materials.

12. Suppliers Power of Suppliers … … high when dominant, highly concentrated suppliers * A small number of dominant, highly concentrated suppliers exists. Few good substitute * Few good substitute raw materials or suppliers are available. cost of switching * The cost of switching raw materials or suppliers is high.

13. Buyers Power of Buyers … … high when concentratedlarge buy in volume * Customers are concentrated, large or buy in volume. standard undifferentiated easy to switch * The products being purchased are standard or undifferentiated making it easy to switch to other suppliers. major portion * Customers’ purchases represent a major portion of the sellers’ total revenue.

14. Substitute Substitute products … … competitive strength high when relative price declines * The relative price of substitute products declines. switching costs decline * Consumers’ switching costs decline. increase market penetrationproduction capacity * Competitors plan to increase market penetration or production capacity.

15. Rivalry Rivalry among competitors … intensity increases as numberincreases equal in size * The number of competitors increases or they become equal in size. declinesindustry growth slows * Demand for the industry’s products declines or industry growth slows. Fixed costsbarriers to leaving high * Fixed costs or barriers to leaving the industry are high.

16. Analysis 5 ForcesAnalysis Rivalry among the competitorReliance Retail, Aditya Birla Group, Vishal Retail’s, Bharti and Walmart, etc Threat of entrants FDI policy favorable for international players. Domestic conglomerates looking to start retail chains. International players looking to foray India. Bargaining power of supplierThe bargaining power of suppliers varies depending upon the target segment. The unorganized sector has a dominant position. There are few players who have a slight edge over others on account of being established players and enjoying brand distinction. Bargaining power of buyers Consumers are price sensitive.. Availability of more choice. Threat of substitutes Unorganized retail