Name

: Ganda Satria Sikstianto

Student Id

: 29114811

Class

: YP 51 B
Summary Chapter II
Business Strategy

The External Environment: Opportunities, Threats, Industry Competition and Competitor

Analysis.
1. The General, Industry and Competitors Environments
The globalization business circumstances force many firms must be able to concern and deep
analyze the competition. Many factors such a world economic, oil price, technologies and many
more affects condition of global business. All that is factor very uncertainty and fast changing
so it is very difficult to predict and do the efficient and effective business strategy. The firms
must to understand the external environment by acquiring information about competitors,
customers and other stakeholders to build their own base of knowledge and capabilities. The firm
strategic actions are influenced by the conditions in the three parts (the general, industry and
competitor) of its external environment.
The general environment is composed of dimensions in the broader society that influence an
industry and the firms within it. There are seven segments to describe it. Actually the firms
cannot directly control the general environment segments. So that its important a firm have
ability to gathering information needed to understand all segments and firm implications for
implementing firms strategies.

Fig.1 Seven Segments (External Environment)

Fig 2. The General Environment: Segments and Elements

The industry environment is the set of factors that directly influences a firm and its
competitive action 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 competitors. These
five factors determine an industrys profit potential. The key is how to the firms locate a position
within an industry where it can favorably influence the five factors or where it can successfully
defend against their influences. And, how companies gather and interpret information about their
competitors is called competitor analysis.
Analysis of the general environment is focused on environmental trends while an analysis of
the industry environment is focused on the factors and conditions influencing and industrys
profitability potential and an analysis of competitors is focused on predicting competitor s
actions, responses and intentions. In combinations, the result of these three analysis separately,

performance improves when the firm integrates the insight provide by analyses of the general
environment, and the competitor environment.
2. External Environmental Analysis
Most firms face external environments that are highly turbulent, complex and global
conditions that make interpreting those environments difficult. To solve that s problem the firms
must have environment data, understanding general environment, firms engage in external
environmental analysis. This analysis have four parts: scanning, monitoring, forecasting and
assessing. And at the first the firms also analyze the opportunity and threat.

Opportunity is a condition in the general environment that if exploited effectively,

helps a company achieve strategic competitiveness.
Threat is a condition in the general environment that may hinder a companys efforts
to achieve strategic competitiveness.

Fig 3. Components of the External Environment Analysis

3. Segments of the General Environment
On this segment dividing into several segment which can help or make strength the analysis
after we determine scanning, monitoring, forecasting and assessing. Its very vital to the firms
effort to recognize and evaluate opportunities and threats.
A. Demographic Segment
Demographic segment concerned with a populations size, age structure, geographic
distribution, ethnic mix and income distribution. Population size for firms is opportunities to
seeking to find growing markets in which to sell their goods and services want to recognize the
market potential that may exist for them in these five nations (China, USA, Pakistan, Indonesia
and India). While observing the population of different nations and regions of the world, firms
also want to study changes occurring within different population to assess their strategic
implications. Age structure gives information to firm that s how many and where the
classification of the market. For business unit whom depend on the ages category, this segment
very important (investment company, insurance etc).

Geographic distribution on each country of course will be different. For example at

Indonesia, Jakarta is the main city and about 60% of money Indonesia cycling on this city. So, its
important for the firm to knowing whereas city on each country have more profit than else.
Ethnic mix would inform the firm about the character of the market which affects a workforces
composition. Income distribution its to understanding how income distributed within and across
populations informs firms of different groups purchasing power and discretionary income.
B. The Economic Segment
The economic environment refers to the nature and direction of the economy which a
firm competes or may compete. In general, firms seek to compete in relatively stable economies
with strong growth potential. Because nations are interconnected as a result of the global
economy, firms must scan, monitor, forecast and assess the health of their host nation and the
health of the economies outside their host nation.
C. The Political/Legal Segment
The political/legal segment is the arena in which organizations and interest groups
compete for attention, resources and a voice in overseeing the body of laws and regulations
guiding interactions among nations as well as between firms and various local government
agencies. Firms must carefully analyze a new political administrations business related policies
and philosophies.
D. The Socio Cultural Segment
The socio cultural segment is concerned with a societys attitude and cultural values.
Societies attitude and cultural values appear to be undergoing possible changes at the start of the
second decade of the twenty-first century.
E. The Technological Segment
The technological segment includes the institutions and activities involved with creating
new knowledge and translating that knowledge into new outputs, products, processes and
materials. As a significant technological development, the internet has become a remarkable
capability to provide information easily, quickly and effectively to an ever increasing percentage
of the worlds population.
F. The Global Segment
The global segment includes relevant new global markets, existing markets that are
changing, important international political events and critical cultural and institutional
characteristic of global markets. When studying the global segment, firms (including automobile
manufactures) should recognize that globalization of business markets may create opportunities
to enter new markets as well as threats that new competitors from another economies may enter

their market as well. In all instances, firms competing in global markets should recognize the
different socio cultural and institutional attributes of global markets.
G. The Physical Environment Segment
The physical environment segment refers to potential and actual changes in the physical
environment and business practices that are intended to positively respond to and deal with those
changes. Concerned with trends oriented to sustaining the worlds physical environment, firms
recognize that ecological, social and economic systems interactively influence what happens in
this particular segment.
4. Industry Environment Analysis
An industry is a group of firms producing products that are close substitutes. In the course of
competition, these firms influence one another. Typically, industries include a rich mixture of
competitive strategies that companies use in pursuing above-average returns. When studying the
industry environment, firms must also recognize that suppliers can become a firms competitors
(by integrating forward) as can buyers (by integrating backward).

Fig. 4 The Five Forces of Competition Model

A. Threat of New Entrants
Identifying new entrants is important because they can threaten the market share of
existing competitors. One reason new entrants pose such a threat is that they bring additional
production capacity. The likelihood that firms will enter an industry is a function of two factors:

barriers to entry and the retaliation expected from current industry participant. Barriers to entry
define are economies of scale, product differentiation, capital requirements, switching costs,
access to distribution channels, cost disadvantages independent of scale and government policy.
About expected retaliation, companies seeking to enter an industry also anticipate the reactions
of firms in the industry.
B. Bargaining Power of Suppliers
Increasing prices and reducing the quality of their products are potential means suppliers
use to exert power over firms competing within an industry. A supplier groups is powerful when:

Its dominated by a few large companies and is more concentrated than the
industry to which it sells.
Satisfactory substitute products are not available to industry firms.
Industry firms are not a significant customer for the supplier group.
Supplier s goods are critical to buyer s marketplace success.
The effectiveness of supplier s products has created high switching costs for
industry firms.
It poses a credible threat to integrate forward into the buyers industry. Credibility
is enhanced when suppliers have substantial resources and provide a highly
differentiated product.
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C. Bargaining Power of Buyers

Firms seek to maximize the return on their invested capital. Alternatively customers
(buyers) want to buy products at the lowest possible price. So, buyers are powerful when:

They purchase a large portion of an industry s total output.

The sales of the product being purchased account for a significant portion of the
sellers annual revenues.

The could switch to another product at little, if any, cost.

The industry s products are undifferentiated or standardized, and the buyers pose
a credible threat if they were to integrate backward into the sellers industry.

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D. Threat of Substitute Products

Substitute products are goods or services from outside a given industry that perform
similar or the same functions as a product that the industry produces. In general, product
substitutes present a strong threat to a firm when customers face few, if any, switching costs and
when the substitute product s price is lower or its quality and performance capabilities are equal
to or greater than those of the competing product.
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E. Intensity of Rivalry Among Competitors

Competitive rivalry intensifies when a firm is challenged by a competitor s actions or
when a company recognizes an opportunity to improve its market position. Competitive rivalry
can be described into several points:

Numerous or equally balanced competitors, means intense rivalries are common

industries with many companies, so the firms able to believe they can act without
eliciting a response.
Slow industry growth, growing markets reduce the pressure to take customers
from competitors.
High fixed costs or high storage costs, when many firms attempt to maximize
their productive capacity, excess capacity is created in an industry wide basis.
Lack of differentiation or low switching costs, industries with many companies
that have successfully differentiated their products have less rivalry, resulting in
lower competition for individual firms.
High strategic stake, the leader of market share firms able to suggesting that
rivalry among these competitors will remain strong. Its purpose to gain more
profit.
High exit barriers, following specialized assets, fixed cost of exit, strategic
interrelationship, emotional barriers and government and social restrictions.

5. Strategic Groups
A set of firms that emphasize similar strategic dimensions and use a similar strategy is called
a strategic group. The competition between firms within a strategic group is greater than the
competition between a member of a strategic group and companies outside the strategic group.
The extent of technological leadership, product quality, pricing policies, distribution channel and
customer service are examples of strategic dimensions that firms in a strategic group may treat
similarly. The notion of strategic groups can be useful for analyzing an industrys competitive
structure. Such analyses can be helpful in diagnosing competition, positioning and the
profitability of firms within an industry.
Strategic groups have several implications.
1. Because firms within a group offer similar products to the same customers, the
competitive rivalry among them can be intense. The more intense the rivalry, the greater
the threat to each firms profitability.
2. The strengths of the five industry forces differ across strategic groups.
3. The closer the strategic groups are in terms of their strategies, the greater is the likelihood
of rivalry between the groups.

6. Competitor Analysis
Competitor analysis focuses in each company against which a firm directly competes (CocaCola Company vs Pepsi Cola). In a competitor analysis, the firm seeks to understand the
following:

What drives the competitor, as shown by its future objectives.

What the competitor is doing and can do, as revealed by its current strategy.

What the competitor believes about the industry, as shown by its assumptions.
What the competitor capabilities are, shown by its strengths and weaknesses.

Critical to an effective competitor analysis is gathering data and information that can help the
firm understand its competitors, intentions and the strategic implications resulting from them.
Useful data and information combine to form competitor intelligence. Through effective
competitive and public policy intelligence, the firm gains the insight needed to make effective
strategic decisions about how to compete against its rivals.

Fig 5. Competitor Analysis Components

7. Ethical Considerations
Firms must follow relevant laws and regulations as well carefully articulated ethical
guidelines when gathering computer intelligence. About competitor intelligence is the set of data
and information the firm gathers to better understand and better anticipate competitor s
objectives, strategies, assumptions and capabilities. Meanwhile competitors are companies or
network of companies that sell complementary goods or services that are compatible with the
focal firms good or services. Open discussion of intelligence gathering technique can help a firm
ensure that employees, customers, suppliers and even potential competitors understand
convictions to follow ethical practices for gathering competitor intelligence.

CASE ANALYSIS
About the case of Sustaining Competitive Advantage In The Global Petrochemical
Industry: A Saudi Arabian Perspective. We can defined several problem solve of the case. But
first about the case background, we already know that Saudi Arabia is the leader of producer s
oil in the world. In 2004, the GDP about $247,2 billion and growth into 6,2 points for 2005. We
know that needed of oil consumption on the whole world its very massive, its affected into the
price which influence by the market. The demand for petrochemical products during the first
decade of the new millennium is expected to grow average rate of 2% per annum in the market
US, Western Europe and Japan, 11% for the Middle Eastern, 7% for South America and 6% for
Asia. The main industry on this field are Exxon and Shell Group, other are BASF, BP, Dow
Chemical, Phillips Petroleum, Mobil, Mitsubishi, Union Carbide and Methanex.
Saudi Arabia industry lies in the low-cost of fee-stocks as well as low costs of utilities.
Major competitive disadvantages are the lack of technological know how and skills of personnel.
Other weaknesess that are discernable in the petrochemical industry are the marketing approach,
product development and providing technical support. So, following below the analysis;
1.

2.

3.
4.

5.

Rivalry in this field business is high, because the value of the commodity of this business
so the players its commonly a lot of numbers. The effect from that situation makes
consumers have many choices to buy the oil because the numbers of the players.
Meanwhile the suppliers (oil industry) have a flexibility to get nice margin profit
remember many peoples (consumers) need the oil.
As a suppliers, oil industry have a bargaining power of suppliers. So, thats the switching
cost from one supplier to another is low, the we can say the bargaining power is weak in
terms of reasonable price and obtaining credit facilities.
The major player in this industry is focus on developing its existing market and tapping
new and flourishing market rather than being dependent on the developed market.
Threat of the new entrants commonly difficult because the new entrants need a plenteous
investments capital and face the interest cooperating business. Also they must adaptable
to implementing the technology and formulate that into operation management efficient
and effectively.
Threat of substitute its has high probability, cause that the waste of this industry and the
category oil as a un-renewable resources.

So, the future success of the petrochemical industry in Saudi Arabia depended upon how
companies formulate their strategies in the global market. SABIC for instance must be direct
their effort mainly in marketing and research development division. In spite of several
advantages as extensive product lines world-class quality product and an extensive distribution
network. The Saudi industry has not penetrated the global market yet. In addition, the companies
has to rethink about human resources, relies on an expatriate workforce for technical and
managerial skill and recruit a number of labor from overseas. The government policy also must

implemented enthusiasm so that the industry must develop a suitable strategy to develop the
skills and knowledge in local employees. The large company like SABIC should reconsider their
previously made investment plans to make it compatible with the changing global situation. The
industry should also find alternative markets to maintain the flow of production and achieve nice
profitability. And finally, the porters model that was used in this purpose conclude that the
petrochemical industry has helped Saudi Arabia to gain and maintain its competitiveness.
However, with competition emerging globally, a careful selection of strategies is necessary to
retain and enhance its competitiveness.