Business Environment
Business Environment
Business Environment
Micro/Task/Operating Environment
Financiers
Marketing intermediaries
Substitutes
• Five Forces Analysis assumes that there are
five important forces that determine
competitive power in a business situation.
These are:
• Supplier Power: Here it is assessed how easy
it is for suppliers to drive up prices. This is
driven by the number of suppliers of each key
input, the uniqueness of their product or
service, their strength and control over the
firm, the cost of switching from one to
another, and so on. The fewer the supplier
choices a firm has, and the more you need
suppliers' help, the more powerful the firm’s
suppliers are.
• Buyer Power: Here it is assesed how easy it is
for buyers to drive prices down. Again, this is
driven by the number of buyers, the
importance of each individual buyer for the
business, the cost to them of switching from
present product being supplied to products
and services to those of someone else, and so
on. If the buyers are few and powerful , then
they are often able to dictate terms to the
firm.
• Competitive Rivalry: What is important here is
the number and capability of the firm’s
competitors. If the firm has many competitors,
and they offer equally attractive products and
services, then the firm will most likely have
little power in the situation, because suppliers
and buyers will go elsewhere if they don't get
a good deal from you. On the other hand, if
no-one else can do what the firm does, then
the business has a tremendous advantage.
• Threat of Substitution: This is affected by the
ability of the firm’s customers to find a
different way of doing what you do – for
example, if the firm supplies a unique
software product that automates an
important process, people may substitute by
doing the process manually or by outsourcing
it. If substitution is easy and substitution is
viable, then this weakens the firm’s power.
• Threat of New Entry: Power is also affected by
the ability of people to enter the business of
the firm. If it costs little in time or money to
enter the market and compete effectively, if
there are few economies of scale in place, or if
the firm has little protection for its key
technologies, then new competitors can
quickly enter the market and weaken its
position. If the firm has strong and durable
barriers to entry, then it can preserve a
favorable position and take fair advantage of
it.
Macro Environment
• Developments in information,
manufacturing, transportation
technologies, as well as emergence of
the internet, have facilitated rapid and
early internationalization of countless,
firms.
• Modern technology is promoting a higher
level of international business activity than
ever before.
• For e.g. many companies in software,
gaming or entertainment, maintain a
presence only on web.
• Advances in transportation and
communication technologies have greatly
aided express delivery service providers
such as DHL, UPS, and FedEx to serve
• The most important driver of
globalization since 1980s have been
technological advances in
communications, information,
manufacturing, and transportation.
• Firms transmit all variety of data,
information and vital communication
that help the smooth running of their
operations worldwide.
• The companies also use information
technology to improve productivity of
their operations, which provides
competitive advantages.
• The huge improvements in productivity
and the industrial revolution would
render human labour, especially at the
shopfloor level,obsolete over time.
• New technologies could displace labour
faster than the pace at which society
could find new uses for labour, but it
could improve the standard of living.
• The most important activity underlying
technological advances is innovation.
• Societies and organizations innovate in various
ways, including new product designs, new
product processes, new approaches to
marketing and new ways of organizing and
training.
• Innovation mainly results from R & D