Business Environment, Competition & SWOT Factors

Understanding the Business Environment

Key variables influencing a company's operations and strategy.

Macroenvironment

External variables that influence the company, which it cannot control.

Key Macroenvironmental Factors:

• Economic Factors: Determined by the overall economic situation and structure.
• Sociocultural Factors: Characteristics of the society in which the company operates.
• Legal and Political Factors: Regulations and political climate affecting all business aspects.
• Technological Factors: Impact of technological advancements.
• Environmental Factors: Ecological and environmental considerations.
• International Factors: Globalization and new technologies affecting businesses worldwide.

Microenvironment

Variables closer to the company that can directly influence its ability to operate and which the company can potentially influence.

Functional Areas

Core departments within a company:

• Production Area
• Sales or Marketing Area
• Human Resources Area
• Administrative Area

Organizational Chart

A graphical representation of a company's structure. Common types include:

• Vertical
• Horizontal
• Circular

Organizational Models

• Vertical Organization: Based on the principle of hierarchy. Orders typically come from the top hierarchical level, which can sometimes make teamwork difficult.
• Horizontal Organization: Based on the division of labor, specialization, and function. It generally promotes teamwork.

Competitive Landscape Analysis

Competition

The presence of other companies (competitors) in the same sector. The more competitors there are, the greater the rivalry between them.

Rivalry often leads companies to use strategies such as enhanced advertising or improved services.

Factors Influencing Competition Intensity:

• Number of Competitors: The more firms operating in a sector, the higher the competition tends to be.
• Sector Growth: Competition dynamics are affected if demand is growing faster than supply.
• Cost Structure: High fixed costs can significantly influence the rivalry between companies.
• Product Differentiation: The degree to which products or services differ affects competition.
• Production Capacity: Excess capacity (where supply exceeds demand) can intensify rivalry.
• Exit Barriers: Competition is often greater in sectors where it is difficult or costly for companies to leave (high exit barriers).

Threat of New Entrants

The entry of new firms into an industry typically leads to a drop in profitability, as increased competition may lower prices.

Strategic Planning: SWOT Analysis

A framework used by companies to establish their business strategy by analyzing internal and external factors.

SWOT Components:

• Strengths
• Weaknesses
• Opportunities
• Threats

Internal Factors (Strengths & Weaknesses)

Strengths are advantages and Weaknesses are disadvantages a company has relative to its competition, concerning its internal capabilities, resources, and the expertise of its promoters.

External Factors (Opportunities & Threats)

Opportunities and Threats arise from the external environment, which is not controllable by the company. However, the company can make strategic choices to leverage opportunities and prevent or reduce the impact of threats.