Business Strategy and Market Analysis (Part of International Economics) Flashcards
(39 cards)
Introduction to Business Strategy and Market Analysis: Planning Process
Planning Process: The nature of the econmic system and the economic market structure, whether domestic or foreign, d_efine the broadest context of the environment withing which an entity operates_.
To be successful, entity must:
- Understand that environment
- Develop and execute a strategic plan to succeed in than environment
What is “Strategic Planning”?
Strategic Planning: The sequence of interrelated procedures for determining an entity’s long-term goals and objectives and identifying the best approaches for achieving those goals and objectives.
Business Strategy: What are the general steps in the Strategic Planning Process?
- Establishing the entity’s mission, values, and objectives
- Assess the internal and external environment
- Establish objectives
- Formulate Strategies
- Implement Strategies
- Evaluate and control activities
Strategy Planning Process Step 1: Establish Mission, Values, and Goals
- Mission Statement: an expression of the purpose and range if activitities of the entity.
- Entity Values: the underlying beliefs that govern the operations of an entity and the conduct of its relationship with other entities
- Objectives/Goals: the desired, measurable results the entity seeks to achieve related to such factors as profitablity, growth, market share, innovation, etc.
Strategy Planning Process Step 2: Assess Internal and External Analysis
-
Analyze the external macro-environment in which it operates.
- A variation of the PEST analysis provides a framework for this environmental analysis
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Analize the industry in which it operates:
- The Five Forces framework developed by Michael Porter for determining the nature, operating attractiveness and likely long-run profitability of a competitive indusrty may be used for this analysis.
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Analyzing the internal strengths and weaknesses of the entity, the external opportunities, threats present in its operating environment, and relationship between the chanracters of the entity and its environment.
- SWOT analysis may be used to develop a profile on entity’s strengths, weaknesses, opportunitites and threats.
Strategy Planning Process Step 3: Establish Objectives/Goals
Establish Objectives/Goals: State the desired measurable results to be achieved, typically including:
- Profitablity
- Growth
- Market Share
- Innovation
Goals should be established so that they meet tje SMART test; they musy be:
- Specific
- Measurable
- Attainable
- Relevant
- Time-bound
Strategy Planning Process Step 4: Formulate Strategy:
Formulating Strategies: guidelines for achieving a competitive advantage in the market.
-
Generic Strategies (from Michael Porter):
- Cost leadership
- Differentiation
- Focus
Strategy Planning Process Step 5: Implement Strategy
Implementing Strategies: by initiating the programs and activities that apply the entity’s resources to carry out its strategies so as to achieve its objectives and goals.
Strategy Planning Process Step 6: Evaluate and Control Strategic Activities
Evaluating and Controlling Strategic Activities:
- Determine performance characteristics to evaluate and measure
- Establish target values for performance charact.
- Measure performance charact.
- Compare measured charact with target values
- Implement changes in activities as needed.
Business Strategy: Question: Which of the following identifies a framework for gauging the attractiveness of the competitive environment of an industry?
- Five Forces
The five forces framework developed by Michael Porter is used for determining the nature, operating attractiveness, and probable long-run profitability of a competitive industry.
Macro-Environmental Analysis: Overview
Entity operates within:
- Economic system
- Industry Economic Market Structure
Entity needs to assess and understand that over-all operating environment.
PEST Analysis = A macro-assessment of:
- Political,
- Economic,
- Social, and
- Technological elements of an environment
What’s a “PEST analysis”?
PEST analysis is an assessment of the Political, Economic, Social, and Technological elements of a macro-environment.
- Its purpose is provide an understanding of those elements of an environment , typically a country or region, in which a firm operates or is considerating operating.
PEST Analysis Factors: Political
Political factors: are concerned w the nature of the political environment, and the ways and extent in which a gov’t intervenes in its economy, and would include such things as:
- Political stability
- Labor laws
- Environmental laws
- Tax Policy
- Trade restrictions, tariffs, and import quotas
PEST Analysis Factors: Economic
Economic factors: concerned with the economic characteristics of the operating environment, including:
- Economic growth rate;
- Interest rate;
- Inflation rate;
- Currency exchange rates
PEST Analysis Factors: Social
Social factors: concerned with the culture and values of the operating environment, including such considerations as:
- Population growth rate;
- Age distribution
- Education attainment and career attitudes
- Emphasis on health and safety
PEST Analysis Factors: Technological
Technological Factors: concerned with the nature and level of technology in the operating environment, including such considerations as:
- Level of reasearch and development activity
- State of automation capability
- Level of technology savvy
- Rate of technology change
What other variations of the basic PEST(EL) considers other macro-environment factors?
PEST EL adds two additional elements:
-
E = Environmental factors:
- Weather
- Climate and climate change
- Water and air quality
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L = Legal factors:
- Discrimination law
- Consumer law
- Employment law
- Anti-trust law
- Health and safetly law
STEER, another variation, which identified the same kinds of factors as other macro-environmental models - Social-cultural, Technological, Economic, Ecological, and Regulator factors.
Importance of macro-environmental factors:
- The importance of the factors assessed in PEST analysis (or a variation thereof) will be unique to each analysis;
- PEST, or comparable analysis, is particularly important in considering the establishment of operations in a new foreign location;
- The outcome of a PEST-type analysis can provide inputs for SWOT analysis
Macro-environmental Analysis: Question:“PEST analysis can be used when considering?
- domestic locations
- foreign locations
Answer: Both domestic and foreign locations
PEST analysis, which is concerned with the political, economic, social, and technical characteristics of a nation or region, can be used when considering either a domestic location or a foreign location.
Industry Analysis: Overview
Industry defined: An industry may be defined as the group of entities that produce goods or provide services which are close substitutes and which compete for the same customers.
Industry Analysis - Within the context of an economic system and an economic market structure, and with an understanding of the characteristics of the macro-environment in which an entity operates or may operate, an entity must assess the nature of the competition it faces (or would face) in its industry - that is, from its most direct competition.
- Michael Porter’s five forces model provides a means of carrying out such a micro-environmental analysis.
Factors of Five Forces Analysis (by Michael Porter):
The Five Forces models identifies factors that determine the operating attractiveness and likely long-run profitability of an industry.
Those five forces are:
- Threat of entry into the market by new competitors
- Threat of substitute goods or services
- Bargaining power of customers of the good or service
- Bargaining power of suppliers of inputs used by the industry
- Intensity of rivalry withing the industry
Factors of Five Forces: THREAT OF ENTRY INTO THE MARKET BY NEW COMPETITORS
Threat of entry into the market by new competition – New entrants into an industry increase the level of competition, and thereby, reduce the attractiveness of the operating environment for that industry.
The likelihood of new entrants mostly depends on the barriers to entry into the industry, including:
- Capital investment required;
- Access to raw materials, technology and/or suppliers;
- Economies of scale;
- Customer loyalty and their cost of switching providers;
- Access to distribution channels;
- Regulatory or other governmental impediments to entry;
- Potential retaliation by existing firms in the industry.
Factors of Five Forces: THREAT OF SUBSTITUTE GOODS/SERVICES
Threat of substitute goods or services – The presence of substitute goods or services, or the possibility of the development of new substitutes, reduces an entity’s ability to raise prices, and therefore, may affect its profitability.
The level of threat posed by substitutes depends on such factors as:
- Availability of substitutes;
- Relative price and performance of substitutes;
- Ease of substitution;
- Buyer’s brand loyalty;
- Cost to buyers of switching to substitutes.
Factors of Five Forces: BARGAINING POWER OF CUSTOMERS OF THE GOOD/SERVICE
Bargaining power of buyers (customers) of the industry good or service – The bargaining power of buyers influences the ability of a provider to determine product or service characteristics and the price it can charge.
Bargaining power of customers is greatest when, among other things:
- Products are standardized;
- There are a large number of suppliers;
- There are a few dominant buyers that account for a large part of sales;
- Information about goods or services as provided by multiple suppliers is widely available;
- Cost of buyers switching to other suppliers is low.
