chuong 2.docx - The General Industry and Competitor Environments The general environment is composed of dimensions in the broader society that influ

chuong 2.docx - The General Industry and Competitor...

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The General, Industry, and Competitor EnvironmentsThe general environment is composed of dimensions in the broader society that influ- ence an industry and the firms within it.7 We group these dimensions into seven envi- ronmental segments: demographic, economic, political/legal, sociocultural, technological, global, and sustainable physical. Examples of elements analyzed in each of these segments are shown in Table 2.1.Firms cannot directly control the general environment’s segments. Accordingly, what a company seeks to do is recognize trends in each segment of the general envi- ronment and then predict each trend’s effect on it. For example, it has been predicted that over the next 10 to 20 years, millions of people living in emerging market countries will join the middle class. In fact, by 2030, it is predicted that two-thirds of the global middle class, about 525 million people, will live in the Asia-Pacific region of the world. Of course no firm, including large multinationals, is able to control where growth in potential customers may take place in the next decade or two. Nonetheless, firms must study this anticipated trend as a foundation for predicting its effects on their ability to identify strategies to use that will allowthem to remain successful as market conditions change.8The industry environment is the set of factors that directly influences a firm and its competitive actions and responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competing firms.9 In total, the interactions among these five factors determine an industry’s profitability potential; in turn, the industry’s profitability potential influences the choices each firm makes about its competitive actions and responses. The challenge for a firm is to locate a position within an industry where it can favorably influencethe five factors or where it can successfully defend itself against their influence. The greater a firm’s capacity to favorably influence its industry environment, the greater the likelihood it will earn above-average returns.How companies gather and interpret information about their competitors is called competitor analysis. Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments.10 This means, for example, that McDonald’s needs to do a better job of analyzing and understanding its general and industry environments.An analysis of the general environment focuses on environmental trends and their implications, an analysis of the industry environment focuses on the factors and con- ditions influencing an industry’s profitability potential, and an analysis of competitors is focused on predicting competitors’ actions, responses, and intentions. In combi- nation, the results of these three analyses influence the firm’s vision, mission, choice of strategies, and the
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