Understanding Business Environments and Competitive Strategies
Concept and Types of Environment
The business environment encompasses all exogenous or external factors that influence a company’s operations and outcomes, despite being beyond its control. A company’s success hinges on effectively navigating both positive and negative environmental influences.
Levels of Environment
- Global: The competitive landscape spans the entire globe.
- International: The environment is shaped by the specific dynamics of national markets.
- National: The general business climate within a particular country.
- Regional: A homogeneous economic area constitutes the environment.
- Local: The immediate surroundings of a business.
Types of Environment
- Generic: Factors impacting all businesses within a specific time and location.
- Specific: Factors influencing decisions and outcomes for companies with shared characteristics.
Dimensions of the Generic Environment
- Economic: Financial system, inflation, fiscal policies, etc.
- Political-Legal: Legislative regulations, political system, etc.
- Socio-economic: Sociological, cultural, demographic factors, etc.
- Technological: Level of technological and scientific advancement in society.
Dimensions of the Specific Environment
- Customers: End users and distributors.
- Suppliers: Providers of resources and production factors.
- Competitors: Direct and indirect rivals.
- Socio-political: Factors related to the organization and its activities.
- Technological: Technologies used for procurement and product development.
Porter’s Five Forces Model
- Potential Entrants: Threat posed by new competitors entering the market.
- Substitutes: Threat from substitute products or services.
- Buyers: Bargaining power of buyers.
- Suppliers: Bargaining power of suppliers.
- Industry Competitors: Rivalry among existing competitors.
The Structure of the Competitive Framework
Types of Business Decisions
- Strategic Decisions: Long-term resource allocation for the entire enterprise.
- Tactical Decisions: Mobilizing resources to execute strategic decisions.
- Operational Decisions: Repetitive, routine, and programmable decisions.
Characteristics of Effective Strategies
- Consistent with Goals and Values: Prioritize the company’s profitability.
- Aligned with Industry Environment: Exploit opportunities for competitive advantage.
- Supported by Resources and Capabilities: Adequate financial resources to support investments.
- Consistent with Organization and Systems: Appropriate organizational structure and systems.
- Internally Consistent: All elements of the strategy should align.
Dynamic Environment: Competition and Cooperation
The level of rivalry among competitors determines a sector’s attractiveness. Intense competition, especially in sectors with numerous poorly differentiated products, can lead to price wars and reduced profitability.
Competition
- Type of Competition: Degree of rivalry influenced by factors like the number of competitors, demand elasticity, etc.
- Competitive Advantages: Cost leadership or differentiation.
- Mobility and Exit Barriers: Strategic groups protecting their market share and factors hindering exit, such as specialized assets, fixed costs, and strategic relationships.
Cooperation Strategies
Voluntary agreements involving the exchange, sharing, or joint development of products, technologies, or services.
Reasons for Cooperation
- Complementary technologies
- High costs
- Knowledge transfer
- Access to new markets
- Risk reduction
- Intense competition
- Economies of scale or scope
- Increased competitive power
- Institutional factors
Forms of Partnership
: Partnership (we refer to a kind of cooperation that is an alliance of several companies through a contract which formalises a long-term) contracts on specific activities (two weeks or more services are provided, products, etc. ..), franchising, joint-venture (is an agreement whereby two or more independent companies if they decide to create an entity with legal personality, though dependent on their creators. Businesses creative portion of its assets invested in this new venture with the expectation of some benefits), contract (is that a company, the main charge to another, the subcontractor, the production of a production or service delivery. Outsourcing is the outsourcing of activities by the lead company in order to improve flexibility, reduce costs, size of their assets …).