Environmental Scanning

Dr.Premasish Roy
Faculty – Member EMPI Business School
 Some important External Environmental
Variables
Economic
• GDP trends
• Interest rates
• Money Supply
• Inflation rates
• Unemployment levels
• Wage/price controls
• Devaluation/revaluation
• Energy availability and cost
• Disposable and discretionary income
 Some important External Environmental
Variables
Technological
• Total government spending for R&D
• Total industry spending for R&D
• Focus of technological efforts
• Patent protection
• New Products
• New development in technology transfer from Lab to market place
• Productivity improvements through automation
 Some important External Environmental
Variables
Political- Legal
• Environmental Protection laws
• Tax laws
• Foreign trade regulations
• Attitudes toward foreign companies
• Laws on hiring and promotion
• Stability of Government
 Some important External Environmental
Variables
Socio-Cultural
• Lifestyle Changes
• Career expectations
• Consumer activism
• Rate of family formation
• Growth rate of population
• Age distribution of population
• Regional shifts in population
• Life expectancies
• Birth rates
 Some important External Environmental
Variables (International)
Economic
• Economic development
• Per capita income
• Climate
• GDP Trends
• Monetary and Fiscal Policies
• Unemployment level
• Currency convertibility
• Wage levels
• Nature of competition
• Membership in regional economic association
 Some important External Environmental
Variables (International)
Technological
• Regulation on technology transfer
• Energy availability/ cost
• Natural resource availability
• Transportation network
• Skill level of work force
• Patent-trademark protection
• Infrastructure
 Some important External Environmental
Variables (International)
Political – Legal
• Regulations on foreign ownership of assets
• Foreign Policies
• Terrorist Activity
• Legal System
 Some important External Environmental
Variables (International)
Socio-cultural
• Customs, norms, values
• Language
• Demographics
• Attitudes toward foreigners
• Environmentalism
 How the world would soon look like ?

The PwC team through a recent study has contemplated differently

and predicted that by 2030 there would exist four different types of
world – the red world of innovation; the blue world where
specialized-skill will be prized and rewarding; the green world –
where every corporate would think about environment and yellow
world – where humanity and value would be given the utmost
importance.
 Environmental Scanning – Indian Perspective

• Demographic dividend: According to various reports by 2020, India is set to

become the world’s youngest country with 64% of its population in the working
age group. With the Western countries, Japan and even China aging, this
demographic potential offers India and its growing economy an edge that
economists believe could add a significant 2% to the GDP growth rate annually.

• Make in India is a major initiative launched by the Government which focuses

on making India a global manufacturing hub. Key thrust of the Programme would
be on cutting down in delays in manufacturing projects clearance, develop
adequate infrastructure and make it easier for companies to do business in India.
The objective of the mega programme is to ensure that manufacturing sector which
contributes around 15% of the country’s Gross Domestic Products is to be
increased to 25% in next few years. Undoubtedly this requires need for skillful
manpower, apart from technical and engineering skills, people with set of
management skills are also needed to manage the challenges of competitive
business environment.
• Growing MSME sector: The contribution of MSME in GDP is 6% (33%
in manufacturing and 45% in exports, thus it is significantly contributing to
the economy. Larger number of MSMEs (around 87%) are owned in the
form of private proprietorships, these organizations face multiple
challenges to scale up their operations. Apart from other things, skillful
manpower to manage the scaled up operations is needed to address the
issues regarding modernization of operations, processes, and exploring the
financial resources and penetrate to new markets.

• Khadi and Village Industries: Khadi production and sales are

consistently growing in India for the last five years and similar is the trend
with various village industries such as agro based, minerals, polymers and
rural engineering. These sectors need to adopt new business models to face
the competition arising from large enterprises all this requires professional
management talent.
• Growing non-profit and social enterprises: Non-governmental and non-
profit organizations are increasing rapidly. These organizations are working
in the area of sanitation, conservation of natural resources, child and
women health, education, financial inclusion and so on. A few of the well-
motivated educated people are driving these initiatives. Often, they face
challenges in strengthening organizational competencies, strengthening of
processes, mobilization, management of financial resources and scaling of
operations. Government plans to develop new industry corridors such as
holistic development of new islands, and coastal employment zones are
expected to enhance business opportunities, exports and employment
opportunities.
• Emerging Entrepreneurship: The startup India and other initiatives are
encouraging the youth towards entrepreneurship. The new technology
platforms, disruptive technologies are currently the great challenges.
Porter’s Approach to Industry Analysis
 Porter’s Approach to Industry Analysis

In carefully scanning its industry, a corporation must assess the

importance to its success of each of six forces: case study
1. threat of new entrants,
2. rivalry among existing firms,
3. threat of substitute products or services,
4. bargaining power of buyers,
5. bargaining power of suppliers, and
6. relative power of other stakeholders.

The stronger each of these forces, the more limited companies

are in their ability to raise prices and earn greater profits.
 Porter’s Approach to Industry Analysis
For example, the global athletic shoe industry could be rated as
follows:
1. rivalry is high (Nike, Reebok, New Balance, Converse, and
Adidas are strong competitors worldwide),
2. threat of potential entrants is low (the industry has reached
maturity/sales growth rate has slowed),
3. threat of substitutes is low (other shoes don’t provide support
for sports activities),
4. bargaining power of suppliers is medium but rising (suppliers
in Asian countries are increasing in size and ability),
5. bargaining power of buyers is medium but increasing (prices
are falling as the low-priced shoe market has grown to be half
of the U.S. branded athletic shoe market), and
6. threat of other stakeholders is medium to high (government
regulations and human rights concerns are growing). to be
modest for the industry as a whole.
 Porter’s Approach to Industry Analysis

Based on current trends in each of these competitive forces, the

industry’s level of competitive intensity will continue to be high—
meaning that profit margins will be falling for the industry as a
whole.
 Porter’s Approach to Industry Analysis

I. Threat of New Entrants:

• New entrants to an industry typically bring to it new capacity, a
desire to gain market share, and substantial resources. They are,
therefore, threats to an established corporation.
•The threat of entry depends on the presence of entry barriers and
the reaction that can be expected from existing competitors.
•An entry barrier is an obstruction that makes it difficult for a
company to enter an industry.
Example : New Domestic Automobile Co.

Some of the possible barriers to entry are:

1. Economies of scale: Scale economies in the production and
sale of microprocessors, for example, gave Intel a significant
cost advantage over any new rival.
 Porter’s Approach to Industry Analysis
2. Product differentiation: Corporations such as Procter & Gamble
and General Mills, which manufacture products such as Tide and
Ariel, create high entry barriers through their high levels of
advertising and promotion.
3. Capital requirements: The need to invest huge financial resources
in manufacturing facilities in order to produce large commercial
airplanes creates a significant barrier to entry to any competitor for
Boeing and Airbus.
4. Switching costs: Once a software program such as Excel or Word
becomes established in an office, office managers are very reluctant
to switch to a new program because of the high training costs.
5. Access to distribution channels: Small entrepreneurs often have
difficulty obtaining supermarket shelf space for their goods because
large retailers charge for space on their shelves and give priority to
the established firms who can pay for the advertising needed to
generate high customer demand.
 Porter’s Approach to Industry Analysis
6. Cost disadvantages independent of size: Once a new product
earns sufficient market share to be accepted as the standard for that
type of product, the maker has a key advantage. Microsoft’s
development of the first widely adopted operating system (MSDOS)
for the IBM-type personal computer gave it a significant
competitive advantage over potential competitors. Its introduction
of Windows helped to cement that advantage so that the Microsoft
operating system is now on more than 90% of personal computers
worldwide.
7. Government policy: Governments can limit entry into an industry
through licensing requirements by restricting access to raw
materials, such as oil-drilling sites in protected areas.
 Porter’s Approach to Industry Analysis
II. Rivalry among Existing Firms
In most industries, corporations are mutually dependent. A
competitive move by one firm can be expected to have a noticeable
effect on its competitors and thus may cause retaliation.
According to Porter, intense rivalry is related to the presence of
several factors, including:
1. Number of competitors : When competitors are few and roughly
equal in size, such as in the auto and major home appliance
industries, they watch each other carefully to make sure that they
match any move by another firm with an equal countermove.
2. Rate of industry growth: Any slowing in passenger traffic tends to
set off price wars in the airline industry because the only path to
growth is to take sales away from a competitor.

https://economictimes.indiatimes.com/tasty-bite-eatables-
ltd/quotecompare/companyid-12912.cms
 Porter’s Approach to Industry Analysis
3. Product or service characteristics:
A product can be very unique, with many qualities differentiating it
from others of its kind or it may be a commodity, a product whose
characteristics are the same, regardless of who sells it. For example,
most people choose a gas station based on location and pricing
because they view gasoline as a commodity.

4. Amount of fixed costs: Because airlines must fly their planes on

a schedule, regardless of the number of paying passengers for any
one flight, they offer cheap standby fares whenever a plane has
empty seats.
5. Capacity : If the only way a manufacturer can increase capacity
is in a large increment by building a new plant (as in the paper
industry), it will run that new plant at full capacity to keep its unit
costs as low as possible—thus producing so much that the selling
price falls throughout the industry.
 Porter’s Approach to Industry Analysis
6.Height of exit barriers:
Exit barriers keep a company from leaving an industry. The brewing
industry, for example, has a low percentage of companies that
voluntarily leave the industry because breweries are specialized
assets with few uses except for making beer.
 Porter’s Approach to Industry Analysis
7. Diversity of rivals: Rivals that have very different ideas of how
to compete are likely to cross paths often and unknowingly
challenge each other’s position. This happens often in the retail
clothing industry when a number of retailers open outlets in the
same location—thus taking sales away from each other. This is also
likely to happen in some countries or regions when multinational
corporations compete in an increasingly global economy.
 Porter’s Approach to Industry Analysis
III. Threat of Substitute Products or Services
A substitute product is a product that appears to be different but can
satisfy the same need as another product. For example, e-mail is a
substitute for the fax, Nutrasweet is a substitute for sugar, and
bottled water is a substitute for a cola.

https://www.thehindubusinessline.com/companies/us-brand-tasty-bite-to-
enter-europe-asia/article10009062.ece

https://economictimes.indiatimes.com/industry/cons-products/food/mars-food-
completes-acquisition-of-preferred-brands-intl/articleshow/61481620.cms
 Porter’s Approach to Industry Analysis
IV.Bargaining Power of Buyers: Buyers affect an industry
through their ability to force down prices, bargain for higher quality
or more services, and play competitors against each other. A buyer
or a group of buyers is powerful if some of the following factors
hold true:
• A buyer purchases a large proportion of the seller’s product or
service (for example, oil filters purchased by a major auto maker).
• A buyer has the potential to integrate backward by producing the
product itself (for example, a newspaper chain could make its own
paper).
• Alternative suppliers are plentiful because the product is standard or
undifferentiated (for example, motorists can choose among many
gas stations).
• Changing suppliers costs very little (for example, office supplies are
easy to find).
 Porter’s Approach to Industry Analysis

•The purchased product represents a high percentage of a

buyer’s costs, thus providing an incentive to shop around
for a lower price (for example, gasoline purchased for
resale by convenience stores makes up half their total
costs).
•A buyer earns low profits and is thus very sensitive to
costs and service differences (for example, grocery stores
have very small margins).
•The purchased product is unimportant to the final quality
or price of a buyer’s products or services and thus can be
easily substituted without affecting the final product
adversely (for example, electric wire bought for use in
lamps).
 Porter’s Approach to Industry Analysis

V. Bargaining Power of Suppliers: Suppliers can

affect an industry through their ability to raise prices or
reduce the quality of purchased goods and services. A
supplier or supplier group is powerful if some of the
following factors apply:
 Porter’s Approach to Industry Analysis
•The supplier industry is dominated by a few companies,
but it sells to many (for example, the petroleum industry).
•Its product or service is unique and/or it has built up
switching costs (for example, word processing software).
•Substitutes are not readily available (for example,
electricity).
•Suppliers are able to integrate forward and compete
directly with their present customers (for example, a
microprocessor producer such as Intel can make PCs).
•A purchasing industry buys only a small portion of the
supplier group’s goods and services and is thus
unimportant to the supplier (for example, sales of lawn
mower tires are less important to the tire industry than are
sales of auto tires).
 Porter’s Approach to Industry Analysis
VI. Relative Power of Other Stakeholders A sixth
force should be added to Porter’s list to include a variety of
stakeholder groups from the task environment. Some of
these groups are governments (if not explicitly included
elsewhere), local communities, creditors (if not included
with suppliers), trade associations, special-interest groups,
unions (if not included with suppliers), shareholders, and
complementors.
Exercise
Refer https://www.tastybite.co.in/ for more information.
Prepare a brief Strengths/Weaknesses/ Opportunities/
Threats (SWOT) analysis for TBIL
STRATEGIC TYPES:
In analyzing the level of competitive intensity within a
particular industry or strategic group, it is useful to
characterize the various competitors for predictive
purposes. A strategic type is a category of firms based on a
common strategic orientation and a combination of
structure, culture, and processes consistent with that
strategy.
These general types have the following characteristics:

• Defenders are companies with a limited product line

that focus on improving the efficiency of their existing
operations. This cost orientation makes them unlikely to
innovate in new areas. With its emphasis on efficiency,
Lincoln Electric is an example of a defender.
• Prospectors are companies with fairly broad product
lines that focus on product innovation and market
opportunities. This sales orientation makes them
somewhat inefficient. They tend to emphasize creativity
over efficiency. Rubbermaid’s emphasis on new
product development makes it an example of a
prospector.
• Analyzers are corporations that operate in at least
two different product-market areas, one stable and one
variable. In the stable areas, efficiency is emphasized.
In the variable areas, innovation is emphasized.
Multidivisional firms, such as IBM and Procter &
Gamble, which operate in multiple industries, tend to be
analyzers.
• Reactors are corporations that lack a consistent
strategy-structure-culture relationship. Their (often
ineffective) responses to environmental pressures tend
to be piecemeal strategic changes. Most major U.S.
airlines have recently tended to be reactors—given the
way they have been forced to respond to new entrants
such as Southwest and JetBlue.
Five most used techniques in Strategic
Analysis:

1. Spreadsheet “what if” analysis

2. Analysis of key or critical success
factors
3. Financial analysis of competitors
4. SWOT analysis
5. Core Capabilities Analysis
 External Factor Analysis Summary (EFAS): Asian Paints Limited (APL)

External Factors Weight Rating Weighted Score Comments

Opportunities

Boom in construction industry .15 4.0 .60 Consolidation in

decorative segment
Demographic favour mass customization .05 3.5 .18 End user awareness

Economic development of Asia and India .10 3.0 .30 Low APL presence
in Asia
Growth in rural Indian market .05 2.5 .13 Exterior &
Economy segments
Promising auto and white goods industry .15 3.0 .45 Alliances required

Threats

Liberal Government policies .05 2.5 .13 Well positioned

Strong Chinese competition .15 4.0 .60 Well positioned

ICI and Berger strong globally .15 3.0 .45 APL weak
comparatively
New Product Advances .05 2.5 .13 Questionable

Strict environmental laws world over .10 3.0 .30 Non-tariff bariers

Total Scores 1.00 3.27