Free Essay On External Industry Analysis; A Case Study Of Big Lots Company
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In the current dynamic markets, a company has to carry out continuous research on the various aspects that affect the business. The retail industries companies operate within the macro environment of the business thus are affected by the factors beyond its control in the environment. New technology creates new markets for retailers such as home shopping networks. There are web-based retailers such as Amazon.com. A good economy increases the consumers disposable income thus increases the demand for retail goods. The new social norms such as selling environmentally friendly goods increase the market for different products in the retail industry. The political-legal and social factors are related in issues such as the sex discrimination in the employment, legalizing the same sex marriages. Retailers who adjust with the changing norms get more customers.
According to Porter’s five forces theory, a business must consider the external environment of the nation in which it operates. This involves doing an analysis on the economic, social, political, global, and demographic and technological changes in the environment.
The economic condition of a nation is a crucial consideration in business. A favorable economic situation presents an opportunity to the business while an unfavorable economy is a threat to its success. A favorable economy provides incentives to the business such as reduced interest rates that ease the accessibility to credit for the business. A rise in the interest rates increases the cost of borrowing funds thus making the cost of fund expensive to the business.
Global expansion in the retail industry is faced with various challenges especially when the company is considering establishing a business in countries that have strained relations. International relations between nations are very important in determining the success of a business.
Demographics of an economy is a vital consideration in the business and industry’s external environment. A research on the demographics of a particular country shows the age distribution, and composition of the population in terms of culture and race. This determines the people’s spending pattern which can offer the company an opportunity in selling products to different market segments.
Technological environment has to be considered for a business to realize its full potential. The technology is rapidly evolving in the industry, and the company needs to keep up with the advancement. Most industries are engaged in the e-commerce, and this is an opportunity for the company to create more markets online. Online marketing may help the company reach new markets and improve on the existing ones through the customer feedback. Companies that do not embrace the changing technology reduce the efficiency of their productivity and cannot keep up with the competition.
Political or legal environment is another factor that has to be considered in the analysis of the external environment of the retail industry. A change in the political party that is in leadership presents a threat or an opportunity for business. In the retail industry, a change in the government may also have an effect on international trade thus affecting the level of imports and exports allowed. If the company relies on imports for its supplies, it may be at a loss. On the other hand, a change in government may present an opportunity in case it provides incentives for businesses such as ease of accessibility of credit.
The social environment impacts significantly on the business in terms of the customer demands. The lifestyle change creates perception of consumer goods, and these attitudes shape consumer buying behavior. The retail industry especially has opportunities due to the lifestyle change in the population. For example, due to the busy work schedules, majority of people are not able to prepare meals at home thus they prefer the packaged foods thus companies in the industry have a business opportunity that they can exploit in providing the packed food.
There are various forces that may hinder a company’s performance as explained in the porter’s five forces model. The model suggests the following forces;
Threat of entry of new firms
The model suggests that entry of new firms in the market may reduce the company’s profitability (Porter, 2011). The company may, however, retain its market share and operate profitably if there are barriers to entry of the firms. The high capital required to establish the business may be a hindrance to entry of other firms. Established companies are able to operate under minimal costs due to economies of scale thus new businesses may not be able to enter because their cost would be higher. The well-established distribution channels act as a barrier to entry of new firms in the industry. The other hindrance to the firm’s entry into the industry is the product differentiation that creates customer loyalty thus the customers cannot easily switch to the new firm’s products. The company may, therefore, consider product differentiation to make its products stand out from the competitors’.
The other force is the buyer bargaining power especially if the buyers purchase large quantities of the company’s products. The company should ensure that it standardizes its products and lower the costs to make the consumers switching costs high. Standardized goods can act as n incentive for a product to increase its sales.
Industry rivalry is the force identified by the model. The diversity of competitors may reduce the company’s earning capacity, but this can be fixed through product differentiation and advertising. The industry’s life cycle and growth determine the competition in the industry. The higher the number of companies in an industry the higher the level of competition since concentration in the industry affects the competition. The level of competition is also determined by the level of diversity of the companies in an industry. Further, the availability of exit barriers increases the level of competition in an industry as well as excess capacity by the firms. The level of product differentiation also increases the industry rivalry.
The other force is the power of suppliers especially in cases where they deal with unique products with few suppliers in the market. The suppliers may take advantage of the situation and charge excessively high prices, making the company’s expenses too high. In addition, if the products do not have substitutes the supplier may have control of the prices and quantity that affects the business. Due to the high switching costs, the company may not be able to get other suppliers thus maintaining a healthy relationship with the supplier is important in containing h situation. This can be done by meeting the demands of supplier on time.
The other force is the substitute competition. Products that give consumers the same level of utility offer significant competition since the consumers can quickly switch to the rival company’s products. When the substitutes cost is low, consumers tend to shift towards the substitutes. The company must, therefore, ensure that it carries out research on the competitor products and invest on advertising its products.
The company must consider its critical success factors by evaluating on the customer needs. The company’s customers include individuals and retailers thus the company must put in place strategies to meet the demands of the customers. The customers prefer products that are accessible thus the company should ensure that it makes the products accessible to them. Quality is the other key factor that the consumers consider thus the company must ensure consistency in high-quality products.
In order to beat competition in the market, the company needs to formulate and implement measures that will increase its market share better than the competitors. The company should make its products more accessible to the customers by increasing its market coverage. One of the strategies that it can use is the market penetration that involves looking for new markets for its products. It could also consider developing of new products or differentiating the existing products. In addition, the company can consider strengthening its brand through promotions and trade fairs so that its products appeal more to customers. The quality of the products should remain high so that the consumers do not see an incentive to switch to the competitor products (Grant, 2010). The company can ensure quality products and consistent customer satisfaction through regular market research and taking action on customer Complaints. The Company must carry out a thorough analysis of the competitor in terms of their resources, marketing strategies, and distribution channels. Training and development of the workforce are other factors that the company can use to remain in the market. The analysis of the external industry of the company will help in formulating and implementing strategic plans to do business in a better way that the competitor. Therefore, company must take into account the changes in the external environment so as to meet its objectives and operate profitably.
Chiu, Y. H., & Chen, Y. C. (2009). The analysis of Taiwanese bank efficiency: incorporating both external environment risk and internal risk. Economic Modelling, 26(2), 456-463.
Grant, R. M. (2010). Contemporary strategy analysis and cases: text and cases. John Wiley & Sons.
Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior performance. Simon and Schuster.
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