BUS 478 Midterm: Chapter 2 External Environment
SchoolSimon Fraser University
Course CodeBUS 478
ProfessorRui Jorge Basto da Silva
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CHAPTER 2: EXTERNAL ENVIRONMENT
THESE NOTES ARE MADE FROM THE TESTBOOK AND TEST
General environment is composed of dimensions in the broader society that influence
an industry and the firms within it.
7 environmental segments:
A company cannot control these segments instead they observe trends and predict
each trend’s effect.
Industry Environment – is a set of factors that directly influences a firm and its
competitive actions and responses: the threat of new entrants, the power of suppliers,
the power of buyers, the threat of product substitutes, and the intensity of rivalry
among competing firms.
The interaction among these factors determine an industry’s profitability
Competitor analysis - How companies gather and interpret information about their
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An analysis of the general environment focuses on environmental trends and their
implications, an analysis of the industry environment focuses on the factors and
conditions influencing an industry’s profitability potential, and an analysis of
competitors is focused on predicting competitors’ actions, responses, and intentions.
These 3 analysis influence a firm’s vision, mission and choice of strategies.
EXTERNAL ENVIRONMENTAL ANALYSIS
An opportunity is a condition in the general environment that, if exploited effectively,
helps a company reach strategic competitiveness.
A threat is a condition in the general environment that may hinder a company’s efforts
to achieve strategic competitiveness.
Effective monitoring requires the firm to identify important stakseholders and under-
stand its reputation among these stakeholders as the foundation for serving their
Scanning and monitoring are concerned with events and trends in the general
environment at a point in time. When forecasting, analysts develop feasible projections
of what might happen, and how quickly, as a result of the events and trends detected
through scanning and monitoring
When assessing, the objective is to determine the timing and significance of the effects
of environmental changes and trends that have been identified
The political/legal segment is the arena in which organizations and interest
groups compete for attention, resources, and a voice in overseeing the body of
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