EVALUATING A COMPANY'S EXTERNAL ENVIRONMENT

hii u guys,

did u know, what are the strategically relevant factors in the macro-environment?

macro-environment comprises of six components; political factor, economic conditions, sociocultural forces, technological factors, environmental factors, and legal or regulatory conditions. all of this principal are known as PESTEL analysis. 

Six principal component of strategic management significance it the macro environment.

P	Political factor	This can include – government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour law, environmental law, trade restrictions and so on.
E	Economic conditions	Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on.
S	Sociocultural forces	These factors include – population growth, age distribution, health consciousness, career attitudes and so on.
T	Technological factors	Affect marketing and the management thereof in three distinct ways: ·         New ways of producing goods and services ·         New ways of distributing goods and services ·         New ways of communicating with target markets
E	Environmental factors	They have become important due to the increasing scarcity of raw materials, polution targets, doing business as an ethical and sustainable company, carbon footprint targets set by governments (this is a good example were one factor could be classes as political and environmental at the same time).
L	Legal or regulatory condition	Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety.

next, we look on how strong are the industry's competitive forces?
it can be answered by the principal of five forces model of competition.

Michael Porter

Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. 

Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. 

Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.

Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.

Substitute products refer to the products having ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).