Analysis of the external environment (analysis of the industry and the competitive situation)

To develop a strategy, perseverance, creativity and your own opinion are not enough, you also need a thorough analysis of the internal and external environment of the company, otherwise the strategy will not be viable. Particular attention should be paid to two groups of factors: first, the conditions in the industry and competition, and secondly, competitiveness, market position, strengths and weaknesses of the company.

All companies operate in the macro environment, which is influenced by the economy as a whole, demographic and technological changes, social values, regulatory and legislative acts, the competitive situation and the conditions of the industry (Fig. 1). The macro environment includes all significant environmental factors – significant in the sense that they are taken into account when choosing the business model and strategy of the company. The company cannot influence the external factors of the macro environment, but it must monitor them and adjust its strategy accordingly. Fig. 2 shows the sequence of assessing the position of the company when developing a strategy. A thorough analysis of the position of the company.
It is a necessary prerequisite for choosing the direction of the company’s development in the long term, setting goals and developing an effective strategy. In order not to make a mistake when choosing the direction of long-term development and strategy of the company, managers must know the strategic position of the company, i.e. know the characteristics of the industry, competition conditions, resources and capabilities of the company.

This question considers the analysis of the industry and the competitive situation, i.e. a set of macro-environment factors that are strategically important for a single-profile company. In question 3, we will analyze the internal environment of the company and identify strategically significant internal factors and the company’s position in the market.

In terms of their economic characteristics, competitive conditions and profit prospects, industries vary greatly. The economic and competitive conditions in the truck industry, for example, differ significantly from those in retail. In cable television and the production of soft drinks, the situation in the industry and the conditions of competition are completely different. Competition can be moderate in one industry and very fierce in another; be guided by the price and other characteristics of the goods.

Economic characteristics, competitive conditions and their expected changes make it possible to predict the profitability of these industries. Much depends on the state of the industry: strong companies in unattractive industries sometimes struggle to achieve a satisfactory level of profitability, while even relatively weak companies in attractive industries show excellent results.

To analyze the general situation and competitive conditions of the industry, methods and techniques have been developed with the help of which an optimal strategy is created and its investment attractiveness is evaluated. The analysis involves the study of the company’s activities in the context of the external environment. The purpose of the analysis is to assess seven key environmental factors (see Fig. 2):

The main economic characteristics of the industry; Forms and intensity of competition; Reasons for changes in the structure of competition and the external environment; The strongest (weakest) competitors; Probable subsequent actions of competitors; Key factors of success in competition; The overall attractiveness of the industry and the prospects for achieving profitability are higher than the industry average.

The characteristic of all these factors is an assessment of the environment in which the company operates. They provide the basis for developing a strategy to take into account the changing conditions of competition and industry.