The External Environment ( Strategic Management)

1774 words 8 pages
Review
THE EXTERNAL ENVIRONMENT
(STRATEGIC MANAGEMENT) A host of external factors influence a firm’s choice of direction and action, ultimately its organizational structure and internal factors. These factors, which constitute the external environment, can be divided into three interrelated subcategories there are as follows: A. REMOTE ENVIROMENT
The remote environment comprises factors that originate beyond and usually irrespective of any single firm’s operating situation: economic, social, political, technological, and ecological factors. That environment presents firm with opportunities, treats, and constraint; but rarely does a single firm exert any meaningful reciprocal influence. 1. Economic Factors
Economics factors concern
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c. Powerful buyers
A buyers group is powerful if: - it is concentrated or purchases in large volumes, - the products is purchases from the industry are standard or undifferentiated, - the products it purchases from the industry form a component of its product, - it earns profits, which create great incentive to lower its purchasing cost, - the industry’s product is unimportant to the quality of the buyers ‘ products or services, - the industry’s product does not save the buyer money, - the buyer pose a credible threat of integrating backward to make the industry’s product. d. Substitute products
Substitute products that deserve the most attention strategically are those that are subject to trends improving their price-performance trade-off with the industry’s product or are subjected by industries earning high profits. e. Jockeying for Position
The type of the intense rivalry is related to the presence of a number of factors: competitors are numerous or are roughly equal in size and power, industry growth is slow, the product or service lacks of differentiation or switching costs, fixed costs are high or the product is perishable creating strong temptation, capacity normally is augmented in large increment, exit barriers are high, and the rival are diverse in strategies, origins, and personalities. * Industry Boundaries

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