SLP02 - External Environment Analysis (Do Not Select a Specific Company)
Note: Throughout this course, it is recommended that you complete the SLP before you undertake the case analysis. Before you begin the SLP, you need to read the background materials thoroughly.
Several of the background readings (Attached - SLP02 Background Material) referred to gathering data to support the external analysis. Be sure to review those readings so you know what kinds of data are used when conducting an external analysis. The purpose of this SLP is to develop the part of our strategic toolkit that deals with gathering information for a 5-Forces and PEST Analysis.
Step One: The first step in an external analysis is to determine to which industry your target business is classified. Usually this is done through North American Industry Classification System, or NAICS code. Find a website or library reference that would enable you to determine the NAICS code of any business (Do Not Select a Specific Company or Business - select an industry such as fast foods, retail, automotive, etc..).
Step Two: Research web and library sources that would give you the kinds of data you would need to conduct a Porter 5 Forces analysis. We are not looking for sites that describe the 5 Forces, but for sites that would have data that you could use to analyze the degree of competition in an industry, or the ease of substitution, for instance. You have undoubtedly run into such websites and publications before in your core courses. Typically, they are government sources providing statistical data, industry or trade magazines or journals, general business publications, financial websites, websites for trade associations, etc. This is a two step process: First figure out what kinds of information you would need to evaluate each of Porter's forces, and then find a source that will give you that information. Find a minimum of 2 different sources for each of Porter's Forces.
Step Three: Research web and library sources that would give you data to support a PEST analysis. Find at least 2 different sources for each PEST variable.
Step Four: In a 2 page paper (not including cover page or references), list your resources from steps 1-3 above. For each source, provide a title and a URL, if applicable. Write a short paragraph explaining what information is available, how it would be useful in an external analysis, and critiquing the source (for example, What are the limitations of the source? Is one better than the other? Why?)
You may be concise in your presentation of this SLP. It does not have to follow the conventions of a written case paper. Tables or bulleted lists may help you present the information concisely and make it easy for the reader to quickly grasp the information. You do not need an introduction or conclusion, but I would like to see a complete references for each source on a separate reference page.
Turn in your paper in to Coursenet by the due date for this module.
Running Head: EXTERNAL ENVIRONMENT ANALYSIS
Automotive Industry External Environment Analysis
Industry related with Target Business
The industry in which my target business can be classified is automotive industry. Over the past decade, the automotive industry has become one of the best growing industries all over the world. The auto manufacturing industry is highly capital and labor intensive. The main areas served by auto parts in manufacturing are:
• Original Equipment Manufacturing
• Replacement Parts Production and Distribution
• Rubber Fabrication
Industry Environment - Porter's Five Forces Model
The Porter's 5 Forces Model assumes that in an industry there are five important forces that determine its competitive power in a situation. This model can also be used to analyze the US automotive industry in the following manner:
• Threat of New Entrants: In automotive industry the threat of new entrants is low and this is because of mature market. Economies of scale have been reached and in addition to this for entering the market massive amounts of money are required. Personal consumption in the industry is declined from 4.5% to 2.9% (Kim, n.d.). Access to distribution channels is another high barricade to enter the industry. Due to all this reasons the threat of new entrants in the industry is low (Highfill, Baki, Copus, Greem, Smith & Whineland, 2004).
• Suppliers Power: Bargaining power of suppliers in automotive industry is low and this is because of the fragmentation of the automobile supply business. Most of the industry suppliers depend upon one or two automakers to purchase a majority of their products (The Industry Handbook: Automobiles, 2010). In the industry if an automaker determines to switch suppliers, it could be distressing to the former supplier's business. Consequently it can be said that suppliers are exceedingly susceptible to the demands and necessities of the automobile manufacturer and they have very little power (Industry Analysis: The Five Forces, n.d.).
• Buyer Power: The bargaining power of automakers was neutral previously but with the increase in the number of automakers to select from, the power of buyers has gained potency (Gillette, 2003). Also, buyers groups purchase industries products in large amount and there is no switching cost between manufacturers (Everett, 1997).
• Threat of Substitute Products: In automotive industry there not too much substitute products for automobiles. Some of the substitutes are walking, riding bike or taking a bus or train. Substitutes products all rely upon the geographic location of the consumer (Automotive Industry Analysis, 2005). In some cities like New York or Chicago, a car is not as essential and in some cities the subway is the most effective means of transportation. The availability of substitutes also depends upon the time, money, personal preference and expediency in the auto travel industry (Highfill, Baki, Copus, Greem, Smith & Whineland, 2004).
• Competative Rivalry: The intensity of competitive rivalry is very high in automotive industry. Although the industry is usually an oligopoly, with a couple of large suppliers but the overcapacity of the market had induced the competition to heighten as the automakers fight over fewer customers (Jain & Garg, n.d.). In the industry there are several and evenly balanced competitors. Throughout the industry there are high fixed costs and switching costs are low (Fiat & GM: The Troubles Alliance case Study, 2009).
• Political: Since 1960 a number of laws and regulations have affected the industry. Most of the regulations are due to the consumers increasing pertains for the environment and for safer automobiles. The first safety act that increased regulations was the National Traffic and Motor Vehicle Safety Act (General Motor's Strategic Analysis, 2008). Safety concerns are not the only concerns as there is also a growing concern for the environment. In this concern the Vehicle Air Pollution and Control Act was passed in 1965. This act regulated standards for automobile pollution and subsequently the Clean Air Act was passed that demands 90% decrease in automobile emission (Fiat & GM: The Troubles ...
An external environment analysis is examined. The purpose of the SLP development for the strategic toolkit is examined.