External Analysis

Introduction  Internal analysis helps to identify the core competences of the business, while external analysis, particularly of the microenvironment, assists in identifying those industries and markets where the competences can be applied.  Industries are centered on the supply of a product  markets are concerned with the demand.

 Factors in the environment, the industry and market, will drive the enterprise toward one type of international strategy  either one that is fully global or one that makes concessions to localized customer needs.  One way of conceptualizing the external environment is as a network of macro and microenvironments, all of which are related to each other.  Every international enterprise operates within one or more industries and one or more markets which are found in more than one country.

Macroenvironment  Analysis of the macroenvironmemt is concerned with changes and trends in social and cultural, demographic, political, legal, technological, economic and financial factors.  The macroenvironment can be further subdivided into both global and local (or national) elements:  The global macroenvironment  concerned with global trends.  The national macroenvironment  concerned with trends and changes at the level of the individual country

Microenvironment  The microenvironment, the competitive environment facing a business, consists of the industries and markets in which the organization conducts its business.  It can be subdivided:  The global microenvironment  concerned with global industry and market trends.  The national or regional microenvironment  concerned with national industry and market trends

 An industry consists of a group of businesses producing similar outputs  They expect to share the following related features:  Skills and competences  Technology  Process & value-adding activities  Materials  Supplier channels  Distribution channels  products  A market comprises the demand side of an economic system.  It is defined in terms of shared:  Products or services  Customers  Customer requirements  Distribution channels  competitors

 Businesses gain competitive advantage by developing core competences within an industry which are then deployed in markets to satisfy customer demands.  The success of a business will depend on its competitive position in both areas of operation  as a supplier of outputs and as a buyer of inputs.

Globalization of Industries and Markets  Industries and markets differ vastly in the extent to which they are globalized.  The consumer electronic industry and its markets are largely globalized.  Both the market for personal banking and associated industry providing banking services are still largely localized.  Paint industry is largely globalized; packaging, advertising and brand names are often adapted for both linguistic and cultural reasons

Yip’s Globalization Drivers  There are four categories of drivers which must be analyzed in order to determine the degree of globalization within an industry  Markets  Cost  Government  Competitive

 Market globalization drivers  Customer needs  Customers and channels  Marketing  Leading countries  Cost globalization drivers  Economies of scale & scope  Experience curve  Sourcing  Logistics  Country costs, productivity and skills  Product life cycle and product development costs  Gov. globalization drivers  Trade policies  Technical standards  Marketing regulations  Gov.-owned competitors  Gov.-owned customers  Host Gov. concerns  Competitive globalization drivers  Exports and imports  Competitors  Interdependence of countries

Potential for globalization Cost drivers Government drivers Competitive drivers Market drivers Technological factors Economic and financial factors Social and demographic factors Political and legal factors The macroenvironment and globalization drivers

Advantage of using Yip’s framework  It allows identification of those drivers that are global and those that are local, so that the attributes of transnational strategy can be tailored to match the drivers.  It can be used to analyze both industry and market  It can be mapped onto Porter’s five forces  Changes in the drivers can be indicated by macroenvironmental analysis.  It assists in the identification of the critical success factors of a global industry and market

Intensity of rivalry in the industry Bargaining power of suppliers Threats from new entrants Bargaining power of buyers Threats of substitute products Porter ’ s five-forces framework Industry Analysis

Market Analysis  Market segmentation analysis  Customer motivation  Sensitivity to price  Sensitivity to quality  The extent of brand loyalty  Unmet need  In addition to above analyses, Porter’s five- forces framework can also be applied to a market or submarket within an industry.

Change Firm strategy structure and rivalry Government Factor conditions Related and supporting industries Demand conditions Determinants of national competitive advantage – Porter ’ s diamond