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In analyzing the external environment faced by a firm or a business unit, we distinguish three levels, designated as the remote, industry, and competitive environment, as shown in Figure 1.0.
Industry
Competitive FIR M Environment Environment
Environment
Figure 1.0 Environmental Analysis
Fig 2
As shown in Figure 3.0 the structural factors are generally grouped into five categories: First is the pressure from direct competitors, or, to use another phrase, the competitive intensity of the industry. If intensity is high, profitability of firms in the industry is likely to be low. The second factor influencing industry profit-ability is the ease of entry of new competitors. Industry profitability is likely to be low when entry barriers are lowwhen it is easy for competitors to enter and compete.
Barriers to entry include the capital required to enter as well as non-financial barriers such as access to distribution channels, knowledge, and economies of scale, as we discuss in later chapters. Profitable markets, however, do not just attract potential direct competitors, those who do business in the same way we do; they also attract substitutes, or indirect competitors, the third factor influencing industry profitability.