The external environment: PEST and Competition

• Elements of PEST analysis?

  • Political
  • Economic
  • Socio-cultural
  • Technological
  • Environmental
  • Legal environment
• Elements of SWOT Analysis?

  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
• What is in common of Strength and Weaknesses in SWOT?

  They summarize the state of internal resources of an organization.
• What is in common of Opportunities and Threats in SWOT?

  They sum up the external factors that surround organization.
• Elements of Porter's five Forces model:

  1. Threat of new Entrants
  2. Bargaining power of Buyers
  3. Bargaining power of Suppliers
  4. Threats of substitution
  5. Competitive Rivalry
• What is used to analyze competitive environment?

  1. Defining the boundaries as the industry of market
  2. Porter's 5 forces framework (to analyze competitive forces)
  3. Competitor analysis - to construct the profile of the key competitors
• What is the difference of industry and market?

  Industry is a group of businesses whose products can substitute each other, while Markets are a groups of customers with similar needs and characteristics.
• How forces within Porter's framework act with each other?

  Suppliers power, Buyer power, Threat of Entrants and Threat of Substitutes all contribute to Competitive rivalry
• What are the forces affecting the Threat of New Entrants?

  1. Capital requirements of entry
  2. Availability of supply and distribution channels
  3. Expected retaliation: Price and advertising barriers
  4. Product differentiation
  5. Government policy
• What affects power of Buyers?

  1. Switching costs
  2. Large volume purchases
  3. Homogeneous products
  4. Buyer knowledge of competition
• Forces affecting power of Suppliers:

  1. Supplier size and consentration
  2. Switcing costs
  3. Uniqueness of the supplied resource
• What affects the threat of Substitutes?

  1. Price/performance ratio
  2. Extra-industry effects
• What is a degree of competitive rivalry?


  Its the overall measure of the intensity of competition in an industry. It is determined by the condition in the four sides(New Entrants, Buyers, Suppliers, Substitutes), and also:

  1. Degree of market leadership
  2. Industry growth rate
  3. Perishability of products
  4. Marginal costs of sales
  5. High exit costs
  6. Cross subsidisation