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49056161-Strategic-Mgmt-ch04 - Chapter 4 The External...

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Chapter 4 The External Environment 0Chapter Summary A firm’s external environment consists of three interrelated sets of factors that play a principal role in determining the opportunities, threats, and constraints that the firm faces. This chapter describes the complex necessities involved in formulating strategies that optimize a firm’s market opportunities. The remote environment comprises factors originating beyond, and usually irrespective of, any single firm’s operating situation—economic, social, political, technological, and ecological factors. Factors that more directly influence a firm’s prospects originate in the environment of its industry, including entry barriers, competitive rivalry, the availability of substitutes, and the bargaining power of buyers and suppliers. The operating environment comprises factors that influence a firm’s immediate competitive situation—competitive position, customer profiles, suppliers, creditors, and the labor market. These three sets of factors provide many of the challenges that a particular firm faces in its attempts to attract or acquire needed resources and to profitably market its goods and services. Environmental assessment is more complicated for multinational corporations (MNCs) than for domestic firms because multinationals must evaluate several environments simultaneously. The design of business strategies is based on the conviction that a firm able to anticipate future business conditions will improve its performance and profitability. Despite the uncertainty and dynamic nature of the business environment, an assessment process that narrows, even if it does not precisely define, future expectations is of substantial value to strategic managers. 0Learning Objectives 1. Describe the three tiers of environmental factors that affect the performance of a firm. 2. List and explain the five factors in the remote environment. 3. Give examples of the economic, social, political, technological, and ecological influences on a business. 4. Explain the five forces model of industry analysis and give examples of each force. 5. Give examples of the influences of entry barriers, supplier power, buyer power, substitute availability, and competitive rivalry on a business. 6. List and explain the five factors in the operating environment. 7. Give examples of the influences of competitors, creditors, customers, labor, and direct suppliers on a business. 0Lecture Outline I0. The Firm’s External Environment A0. A host of external factors influence a firm’s choice of direction and action and, ultimately, its organizational structure and internal processes. 61
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10. These factors, which constitute the external environment , can be divided into three interrelated subcategories: factors in the remote environment , factors in the industry environment , and factors in the operating environment .
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49056161-Strategic-Mgmt-ch04 - Chapter 4 The External...

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