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Chapter 1,

Business Environment,

Francis Cherunilam

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WHAT IS THE PRIMARY JOB OF

ANENTERPRENEUROR

A MANAGER???????

DECISION MAKING (IN

CONTEXT OF THE FACED

SITUATION)

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OBJECTIVE OF THE

CHAPTERTo understand the importance of

analyzing the

BUSINESS ENVIRONMENT

in the process of

DECISION MAKING

while on a strategic position in an

organization / as an enterpreneur

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BUSINESS

ENVIRONMENT

InternalEnvironment ExternalEnvironment

MicroEnvironment

MacroEnvironment

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Internal Environment

Value System

Missions & Objectives

Management Structure & Nature Internal Power Relationship (support to the top

management by employees, share holders)

Human Resource Quality, Ethics (KalaaRaksha, Bill Gates)

Company Image & Brand Equity

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External Environment

(MICRO ENVIRONMENT) Suppliers Buyers

Competitors

- Generic Competition

- Product Form Competition

- Brand Competition

Marketing Intermediaries

Publics (Media, NGOs, etc.)

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External Environment

(MACRO ENVIRONMENT) Political / Government Environment

Legal Environment

Demographic Environment

Socio-cultural Environment

Technological / Natural Environment

Global Environment

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ANALYSIS IS USED IN

VARIOUS DECISION-MAKING

MODELS

MICHAEL PORTERS 5 FORCES MODEL PEST MODEL & EXTENDED PEST MODEL

SWOT ANALYSIS

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Michael Porters 5 forces model

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THREATS OF ENTRY- ENTRY

BARRIERS

Government Policy

Economies of Scale

Favorable positioning

Product differentiation & Brand loyalty

Monopoly elements

Capital Requirements

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Rivalry Among Existing

Competitors

No. of firms & their relative market shares State of Growth of Industry

Indivisibility of Capacity Augmentation(Production happens only in huge lots

whether or not needed) Product Standardization

Switching costs

Exit Barriers Diverse Competitors (unpredictable)

Expected Retaliation

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THREAT OF SUBSTITUTES

Substitute Performance

Buyers psyche towards the product

Price performance alternative

Whether or not the substitute belong to a

firm with huge and diverse capacity

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Buyers & their Bargaining

Power Volume of Purchase and it as a share of total

sales

Importance to the buyer (Branded apparels

v/s. medicines) Standardization/differentiation of product in

todays golbalized world

Potential for backward integration by Buyer

(Tanti)

Extent of Buyers information

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Suppliers and their Bargaining

Power

Concentration & Domination in the supplierindustry

Importance of the product to the buyer (i.e. we)

Importance of the buyer to the supplier Extent of the substitutability of the product

Switching costs of Suppliers

Potential for forward integration by suppliers

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STRATEGIC GROUPS

A Strategic group is the group of firms in an

industry following the same or similar strategy

along the strategic dimension- Michael Porter

Recognizing your own strategic group

Decisions related to shifting from one strategic

group to another

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PEST AnalysisPOLITICAL ecological/environmental

issues current legislation in home

market

future legislation

European / internationallegislation

regulatory bodies andprocesses

government policies

government term and change

trading policies

funding, grants and initiatives home market lobbying /

pressure groups

international pressure groups

wars and conflict

ECONOMIC

situation in home economy &

home economy trends overseas economies and

trends

general taxation issues

taxation specific to product /services

Seasonality / weather issues market and trade cycles

specific industry factors

market routes and distributiontrends

Customer / end-user drivers interest and exchange rates

international trade/monetaryissues

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PEST Analysis TECHNOLOGICAL competing technology

development research funding

associated/dependenttechnologies

replacement technology/solutions

maturity of technology

manufacturing maturity andcapacity

information and communications

consumer buyingmechanisms/technology

technology legislation innovation potential

technology access, licencing,patents

intellectual property issues

global communications

SOCIAL

lifestyle trends

demographicsconsumer attitudes and

opinions

media views

law changes affecting social

factorsbrand, company, technology

image

consumer buying patterns

fashion and role models

major events and influences

buying access and trends

ethnic/religious factors

advertising and publicity

ethical issues

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EXTENDED PEST

Extended variations of PEST (eg.,PESTELI and STEEP, etc) include otherfactors, such as Environmental, Ethical,

Legal or Legislative, etc., however inmost situations you will find that these'additional' factors are actuallycontributory causes or detailed

perspectives which then manifest or takeeffect in the form of one or several of theoriginal four main PEST factors

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SWOT ANALYSIS

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THANKS.