Evaluating a Company's External Environment

In The Name of ALLAH, the Most Beneficent and Merciful

Assalamu’alaikum W.B.T

Peace and Blessings be upon The Prophet Muhammad SAW, His family and friends.

The core concept for this topic is about macro-environment which covers a board environmental context in which the industry is a strategic component related covers where the firm industry is situated and has no direct control. It is includes general economic conditions and immediate industry and competitive environment.

All companies operating in the macro environment formed by influences stemming from general economic conditions; demographic population, community values ​​and lifestyle; laws and regulations, technology, and, closer to home, industry and competitive environment in which the company operates.

PESTEL analysis focuses on the six principal components of strategic significance in the macro-environment:

●     Political

●     Economic,

●     Social

●     Technological,

●     Environmental

●     Legal

Figure 1 The Five-Forces Model of Competition: A Key Analytical Tool

The Six Components of the Macro-Environment

COMPONENT	DESCRIPTION
Political factors	These factors include political policies and processes, including the extent to which a government intervenes in the economy. They include such matters as tax policy, fiscal policy, tariffs, the political climate, and the strength of institutions such as the federal banking system. Some political factors, such as bailouts, are industry-specific. Others, such as energy policy, affect certain types of industries (energy producers and heavy users of energy) more than others.
Economic conditions	Economic conditions include the general economic climate and specific factors such as interest rates, exchange rates, the inflation rate, and the unemployment rate, the rate of economic growth, trade deficits or surpluses, savings rates, and per capita domestic product. Economic factors also include conditions in the markets for stocks and bonds, which can affect consumer confidence and discretionary income. Some industries, such as construction, are particularly vulnerable to economic downturns but are positively affected by factors such as low interest rates. Others, such as discount retailing, may benefit when general economic conditions weaken, as consumers become more price-conscious.
Sociocultural forces	Sociocultural forces include the societal values, attitudes, cultural factors, and lifestyles that impact businesses, as well as demographic factors such as the population size, growth rate and age distribution. Sociocultural forces vary by locale and change over time. An example is the trend toward healthier lifestyles, which can shift spending toward exercise equipment and health clubs and away from alcohol and snack foods. Population demographics can have large implications for industries such as health care, where costs and service needs vary with demographic factors such as age and income distribution.
Technological factors	Technological factors include the pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering and nanotechnology. They include institutions involved in creating new knowledge and controlling the use of technology, such as R&D consortia, university-sponsored technology incubators, patent and copyright laws, and government control over the Internet. Technological change can encourage the birth of new industries, such as those based on nanotechnology, and disrupt others, such as the recording industry.
Environmental factors	This includes ecological and environmental forces such as weather, climate, climate change, and associated factors like water shortages. These factors can directly impact industries such as insurance, farming, energy production, and tourism. They may have an indirect but substantial effect on other industries such as transportation and utilities.
Legal and regulatory factors	These factors include the regulations and laws with which companies must comply such as consumer laws, labor laws, antitrust laws, and occupational health and safety regulation. Some factors, such as banking deregulation, are industry-specific. Others, such as minimum wage legislation, affect certain types of industries (low-wage, labor-intensive industries) more than others.

HOW STRONG ARE THE INDUSTRY’S COMPETITIVE FORCES?

There are five competitive forces, which are competition from rival sellers,  competition from potential new entrants,  competition from producers of substitute products, supplier bargaining power and last is customer bargaining power. Figure 2 below shows the further explanation :)

Figure 2

Last but not least, I want to show one example for five force of Nike, which is as figure 3 below:

Figure 3

Enough for this week, thanks for your good reading :)

Topic for next week- EVALUATING A COMPANY'S RESOURCES, CAPABILITIES, AND COMPETITIVENESS. Wait for me, yeah ;)


Assalamu'alaikum :D