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35 Micro Environmental Analysis Examples

🔝 top-10 micro environmental analysis examples, 🤔 what is micro environment in business, 📊 what are micro environmental factors, 🔎 what is a micro environment analysis, 🔧 micro environment analysis tools, 💡 essay ideas on micro environmental analysis.

Today, several internal and external factors come into play to drive sustainable growth for businesses. It takes seamless coordination and implementation between these elements to nurture the future development of a company.

Micro environmental analysis refers to internal factors like employees, customers, suppliers, shareholders, and competitors that lead to failure or success. Keep reading to learn more about it and find some excellent micro environment essay examples.

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Micro environment pinpoints an organizational environment that can directly influence day-to-day operations. It involves several internal forces that can lead to the success or failure of a company. Depending on the organizational issue, these internal factors are unique in nature. In fact, they can impact the company’s performance potential over time. 

In a competitive landscape, companies face a lot of challenges, and things get more complicated when internal micro environmental elements are distinctive.

Macro Vs. Micro Environment

Suppliers can impact a company’s delivery network and customer value . Their reliability determines whether or not the business can maintain smooth operations. Typically, managers have to exercise full control over suppliers’ costs and availability. If the supply shortages and expenses are under control, the company won’t have to deal with customer dissatisfaction and decreased sales.

The Company

When reviewing micro environmental factors, it is crucial to consider top management, HR, finance, accounting, and research and development departments . There’s no rocket science – managers have to collaborate and bring stakeholders on the same page to make informed decisions and follow strategic plans.

Competitors

Competitors or rivals propel companies to improve their customer satisfaction and overall value. Businesses have to meet customers’ increasing demands and expectations to maintain a competitive edge in the market.

Marketing Intermediaries

In a standard value delivery network, marketing intermediaries play a crucial role for any company. Middlemen like merchants or agents help businesses find potential customers, whereas physical distribution entities like transportation and warehouses assist companies in stocking and moving goods.

In a company’s micro environment, customers are the most valuable actors. Companies need a solid value delivery system to engage customers and build long-term relationships to drive growth. Customer markets can include business, reseller, government, international, and consumer markets .

General Public

The general public is a potential group interested in the product or service offered by the company. The company can lose the general public’s interest if business offerings are not purposeful.

From a company’s perspective, the public falls into several categories:

• media public,
• citizen-action public,
• financial public,
• local public,
• general public,
• internal public.

A micro environment includes elements within a unique organizational environment. Micro doesn’t translate into a minor task or factor. It hints at one or more problems within a company and how often they can affect organizational growth .

Look at a micro environment analysis through the lens of the company rather than the industry. Technically, micro environment analysis refers to reviewed internal forces of a micro environment. It can be about the competitor, market, stakeholder, or supplier analyses.

A SWOT analysis is one of the most effective micro environment analysis tools. It helps you understand the strengths , opportunities , weaknesses , and threats of each internal force. You can use this method to paint a full picture of all internal elements that can influence the growth and performance of your business. SWOT analysis can work as a direct indicator to assess different organizational areas and determine if there’s been an improvement. An in-depth SWOT analysis helps organizations tackle challenges, threats, and avail opportunities.

Porter’s 5 Forces

Porter’s Five Forces refer to a model to review five key competitive factors that apply to all industries. This model makes it easier to spot the pros and cons of an industry. It includes the following:

• Competitive rivalry in the same industry
• Substitute threat of a product or service
• The bargaining influence of customers
• The bargaining influence of suppliers
• The potential threat of new players in the market

Need some additional information? Check our more micro environment essay examples on the web page below.

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5.4 A Firm’s Micro Environment: Porter’s Five Forces

A firm’s micro environment is directly connected to the firm in some way, and firms must understand the micro environment in order to successfully compete in an industry. All firms are part of an industry —a group of firms all making similar products or offering similar services, for example, automobile manufacturers or airlines. Firms in an industry may or may not compete directly against one another, as we’ll discuss shortly, but they all face similar situations in terms of customer interests, supplier relations, and industry growth or decline.

Harvard strategy professor Michael Porter developed an analysis tool to evaluate a firm’s micro environment. Porter’s Five Forces is a tool used to examine different micro-environmental groups in order to understand the impact each group has on a firm in an industry (Figure 5.4). Each of the forces represents an aspect of competition that affects a firm’s potential to be successful in its industry. It is important to note that this tool is different than Porter’s generic strategy typology that we will discuss later.

Industry Rivalry

Industry rivalry , the first of Porter’s forces, is in the centre of the diagram. Note that the arrows in the diagram show two-way relationships between rivalry and all of the other forces. This is because each force can affect how hard firms in an industry must compete against each other to gain customers, establish favourable supplier relationships, and defend themselves against new firms entering the industry.

When using Porter’s model, an analyst will determine if each force has a strong or weak impact on industry firms. In the case of rivalry, the question of strength focuses on how hard firms must fight against industry rivals (competitors) to gain customers and market share. Strong rivalry in an industry reduces the profit potential for all firms because consumers have many firms from which to purchase products or services and can make at least part of their purchasing decisions based on prices. An industry with weak rivalry will have few firms, meaning that there are enough customers for everyone, or will have firms that have each staked out a unique position in the industry, meaning that customers will be more loyal to the firm that best meets their particular needs.

The Threat of New Entrants

In an industry, there are incumbent (existing) firms that compete against each other as rivals. If an industry has a growing market or is very profitable, however, it may attract new entrants . These either are firms that start-up in the industry as new companies or are firms from another industry that expand their capabilities or target markets to compete in an industry that is new to them.

Different industries may be easier or harder to enter depending on barriers to entry , and factors that prevent new firms from successfully competing in the industry. Common barriers to entry include cost, brand loyalty, and industry growth. For example, the firms in the airline industry rarely face threats from new entrants because it is very expensive to obtain the equipment, airport landing rights, and expertise to start up a new airline.

Brand loyalty can also keep new firms from entering an industry, because customers who are familiar with a strong brand name may be unwilling to try a new, unknown brand. Industry growth can increase or decrease the chances a new entrant will succeed. In an industry with low growth, new customers are scarce, and a firm can only gain market share by attracting customers from other firms. Think of all the ads you see and hear from competing cell phone providers. Cell phone companies are facing lower industry growth and must offer consumers incentives to switch from another provider. On the other hand, high-growth industries have an increasing number of customers, and new firms can successfully appeal to new customers by offering them something existing firms do not offer. It is important to note that barriers to entry are not always external, firms often lobby politicians for regulations that can be a barrier to entry. These types of barriers will be covered in greater depth in more upper-level courses.

Threat of Substitutes

In the context of Porter’s model, a substitute is any other product or service that can satisfy the same need of a customer as an industry’s offerings. Be careful not to confuse substitutes with rivals. Rivals offer similar products or services and directly compete with one another. Substitutes are completely different products or services that consumers would be willing to use instead of the product they currently use. For example, the fast-food industry offers quickly prepared, convenient, low-cost meals. Customers can go to McDonald’s, Wendy’s, Burger King, or Taco Bell—all of these firms compete against each other for business. However, their customers are really just hungry people. What else could you do if you were hungry? You could go to the grocery store and buy food to prepare at home. McDonald’s does not directly compete against Kroger for customers because they are in different industries, but McDonald’s does face a threat from grocery stores because they both sell food. How does McDonald’s defend itself from the threat of Kroger as a substitute? By making sure their food is already prepared and convenient to purchase—your burger or salad is ready to eat and available without even getting out of your car.

Supplier Power

Virtually all firms have suppliers who sell parts, materials, labour, or products. Supplier power refers to the balance of power in the relationship between firms and their suppliers in an industry. Suppliers can have the upper hand in a relationship if they offer specialized products or control rare resources. For example, when Sony develops a new PlayStation model, it often works with a single supplier to develop the most advanced processor chip it can for their game console. That means its supplier will be able to command a fairly high price for the processors, an indication that the supplier has power. On the other hand, a firm that needs commodity resources such as oil, wheat, or aluminum in its operations will have many suppliers to choose from and can easily switch suppliers if price or quality is better from a new partner. Commodity suppliers usually have low power.

Buyer Power

The last of Porter’s forces is buyer power , which refers to the balance of power in the relationship between a firm and its customers. If a firm provides a unique good or service, it will have the power to charge its customers premium prices, because those customers have no choice but to buy from the firm if they need that product. In contrast, when customers have many potential sources for a product, firms will need to attract customers by offering better prices or better value for the money if they want to sell their products. One protection firms have against buyer power is switching costs , the penalty consumers face when they choose to use a particular product made by a different company. Switching costs can be financial (the extra price paid to choose a different product) or practical (the time or hassle required to switch to a different product). For example, think about your smartphone. If you have an iPhone now, what would be the penalty for you to switch to a non-Apple smartphone? Would it just be the cost of the new phone? Smartphones are not inexpensive, but even when cell phone service providers offer free phones to new customers, many people still don’t switch. The loss of compatibility with other Apple products, the need to transfer apps and phone settings to another system, and the loss of favourite iPhone features, such as iMessage, are enough to keep many people loyal to their iPhones.

Principles of Management – Chapter 8.4 by David S. Bright, et al., © Open Stax is licensed under a Creative Commons Attribution 4.0 International License , unless otherwise noted.

5.4 A Firm’s Micro Environment: Porter’s Five Forces Copyright © 2022 by Lina Manuel is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

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Analyzing the Organization’s Microenvironment

When we say microenvironment (or alternatively, Competitor Environment) we are referring primarily to an organization’s industry, and the upstream and downstream markets related to it. An industry is a group of firms producing products that are close substitutes. In the course of competition, these firms influence one another. Typically, industries include a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns. In part, these strategies are chosen because of the influence of an industry’s characteristics. [1] Upstream markets are the industries that provide the raw material or inputs for the focal industry, while downstream markets are the industries (sometimes consumer segments) that consume the industry outputs. For example, the oil production market is upstream of the oil-refining market (and, conversely, the oil refiners are downstream of the oil producers), which in turn is upstream of the gasoline sales market. Instead of upstream and downstream, the terms wholesale and retail are often used. Accordingly, the industry microenvironment consists of stakeholder groups that a firm has regular dealings with. The way these relationships develop can affect the costs, quality, and overall success of a business.

Porter’s Five-Forces Analysis of Market Structure

You can distill the results of PESTEL and microenvironment analysis to view the competitive structure of an industry using Michael Porter’s five forces, see Figure 3.1 . Here you will find that your understanding of the microenvironment is particularly helpful. Porter’s model attempts to analyze the attractiveness of an industry by considering five forces within a market. According to Porter, the likelihood of firms making profits in a given industry depends on five factors: (1) barriers to entry and new entry threats, (2) buyer and (3) supplier bargaining power, (4) threat from substitutes, and (5) the degree of rivalry of competitors in the industry. [2]

The industry environment has a more direct effect on the firm’s strategic competitiveness and above-average returns than the general environment. The intensity of industry competition and an industry’s profit potential (as measured by the long-run return on invested capital) are a function of these five forces of competition: the threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors.

Porter’s five-forces model of competition expands the arena for competitive analysis. Historically, when studying the competitive environment, firms concentrated on companies with which they competed directly (competitor groups). However, firms must search more broadly to identify current and potential competitors by identifying potential customers as well as the firms serving them. Competing for the same customers and thus being influenced by how customers value location and firm capabilities in their decisions is referred to as the market microstructure. [3]

Example 3.2 Understanding an Industry Using Porter’s Five Forces

Looking at JPMorgan Chase, Porter’s Five Forces Analysis shows that the company’s strongest force is rivalry, as there is a huge variety of banking companies to compete with JPM. Bargaining power of buyers is important too, because of the various competitors the buyers could switch to, and so JPM combats this with special offers that attract consumers. Substitutions are a large factor in the banking industry as well, and like with buyers, consumers have a great level of bargaining power as a whole. New entrants, on the other hand, are a relatively low threat to JPMorgan Chase.

Source: Investopedia, Analyzing Porter’s Five Forces on JPMorgan (JPM) , 2018Fa

Understanding this area is particularly important because, in recent years, industry boundaries have become blurred. For example, in the electrical utilities industry, cogenerators (firms that also produce power) are competing with regional utility companies. Moreover, telecommunications companies now compete with broadcasters, software manufacturers provide personal financial services, airlines sell mutual funds, and automakers sell insurance and provide financing. [4] In addition to focusing on customers rather than specific industry boundaries to define markets, geographic boundaries are also relevant. Research suggests that different geographic markets for the same product can have considerably different competitive conditions. [5]

Example 3.3 Forward or Backward Integration

In August 2017, the e-commerce giant Amazon acquired Whole Foods Market Inc. for $13.7 Billion. This acquisition allowed Amazon to gain 400 physical stores and get access to large data of consumers’ grocery buying habits, patterns, and preferences.

Source: Doctor Vidya Hattangadi, What is a business integration strategy? , 2018Fa

The five-forces model recognizes that suppliers can become a firm’s competitors (by integrating forward), as can buyers (by integrating backward). Several firms have integrated forward in the pharmaceutical industry by acquiring distributors or wholesalers. In addition, firms choosing to enter a new market and those producing products that are adequate substitutes for existing products can become competitors of a company.

Another way to think about industry market structure is that these five sets of stakeholders are competing for profits in the given industry. For instance, if a supplier to an industry is powerful, they can charge higher prices. If the industry can’t pass its higher costs onto their buyers in the form of higher prices, industry members make less profit. For example, if you have a jewelry store, but are dependent on a monopolist like De Beers for diamonds, then De Beers actually is extracting more relative value from your industry (i.e., the retail jewelry business).

Threat of New Entrants

The likelihood of new entry is a function of the extent to which barriers to entry exist. Evidence suggests that companies often find it difficult to identify new competitors. [6] Identifying new entrants is important because they can threaten the market share of existing competitors. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing, additional capacity holds consumers’ costs down, resulting in less revenue and lower returns for competing firms. Often, new entrants have a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions (for example, using an Internet-based distribution channel).

Example 3.4 New Entrant

Amazon’s recent acquisition of PillPack is threatening pharmaceutical market share, potentially altering the landscape of medication home delivery. Amazon serves as a threat due to its power and capacity to provide service. Existing local pharmaceutical companies now competing with home delivery will have to add tools to keep customers satisfied and to maintain trust.

Source: Pharmacy Today, Will recent announcements alter medication home delivery? , Sarah Cushing, 2018Fa

The more difficult it is for other firms to enter a market, the more likely it is that existing firms can make relatively high profits. The likelihood that firms will enter an industry is a function of two factors: barriers to entry and the retaliation expected from current industry participants. Entry barriers make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they are able to enter. As such, high-entry barriers increase the returns for existing firms in the industry. [7]

The threat of new entrants is high when:

• Barriers to entry are low (initial capital costs, costs to scale efficiently.)
• There are no network effects (a good or service is more valuable when more people use it, e.g., the internet was of little value until more people started to use it.)
• Customer switching costs are low.
• Incumbents do not possess brand loyalty, proprietary technology, preferential access to raw materials or distribution channels, favorable geographic location, or cumulative experience.
• There are no restrictive government regulations.
• A low expectation that incumbents in the industry cannot or will not retaliate.

Buyer Bargaining Power

The stronger the power of buyers in an industry, the more likely it is that they will be able to force down prices and reduce the profits of firms that provide the product. Firms seek to maximize the return on their invested capital. Alternatively, buyers (customers of an industry or firm) want to buy products at the lowest possible price—the point at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers bargain for higher-quality, greater levels of service, and lower prices. These outcomes are achieved by encouraging competitive battles among the industry’s firms.

Example 3.5 Buyer Bargaining Power

Tenants and buyer of real estate in Abu Dhabi are experiencing greater bargaining power due to the oversupply of apartments and villas in the city and driving down purchase prices by 9% and rental prices by 12% overall. With  more units coming on the market in 2019, this trend is expected to remain for the foreseeable future. Meanwhile, buyers and tenants are expected to move to bigger and better apartments as property owners seek their investments.

Source: Khaleej Times, Tenants, buyers have more bargaining power in Abu Dhabi , 2019Wi

The bargaining power of buyers is high when:

• Only a few buyers exist and those buyers purchase relatively large quantities relative to the size of any single seller.
• When the industry’s products are commodities or standardized.
• Switching costs are low or non-existent.
• Buyers can reasonably threaten backward integration into the industry.

Supplier Bargaining Power

The stronger the power of suppliers in an industry, the more difficult it is for firms within that sector to make a profit because suppliers can determine the terms and conditions on which business is conducted. Increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within an industry. If a firm is unable to recover cost increases by its suppliers through its pricing structure, its profitability is reduced by its suppliers’ actions.

Example 3.6 Supplier Bargaining Power

Apple plans to move away from its Liquid Crystal Polymer (LCP) antenna technology toward a newer modified polyimide (MPI) for all phones built starting in 2019. The newer material is performs as well as the older one but has a much higher yield rate, making it more effective. The older LCP process was complicated to manufacture, prone to defects, and could be accomplished by a limited number of suppliers. Because there will be five new suppliers of the MPI antennae, Apple has greater bargaining power, will get comparable performance with fewer failures, and expects to pay lower prices.

Source: 9to5Mac, 2019 iPhones to use new combination of antenna technology , Ziqi Cao, 2018Fa

The bargaining power of suppliers is high when:

• The industry of the suppliers is more concentrated than that of the industry to which it sells.
• Suppliers do not rely on the industry as their sole source of revenue.
• Switching costs are high.
• The products offered by the supplier is highly differentiated.
• No readily available substitutes are available.
• The threat of forward integration into the industry by suppliers is reasonable.

Threat of Substitutes

This measures the ease with which buyers can switch to another product that does the same thing, such as using aluminum cans rather than glass or plastic bottles to package a beverage. The ease of switching depends on what costs would be involved (e.g., while it may be easy to sell Coke or Pepsi in bottles or cans, transferring all your data to a new database system and retraining staff could be expensive) and how similar customers perceive the alternatives to be. Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces. For example, as a sugar substitute, NutraSweet places an upper limit on sugar manufacturers’ prices—NutraSweet and sugar perform the same function but with different characteristics.

Example 3.7 Substitution

Boxed is a new online, membership-free wholesale retailer that allows you to buy in bulk from the comfort of your home without any membership fees. They have a curated range of products that allow them to be the low cost leader which makes for direct competition with other wholesalers such as Costco or Sam’s club. As switching costs are minimal to almost non-existent, it is very easy for customers to switch to Boxed as they not only offer the best prices, but also offer free shipping on orders over 49 dollars.

Source: Fox 4 News, On Your Side: ‘Boxed’ Bulk Delivery Service , Ariadna Archibald, 2018Fa

Other product substitutes include fax machines instead of overnight deliveries, plastic containers rather than glass jars, and tea substituted for coffee. Recently, firms have introduced to the market several low-alcohol fruit-flavored drinks that many customers substitute for beer. For example, Smirnoff Ice was introduced with substantial advertising of the type often used for beer. Other firms have introduced lemonade with 5% alcohol (e.g., Doc Otis Hard Lemon) and tea and lemon combinations with alcohol (e.g., BoDean’s Twisted Tea). These products are increasing in popularity, especially among younger people, and, as product substitutes, have the potential to reduce overall sales of beer. [8] In general, differentiating a product along dimensions that customers value (such as price, quality, service after the sale, and location) reduces a substitute’s attractiveness.

The threat of substitute products is high when:

• The substitute offers an attractive price-to-performance trade-off.
• The substitute product’s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product.
• Customers face few, if any, switching costs.

Degree of Rivalry

This measures the degree of competition between existing firms. The higher the degree of rivalry, the more difficult it is for existing firms to generate high profits.

The degree of rivalry is highest when:

• There are numerous competitors or competitors are equally balanced.
• The industry is experiencing slow growth.
• Fixed costs are high in the industry.
• The industry’s products lack differentiation
• Rivals in the industry have high strategic stakes.
• Leaving the industry comes with high exit barriers.

Numerous or Equally Balanced Competitors

Example 3.8 numerous or balanced rivalry.

Coca-Cola and Pepsi have been in the “Cola Wars” for a long time. Although their portfolios are no longer limited to soft drinks, their continuing battle on a full spectrum of growth and earnings measures shows the intensity of rivalry that continues between the two. Pepsi seems to currently lead in consumer demand, showing a 43% higher return over the last five years. And while consumers are shifting their preferences to healthier options, so are these two rivals as they attempt to modify consumer perceptions of their brands. Pepsi acquired Naked, Kevita and Soda Stream. Meanwhile Coca-Cola acquired Honest Tea, Costa Coffee, MOJO Kombucha, and a minority stake in the growing Gatorade competitor Body Armor.

Source: Yahoo Finance, The Cola Wars: Pepsi vs. Coke , 2019Sp

Intense rivalries are common in industries with many companies. With multiple competitors, it is common for a few firms to believe that they can act without eliciting a response. However, evidence suggests that other firms generally are aware of competitors’ actions, often choosing to respond to them. At the other extreme, industries with only a few firms of equivalent size and power also tend to have strong rivalries. The large and often similar-sized resource bases of these firms permit vigorous actions and responses. The Fuji/Kodak and Airbus/Boeing competitive battles exemplify intense rivalries between pairs of relatively equivalent competitors.

Example 3.9 Slow Growing Industry

With the growing concern of vehicle carbon emissions, the advent of electric cars for consumer use has become inevitable. While the need for a change is clear, the market is clearly developing slowly because there isn’t the proper infrastructure for the charging of electric vehicles like the network of gas stations that currently exist. Until companies can differentiate through an increased range and charging options, the industry will continue to develop slowly.

Source: Phys.org, ‘Not right away’: Electric cars still have long road ahead , 2018Fa

Slow Industry Growth

When a market is growing, firms try to use resources effectively to serve an expanding customer base. Growing markets reduce the pressure to take customers from competitors. However, rivalry in non-growth or slow-growth markets becomes more intense as firms battle to increase their market shares by attracting their competitors’ customers.

Typically, battles to protect market shares are fierce. Certainly, this has been the case with Fuji and Kodak. The instability in the market that results from these competitive engagements reduce profitability for firms throughout the industry, as is demonstrated by the commercial aircraft industry. The market for large aircraft is expected to decline or grow only slightly over the next few years. To expand market share, Boeing and Airbus will compete aggressively in terms of the introduction of new products, and product and service differentiation; both firms are likely to win and lose battles; however, as of this writing Boeing is the current leader.

High Fixed Costs or High Storage Costs

Example 3.10 high fixed costs.

Approach Resources, an independent oil and gas company, is an example of a company hindered by high fixed costs in 2018. G&A and interest costs are the main reason these fixed costs are so high, and need to be reduced if the company wants to remain competitive. It is likely that in the future they will use some sort of debt restructuring to try and drive down these costs compared to other companies in their industry.

Source: Seeking Alpha, Approach Resources: Hindered By High Fixed Costs , 2018Fa

When fixed costs account for a large part of total costs, companies try to maximize the use of their productive capacity. Doing so allows the firm to spread costs across a larger volume of output. However, when many firms attempt to maximize their productive capacity, excess capacity is created on an industry-wide basis. To then reduce inventories, individual companies typically cut the price of their product and offer rebates and other special discounts to customers. These practices, however, often intensify competition. The pattern of excess capacity at the industry level followed by intense rivalry at the firm level is observed frequently in industries with high storage costs. Perishable products, for example, lose their value rapidly with the passage of time. As their inventories grow, producers of perishable goods often use pricing strategies to sell products quickly.

Lack of Differentiation or Low Switching Costs

When buyers find a differentiated product that satisfies their needs, they frequently purchase the product faithfully over time. Industries with many companies that have successfully differentiated their products have less rivalry, resulting in lower competition for individual firms. [9] However, when buyers view products as commodities (as products with few differentiated features or capabilities), rivalry intensifies. In these instances, buyers’ purchasing decisions are based primarily on price and, to a lesser degree, service. Film for cameras is an example of a commodity. Thus, the competition between Fuji and Kodak is expected to be strong.

Example 3.11 Commodities

Commodities are grouped into three main categories – agriculture, energy, and metals. The term “agriculture” leads one to think about this category as items such as lumber or fibers that we create clothes out of, but it also pertains to drinks, grains, and animals that are specifically raised for food.  Low product differentiation and low prices are both characteristics of commodities.

Based on this definition, buying a soft drink at grocery store presents two options — to buy a commodity or a branded item. If the customer perceives Pepsi or Coca-Cola as providing a higher quality than the generic store brand (also known as a dealer brand) of “cola”, they will pay a premium for the product. However, if the customer doesn’t perceive a value distinction then the cola is simply a commodity and they will purchase the lowest cost alternative.

Source: The Balance, What Commodities Are and How Its Trading Market Works , 2019Wi

The effect of switching costs is identical to that described for differentiated products. The lower the buyer’s’ switching costs, the easier it is for competitors to attract buyers through pricing and service offerings. High switching costs, however, at least partially insulate the firm from rivals’ efforts to attract customers. Interestingly, the switching costs—such as pilot and mechanic training—are high in aircraft purchases, yet, the rivalry between Boeing and Airbus remains intense because the stakes for both are extremely high.

High Strategic Stakes

Competitive rivalry is likely to be high when it is important for several of the competitors to perform well in the market. For example, although it is diversified and is a market leader in other businesses, Samsung has targeted market leadership in the consumer electronics market. This market is quite important to Sony and other major competitors such as Hitachi, Matsushita, NEC, and Mitsubishi. Thus, we can expect substantial rivalry in this market over the next few years.

Example 3.12 High Stakes Rivalry

After acquiring Uber’s local business in Indonesia, Grab, a top ride-hailing firm based in South East Asia, formed a joint venture with ZhongAn International and insurance company to add insurance and loan financing products for its drivers. This action by Grab is part of their ambition to become the leading South East Asia irval to Go-Jek (an Indonesian ride-hailing firm).

In recent years, these two companies have battled to provide services beyond ride-hailing. For its part, Go-Jek is expanding its business to Vietnam and Thailand compete with Grab. This rivalry has escalated since 2018 as Grab has raised $3 billion of a $5 billion capital goal while Go-Jek is close to raising $2 billion to strengthen their balance sheet.

Source: TechCrunch, Grab moves to Offer Digital Insurance Services in Southeast Asia , 2019Wi

High strategic stakes can also exist in terms of geographic locations. For example, Japanese automobile manufacturers are committed to a significant presence in the U.S. marketplace. A key reason for this is that the United States is the world’s single largest market for auto manufacturers’ products. Because of the stakes involved in this country for Japanese and U.S. manufacturers, rivalry among firms in the U.S. and global automobile industry is highly intense. While close proximity tends to promote greater rivalry, physically proximate competition has potentially positive benefits as well. For example, when competitors are located near one another, it is easier for suppliers to serve them and they can develop economies of scale that lead to lower production costs. Additionally, communications with key industry stakeholders such as suppliers are facilitated and more efficient when they are close to the firm. [10]

High Exit Barriers

Sometimes companies continue competing in an industry even though the returns on their invested capital are low or negative. Firms making this choice likely face high exit barriers, which include economic, strategic, and emotional factors, causing companies to remain in an industry when the profitability of doing so is questionable.

Example 3.13 Exit Barriers to Rivalry

Earn credit, add your own example !

Attractiveness and Profitability

Using Porter’s analysis, firms are likely to generate higher profits (and be considered attractive) if the industry:

• Is difficult to enter
• There is limited rivalry
• Buyers are relatively weak
• Suppliers are relatively weak
• There are few substitutes

Profits are likely to be low (and the industry considered unattractive) if:

• The industry is easy to enter
• There is a high degree of rivalry between firms within the industry
• Buyers are strong
• Suppliers are strong
• It is easy to switch to alternatives

Effective industry analyses are products of careful study and interpretation of data and information from multiple sources. A wealth of industry-specific data is available to be analyzed. Because of globalization, international markets and rivalries must be included in the firm’s analyses. In fact, research shows that in some industries, international variables are more important than domestic ones as determinants of strategic competitiveness. Furthermore, because of the development of global markets, a country’s borders no longer restrict industry structures. In fact, movement into international markets enhances the chances of success for new ventures as well as more established firms. [11]

Following a study of the five forces of competition, the firm can develop the insights required to determine an industry’s attractiveness in terms of its potential to earn adequate or superior returns on its invested capital. In general, the stronger competitive forces are, the lower the profit potential for an industry’s firms. An unattractive industry has low entry barriers, suppliers and buyers with strong bargaining positions, strong competitive threats from product substitutes, and intense rivalry among competitors. These industry characteristics make it very difficult for firms to achieve strategic competitiveness and earn above-average returns. Alternatively, an attractive industry has high entry barriers, suppliers and buyers with little bargaining power, few competitive threats from product substitutes, and relatively moderate rivalry. [12]

• Spanos, Y. E., & Lioukas, S. (2001). An examination into the causal logic of rent generation: Contrasting Porter’s competitive strategy framework and the resource-based perspective. Strategic Management Journal, 22, 907–934. ↵
• Porter, M. E. (1980). Competitive strategy. New York: Free Press. ↵
• Zaheer, S., & Zaheer, A. (2001). Market microstructure in a global b2b network, Strategic Management Journal, 22, 859–873. ↵
• Hitt, M. A., Ricart I Costa, J., & Nixon, R. D. (1999). New managerial mindsets. New York: Wiley. ↵
• Pan, Y., & Chi, P. S. K. (1999). Financial performance and survival of multinational corporations in China. Strategic Management Journal, 20, 359–374; Brooks, G. R. (1995). Defining market boundaries Strategic Management Journal, 16, 535–549. ↵
• Geroski, P. A. (1999). Early warning of new rivals. Sloan Management Review, 40(3), 107–116. ↵
• Robinson, K. C., & McDougall, P. P. (2001). Entry barriers and new venture performance: A comparison of universal and contingency approaches. Strategic Management Journal, 22, 659–685. ↵
• Khermouch, G. (2001, March 5). Grown-up drinks for tender taste buds. Business Week, p. 96. ↵
• Deephouse, D. L. (1999). To be different, or to be the same? It’s a question (and theory) of strategic balance. Strategic Management Journal, 20, 147–166. ↵
• Chung, W., & Kalnins, A. (2001). Agglomeration effects and performance: Test of the Texas lodging industry Strategic Management Journal, 22, 969–988. ↵
• Kuemmerle, W. (2001). Home base and knowledge management in international ventures. Journal of Business Venturing, 17, 99–122; Lorenzoni, G., & Lipparini, A. (1999). The leveraging of interfirm relationships as a distinctive organizational capability: A longitudinal study. Strategic Management Journal, 20, 317–338. ↵

Strategic Management Copyright © 2020 by John Morris is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License , except where otherwise noted.

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Micro-Environmental Analysis Of Apple Inc Essay Sample

Type of paper: Essay

Topic: Business , Market , Customers , Steve Jobs , Products , Apple , Company , Marketing

Published: 03/10/2020

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Apple is an American multinational company formed in 1976 by Steve Jobs and his friends S. Wozniak, and R. Wayne. Apple’s products brought revolution in personal computer and consumer electronic industry. Apple is well-known in world market for its innovative products. Micro-environmental analysis of the Apple will help in understanding direct impact of micro environment factors on the company, its operations and business performance. This paper discusses the impact of micro-environmental factors on the Apple Inc.

A micro-environmental analysis will analyze all internal and micro factors such as company, employees, suppliers, customers, competitors, and publics/ media.

The Company: Apple has achieved new heights of success under the guidance of Steve Jobs. Steve was great a leader with extraordinary management skills. The leadership style of Steve was mix of situational and transformational. Steve was aware how make employees efficient and satisfied. Steve developed a collaborative organizational environment where all employees can share their ideas freely and participate in decision-making process. Collaborative environment of Apple not only empowered employees but also helped organization in bringing innovation to market before its competitors (Badenhorst-Weiss et al.). Presently Apple is growing under the guidance of Tim Cook who is also following the steps of Steve Jobs and taking his legacy forward. Apple is holding strong financial position in the market with annual revenue of around 183 billion US$ (2014) (Apple Press). Net income of the company is around 40 billion US$ for 2014. Recent success of i6 and iOS 8 across the world also positively impacted brand image and cash flow of the company. Apple is always on the top in bringing innovative technology to the consumers, which has proven on various instances. Apple involved in offering large variety of consumer electronics and computers that fulfill different needs of the customers. The offerings of Apple includes: Mac, iPod, iPad, iPhone, iTunes, Apple watch, and Apple store. Innovations drives success of the organization, and all offerings of the Apple are one step ahead of its competitors (Apple). Human Resource/ Employees: Apple is aware that success of any organization cannot be achieved without effective human resource management. Each employee at Apple has clear allocation of responsibilities; they understand their role and deliver the service as per the standards established by the Apple. All managers treat their employees with respect and dignity. Managers coach their team members and provide all type of support, training to drive customer satisfaction and organizational growth. Apple also ensures that it provide ample opportunity of growth and learnings to its employees. Employees at Apple can freely share their problems and issues with their seniors. A healthy working environment at Apple resulted in mutual growth of stakeholders (Fernando). Suppliers: Apple has large supplier base which provides company high bargaining power. The suppliers of the company are located in different parts of the world i.e. China, India, and South Africa. Apple believe in empowering its suppliers by organizing capacity building and training programs. A healthy and close relationship with its suppliers enables company to manage supply chain efficiently and gain competitive advantages. Apple developed strict code of conduct for its suppliers which need to follow by the suppliers. Apple ensure that all suppliers follow code of conduct by conducting various audits through the year and across the locations. Apple ensures that even small components is best in quality (Apple). Customers: Apple delivers what it promise to its customers i.e. good quality, innovative technology, excellent functioning and competitive pricing. According to a study conducted J.D. Power, Apple scores highest when it comes to customer satisfaction with 85 percent delighted customers (GSM Arena). Apple achieved customer satisfaction by efficiently managing all processes starting from procuring equipment, production of goods, retailing of the products and after sales services. Competitors: Apple is operating in very competitive market. Major competitors of Apple are Samsung, Microsoft and Google. In Smartphone market Motorola, HP, HCL and Blackberry also giving competition to the Apple. In developing countries Apple’s products are considered as premium products due to high pricing, however, Samsung has variety of products that are capable to fulfill needs of the customers and suitable on their pockets. Developing countries have wide untapped market and huge potential of growth that is presently not targeted by the Apple. It is important for the Apple to increase its product range and develop products in low price range in order to gain market share. Presently Samsung is holding top position when it comes to market share in Smart phone market. Apple needs to work strategically in order to regain its top position especially when product life cycle is too short and dynamics of market are continuously changing. Publics: media, government, financial bodies, and other general public falls into this factor. Apple is effectively dealing government bodies by adhering with all rules and regulations established by the authorities. Media may have mix opinion towards Apple by criticizing its products. However, customers like Apple and feel proud after owning its products.

Works Cited

"Apple Press." October 2014. Apple. 21 October 2014. Badenhorst-Weiss, H., Brevis, T., and Cant, M. Business Management: A Contemporary Approach. Cape Town: Juta and Company Ltd., 2008. Fernando, A.C. Business Environment. New Delhi: Pearson Education India, 2011. "Supplier Responsibility." 2014. Apple. Online. 21 October 2014. "US customer satisfaction led by Apple, Samsung close second." 25 April 2014 . GSM Arena. 21 October 2014.

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6.4 A Firm’s Micro Environment: Porter’s Five Forces

• What makes up a firm’s external micro environment, and what tools do strategists use to understand it?

A firm’s micro environment is illustrated in the green circle in Exhibit 6 .2 . These entities are all directly connected to the firm in some way, and firms must understand the micro environment in order to successfully compete in an industry. All firms are part of an industry —a group of firms all making similar products or offering similar services, for example automobile manufacturers or airlines. Firms in an industry may or may not compete directly against one another, as we’ll discuss shortly, but they all face similar situations in terms of customer interests, supplier relations, and industry growth or decline.

Harvard strategy professor Michael Porter developed an analysis tool to evaluate a firm’s micro environment. Porter’s Five Forces is a tool used to examine different micro-environmental groups in order to understand the impact each group has on a firm in an industry ( Exhibit 6 .4 ). Each of the forces represents an aspect of competition that affects a firm’s potential to be successful in its industry. It is important to note that this tool is different than Porter’s generic strategy typology that we will discuss later.

Industry Rivalry

Industry rivalry , the first of Porter’s forces, is in the center of the diagram. Note that the arrows in the diagram show two-way relationships between rivalry and all of the other forces. This is because each force can affect how hard firms in an industry must compete against each other to gain customers, establish favorable supplier relationships, and defend themselves against new firms entering the industry.

When using Porter’s model, an analyst will determine if each force has a strong or weak impact on industry firms. In the case of rivalry, the question of strength focuses on how hard firms must fight against industry rivals (competitors) to gain customers and market share. Strong rivalry in an industry reduces the profit potential for all firms because consumers have many firms from which to purchase products or services and can make at least part of their purchasing decisions based on prices. An industry with weak rivalry will have few firms, meaning that there are enough customers for everyone, or will have firms that have each staked out a unique position in the industry, meaning that customers will be more loyal to the firm that best meets their particular needs.

The Threat of New Entrants

In an industry, there are incumbent (existing) firms that compete against each other as rivals. If an industry has a growing market or is very profitable, however, it may attract new entrants . These either are firms that start up in the industry as new companies or are firms from another industry that expand their capabilities or target markets to compete in an industry that is new to them.

Different industries may be easier or harder to enter depending on barriers to entry , factors that prevent new firms from successfully competing in the industry. Common barriers to entry include cost, brand loyalty, and industry growth. For example, the firms in the airline industry rarely face threats from new entrants because it is very expensive to obtain the equipment, airport landing rights, and expertise to start up a new airline.

Brand loyalty can also keep new firms from entering an industry, because customers who are familiar with a strong brand name may be unwilling to try a new, unknown brand. Industry growth can increase or decrease the chances a new entrant will succeed. In an industry with low growth, new customers are scarce, and a firm can only gain market share by attracting customers of other firms. Think of all the ads you see and hear from competing cell phone providers. Cell phone companies are facing lower industry growth and must offer consumers incentives to switch from another provider. On the other hand, high-growth industries have an increasing number of customers, and new firms can successfully appeal to new customers by offering them something existing firms do not offer. It is important to note that barriers to entry are not always external, firms often lobby politicians for regulations that can be a barrier to entry. These types of barriers will be covered in greater depth in more upper level courses.

Threat of Substitutes

In the context of Porter’s model, a substitute is any other product or service that can satisfy the same need for a customer as an industry’s offerings. Be careful not to confuse substitutes with rivals. Rivals offer similar products or services and directly compete with one another. Substitutes are completely different products or services that consumers would be willing to use instead of the product they currently use. For example, the fast food industry offers quickly prepared, convenient, low-cost meals. Customers can go to McDonald’s, Wendy’s, Burger King, or Taco Bell—all of these firms compete against each other for business. However, their customers are really just hungry people. What else could you do if you were hungry? You could go to the grocery store and buy food to prepare at home. McDonald’s does not directly compete against Kroger for customers, because they are in different industries, but McDonald’s does face a threat from grocery stores because they both sell food. How does McDonald’s defend itself from the threat of Kroger as a substitute? By making sure their food is already prepared and convenient to purchase—your burger or salad is ready to eat and available without even getting out of your car.

Supplier Power

Virtually all firms have suppliers who sell parts, materials, labor, or products. Supplier power refers to the balance of power in the relationship between firms and their suppliers in an industry. Suppliers can have the upper hand in a relationship if they offer specialized products or control rare resources. For example, when Sony develops a new PlayStation model, it often works with a single supplier to develop the most advanced processor chip it can for their game console. That means its supplier will be able to command a fairly high price for the processors, an indication that the supplier has power. On the other hand, a firm that needs commodity resources such as oil, wheat, or aluminum in its operations will have many suppliers to choose from and can easily switch suppliers if price or quality is better from a new partner. Commodity suppliers usually have low power.

Buyer Power

The last of Porter’s forces is buyer power , which refers to the balance of power in the relationship between a firm and its customers. If a firm provides a unique good or service, it will have the power to charge its customers premium prices, because those customers have no choice but to buy from the firm if they need that product. In contrast, when customers have many potential sources for a product, firms will need to attract customers by offering better prices or better value for the money if they want to sell their products. One protection firms have against buyer power is switching costs , the penalty consumers face when they choose to use a particular product made by a different company. Switching costs can be financial (the extra price paid to choose a different product) or practical (the time or hassle required to switch to a different product). For example, think about your smartphone. If you have an iPhone now, what would be the penalty for you to switch to a non-Apple smartphone? Would it just be the cost of the new phone? Smartphones are not inexpensive, but even when cell phone service providers offer free phones to new customers, many people still don’t switch. The loss of compatibility with other Apple products, the need to transfer apps and phone settings to another system, and the loss of favorite iPhone features, such as iMessage, are enough to keep many people loyal to their iPhones.

CONCEPT CHECK

• Describe each of Porter’s Five Forces. What information does each provide a manager trying to understand her firm’s micro environment?

Source contents: Principles of Management and Organizational Behavior . Please visit OpenStax for more details: https://openstax.org/subjects/view-all

Introduction to Management and Organizational Behavior Copyright © by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

• Micro Environment

As an organization, understanding the environment in which you function is an extremely important exercise. It could be the difference between success and failure. Let us study in detail the different factors of micro environment that affect an organization.

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The micro environment is the operating environment of the firm. This is because the functioning of the micro environment has a direct and immediate bearing on the company . They are more interlinked with the company than macro environmental factors.

Let us take a look at some of the most important and common elements of the micro environment. These elements are different for different organizations. But the following ones are usually found in almost all companies.

(Source: KeyDifferences)

                                                                          Learn Macro Environment here. 

1] Customers

The main purpose for the existence of most organizations is to satisfy the needs and wants of the customers. The enterprise aims to please the customer and earn a profit in return.

So the ultimate aim is to provide the best products /services to the customer at the best prices. Failure to do so may result in failure of the business .

This is why it has become increasingly important to listen to customers and value their feedback. This is why customer consumer surveys have increasing importance in today’s markets .

2] Competitors

There are no pure monopolies in the world. Every organization, whether big or small, has competition and competitors. So the company has to keep a constant check on their competitors.

The company must ensure that their products have a USP that makes them different and unique in the market. The products offered must also be better and cheaper than those of the competition.

3] Employees

Employees or labor is one of the most important factor of production for a company. Human resources are a significant factor in the success (or failure) of a firm. Hence employing the correct people, best suited to your firm is of vital importance.

And training and development of these employees is also essential. If care is not taken in this matter the organization can never succeed, because employees are the back bone of every organization.

4] Shareholders

Shareholders invest in the company, but they are not merely investors. They own shares of the company, so they are actually owners of the company in a way. This means they get a say in the running of a company.

Shareholders will also demand a return on their investment. So it is the company’s duty to earn profits and pass on this benefits to the shareholders. They have to create wealth for these shareholders.

To keep their interest dividends also have to be paid. So the company must find the right balance between the health of the company and the benefits to the shareholders.

5] Suppliers

Suppliers provide the firm with the materials and factors of production they need to run the business. The relation between the company and the suppliers is a power equation. Both depend on each other for their survival.

So it is necessary for the company to have healthy and amenable relations with their suppliers. This is essential to the smooth running of the organization. For example if the company has a falling out with one raw material supplier it could delay their whole production process by days.

Every company is going to need media to promote their brand and market their products. So it is necessary that the company maintain their relationship and their status quo with the media.

Any negative coverage in the media can lead to huge losses for the company. This is why companies hire PR managers to help them use the media to a positive effect.

Learn the vision and mission statement here in detail. 

Solved Question on Micro Environment

Q: In any market, ____ is king and they are the organizations most important micro economic factor.

Ans: The correct option is A. Customer is the king, and the reason for the existence of the firm is to satisfy the wants and needs of the customers. They are the most important element of their micro environment.

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8.4 A Firm's Micro Environment: Porter's Five Forces

• What makes up a firm’s external micro environment, and what tools do strategists use to understand it?

A firm’s micro environment is illustrated in the green circle in Exhibit 8.4 . These entities are all directly connected to the firm in some way, and firms must understand the micro environment in order to successfully compete in an industry. All firms are part of an industry —a group of firms all making similar products or offering similar services, for example automobile manufacturers or airlines. Firms in an industry may or may not compete directly against one another, as we’ll discuss shortly, but they all face similar situations in terms of customer interests, supplier relations, and industry growth or decline.

Harvard strategy professor Michael Porter developed an analysis tool to evaluate a firm’s micro environment. Porter’s Five Forces is a tool used to examine different micro-environmental groups in order to understand the impact each group has on a firm in an industry ( Exhibit 8.6 ). Each of the forces represents an aspect of competition that affects a firm’s potential to be successful in its industry. It is important to note that this tool is different than Porter’s generic strategy typology that we will discuss later.

Industry Rivalry

Industry rivalry , the first of Porter’s forces, is in the center of the diagram. Note that the arrows in the diagram show two-way relationships between rivalry and all of the other forces. This is because each force can affect how hard firms in an industry must compete against each other to gain customers, establish favorable supplier relationships, and defend themselves against new firms entering the industry.

When using Porter’s model, an analyst will determine if each force has a strong or weak impact on industry firms. In the case of rivalry, the question of strength focuses on how hard firms must fight against industry rivals (competitors) to gain customers and market share. Strong rivalry in an industry reduces the profit potential for all firms because consumers have many firms from which to purchase products or services and can make at least part of their purchasing decisions based on prices. An industry with weak rivalry will have few firms, meaning that there are enough customers for everyone, or will have firms that have each staked out a unique position in the industry, meaning that customers will be more loyal to the firm that best meets their particular needs.

The Threat of New Entrants

In an industry, there are incumbent (existing) firms that compete against each other as rivals. If an industry has a growing market or is very profitable, however, it may attract new entrants . These either are firms that start up in the industry as new companies or are firms from another industry that expand their capabilities or target markets to compete in an industry that is new to them.

Different industries may be easier or harder to enter depending on barriers to entry , factors that prevent new firms from successfully competing in the industry. Common barriers to entry include cost, brand loyalty, and industry growth. For example, the firms in the airline industry rarely face threats from new entrants because it is very expensive to obtain the equipment, airport landing rights, and expertise to start up a new airline.

Brand loyalty can also keep new firms from entering an industry, because customers who are familiar with a strong brand name may be unwilling to try a new, unknown brand. Industry growth can increase or decrease the chances a new entrant will succeed. In an industry with low growth, new customers are scarce, and a firm can only gain market share by attracting customers of other firms. Think of all the ads you see and hear from competing cell phone providers. Cell phone companies are facing lower industry growth and must offer consumers incentives to switch from another provider. On the other hand, high-growth industries have an increasing number of customers, and new firms can successfully appeal to new customers by offering them something existing firms do not offer. It is important to note that barriers to entry are not always external, firms often lobby politicians for regulations that can be a barrier to entry. These types of barriers will be covered in greater depth in more upper level courses.

Threat of Substitutes

In the context of Porter’s model, a substitute is any other product or service that can satisfy the same need for a customer as an industry’s offerings. Be careful not to confuse substitutes with rivals. Rivals offer similar products or services and directly compete with one another. Substitutes are completely different products or services that consumers would be willing to use instead of the product they currently use. For example, the fast food industry offers quickly prepared, convenient, low-cost meals. Customers can go to McDonald’s, Wendy’s, Burger King, or Taco Bell—all of these firms compete against each other for business. However, their customers are really just hungry people. What else could you do if you were hungry? You could go to the grocery store and buy food to prepare at home. McDonald’s does not directly compete against Kroger for customers, because they are in different industries, but McDonald’s does face a threat from grocery stores because they both sell food. How does McDonald’s defend itself from the threat of Kroger as a substitute? By making sure their food is already prepared and convenient to purchase—your burger or salad is ready to eat and available without even getting out of your car.

Supplier Power

Virtually all firms have suppliers who sell parts, materials, labor, or products. Supplier power refers to the balance of power in the relationship between firms and their suppliers in an industry. Suppliers can have the upper hand in a relationship if they offer specialized products or control rare resources. For example, when Sony develops a new PlayStation model, it often works with a single supplier to develop the most advanced processor chip it can for their game console. That means its supplier will be able to command a fairly high price for the processors, an indication that the supplier has power. On the other hand, a firm that needs commodity resources such as oil, wheat, or aluminum in its operations will have many suppliers to choose from and can easily switch suppliers if price or quality is better from a new partner. Commodity suppliers usually have low power.

Buyer Power

The last of Porter’s forces is buyer power , which refers to the balance of power in the relationship between a firm and its customers. If a firm provides a unique good or service, it will have the power to charge its customers premium prices, because those customers have no choice but to buy from the firm if they need that product. In contrast, when customers have many potential sources for a product, firms will need to attract customers by offering better prices or better value for the money if they want to sell their products. One protection firms have against buyer power is switching costs , the penalty consumers face when they choose to use a particular product made by a different company. Switching costs can be financial (the extra price paid to choose a different product) or practical (the time or hassle required to switch to a different product). For example, think about your smartphone. If you have an iPhone now, what would be the penalty for you to switch to a non-Apple smartphone? Would it just be the cost of the new phone? Smartphones are not inexpensive, but even when cell phone service providers offer free phones to new customers, many people still don’t switch. The loss of compatibility with other Apple products, the need to transfer apps and phone settings to another system, and the loss of favorite iPhone features, such as iMessage, are enough to keep many people loyal to their iPhones.

Concept Check

• Describe each of Porter’s Five Forces. What information does each provide a manager trying to understand her firm’s micro environment?

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Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses Report

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Introduction

Organizational background, situational analysis, reference list.

The current report analyses the strategic marketing issues of market entry in developed and developing countries, England and Saudi Arabia, respectively, discussing macro-and micro-environments to propose business implications and entry modes for 7-Eleven. First of all, the organizational background of the 7-Eleven corporation is presented, outlining the company characteristics and its current position in the global market.

After that, the evaluation of the company’s macro-environment is conducted in regard to the market of England and Saudi Arabia, highlighting the major features of each economy. Following this step, 7-Eleven’s micro-environment is also assessed, taking into consideration the brand’s possible competition and demand. Potential implications for the business are also examined in these two sections. Finally, an appropriate entry mode for each country is suggested based on the retrieved information and scholarly opinions of the subject.

The company discussed in this report is 7-Eleven, an international convenience store established in the United States. Currently, 7-Eleven has opened numerous locations throughout the USA and continues to expand its business worldwide, has entered the markets of several developed and developing states ( About Us – 7-Eleven Corporate , no date). The corporation provides its customers with a range of convenience products, from food to electric appliances and clothes, making everyday purchases easier for various populations.

Macro and Microenvironment

Macro-environment analysis for 7-eleven, political atmosphere.

The political component of the PESTEL framework is directly linked to the government’s impact on business operations. This element includes the laws and regulations that allow a country’s authorities to intervene in the economic processes, thus introducing and managing the policies establishing how corporate entities can conduct their activities (Feys, 2015). These factors are crucial to consider prior to entering the country’s market, as there are significant distinctions between the regulations sustained by various developed and developing states.

United Kingdom

As a country with a developed economy, the UK can be a beneficial entry option for various businesses. The taxation system in the UK is considered advantageous, as both UK resident and non-resident firms are required to pay the same tax percentages based on their income and gains (Edrich, 2020). Nevertheless, being a non-resident company, 7-Eleven will be forced to calculate its own corporation tax liability, reporting corporation tax returns on its own.

In addition to choosing the corporate structure of the UK branch and complying with the tax rates, 7-Eleven will be required to amend the approach to labor law. In the UK, the concept of employment-at-will, which is widespread in the US, is non-existent; therefore, employment dismissal and hiring procedures can be more difficult to perform without legal repercussions (Edrich, 2020). Furthermore, the company must follow the regulations that specify the national minimum wage and maximum working hours (Edrich, 2020). These requirements might significantly affect 7-Eleven’s business operations, compelling the company to adapt to the UK employment demands.

Saudi Arabia

The political considerations when entering the Saudi Arabian (SA) market mostly pertain to the laws regulating foreign business activities in this country. Heavily investing in the growth of the country’s infrastructure, the government creates a lucrative entry opportunity for companies that employ the convenience store model (Institute of Export and International Trade, 2019).

However, the law system in SA is drastically different from the Western approaches and must be carefully examined prior to entering the market. For instance, a united civil code or common law system is not present, only with Shari’ah being the most fundamental regulation (Institute of Export and International Trade, 2019). Furthermore, foreign investments and organizations are typically heavily regulated, meaning that 7-Eleven would be forced to be highly attentive to such regulations while entering the market.

In addition to the mentioned complications, several requirements regarding employment and taxation are vital to consider when planning SA market entry. The governmental efforts in SA are significantly directed toward Saudisation, the initiative which ensures that more SA citizens are provided with credible occupations (Institute of Export and International Trade, 2019). Following the quotas is imperative for all organizations operating in the country, and 7-Eleven would be required to enforce this policy during hiring. As for the taxation system, foreign-based companies must pay a 20% income tax and a 5% withholding tax.

Economic Considerations

The economic factor of the PESTEL tool is critical for assessing the economic condition of the external environment. This element is connected to the country’s economic performance rates, namely inflation, gross domestic product growth, and unemployment (Feys, 2015). Based on these characteristics, it is possible to project how productive the organization might be after entering the market and what additional measures will be needed to ensure the required efficiency.

Given that the UK has a developed economy, the conditions for entering the national market are currently quite favorable. The overall economic characteristics are quite positive, with the inflation rate remaining low in the last ten years (United Nations [UN], 2021). After that, the GDP trends also remain rather high, with the country outperforming its segment’s representatives (UN, 2021). Overall, decreased inflation and positive GDP growth are good indicators that large-scale businesses from developed countries can easily enter the market without adjusting considerably to the local economy.

Currently, the SA economy appears to be experiencing significant diversification and growth. There is a distinct focus on reducing the existing reliance on oil and gas, which is a remarkable indicator of the ongoing diversification and the government’s involvement in advancing the country’s economy (Institute of Export and International Trade, 2019). Promoted by the SA government, this process is highly beneficial for foreign companies interested in entering this market, as a more varied structure of production and trade is gradually emerging. In the long term, this event might lead to an increase in the country’s total income and an improvement in the market conditions, which create a positive environment for 7-Eleven’s entry.

Another factor essential to consider from the economic perspective is the country’s growth in the past decade. SA continues to develop its outputs and economic conditions, improving its GDP and occupying a large portion of the Gulf region’s market (UN, 2021). Partially, this achievement is attributed to SA’s population size, which is the biggest in the Gulf region.

Although still considered to have an economy in transition, SA continuously enhances its market’s growth and advances the previously ignored sectors, suggesting that positive economic development is an ongoing process (Institute of Export and International Trade, 2019). These characteristics are remarkably advantageous in terms of market entry; even though SA does not have a developed economy, the current trends propose that the overall environment for establishing the business a highly favorable.

Social Environment

The social factor in the PESTEL model can be especially helpful for enterprise executives. The given population’s attitudes towards purchasing constitute a substantial part of the social atmosphere and should be included in the macro-environment analysis to better understand the individuals’ predispositions (Feys, 2015). Therefore, the social element allows for assessing the social environment of the state where the enterprise is planning to introduce its products.

As such, UK buyers appear to be more drawn to small-scale magazines, which differ drastically from the convenience store model of 7-Eleven. In regard to convenience stores, consumers seem to positively perceive local brands to which they are loyal due to their long-term presence in the country and a unique approach to the UK culture and preferences (Ramanathan et al. , 2017). From this perspective, 7-Eleven will be required to establish the necessary level of loyalty through promotions and buying incentives, building the customers’ trust to overcome the competition from local brands.

The social environment of SA appears to be especially distinct from the Western cultures, given the country’s location and history. Adherence to the nation’s cultural aspects is crucial for retail stores, as it remarkably improves the perceptions of the service’s quality (Rizvi and Sabir, 2018). In addition, physical aspects and personal interaction are highly valuable for SA customers, who rely on these elements when assessing the shop’s reliability (Rizvi and Sabir, 2018). Thus, it will be vital for 7-Eleven to adjust its approach to customer behavior, integrating the buyers’ preferences into the framework used.

Environmental Concerns: United Kingdom

Of particular importance is the environmental factor of the PESTEL approach, which includes a variety of aspects related to the country’s ecology. In the modern age, the preservation of the planet’s nature has become a crucial issue for many governments, meaning that enterprises must comply with the expectations regarding leading a sustainable business (Feys, 2015). Thus, the country’s climate, location, and governmental policies toward environmental protection can drastically impact the organization’s processes.

In the UK, there is a specific focus on fulfilling sustainable business obligations. The state’s officials actively endorse legal initiatives aimed at decreasing the large-scale company’s influence on the environment. As such, all the corporations conducting business in the UK must assess their environmental impact and diminish the risks connected to their organizational activities (Department for Environment, Food & Rural Affairs, 2019).

In this regard, 7-Eleven executives will be expected to demonstrate that the use of water, raw materials, energy, and other ecologic resources will not negatively affect nature (Department for Environment, Food & Rural Affairs, 2019). Legally, failing to comply with these regulations might cause drastic consequences for 7-Eleven, resulting in sustainability lawsuits and decreased chance of successfully establishing a UK branch.

Legal Considerations: Saudi Arabia

Given the major differences between the SA and American law systems, the legal environment of SA might become a challenge for the 7-Eleven executives. The existing laws and regulations are highly distinct and are not unified into one framework, meaning that the understanding of the relevant legislation can become difficult to achieve. Although all rules comply with the Shari’ah, they can become highly diverse based on the subject, SA region, and targeted entities (Institute of Export and International Trade, 2019).

Furthermore, being a Muslim country, SA strictly enforces Islamic law, and all corporations conducting business practices in the country must follow these prescriptions. Contrastingly, the US mostly relies on the Constitution and employs the federal court system that does not incorporate any religious elements. Therefore, considering the American origin of 7-Eleven and the apparent contrast between the legal environment of the USA and SA, it will be critical for 7-Eleven leaders to adapt their practices according to Muslim requirements.

Micro-Analysis

Competition.

The competitive environment is of particular concern for businesses aiming to enter a new market. This component refers to the notion of fighting for the consumers’ predisposition, securing positive attitudes, and higher loyalty towards the company’s brand in contrast with the competitors (Khurram, 2020). The convenience store industry in the UK is a highly developed sector that can become highly competitive for new entrants (Ramanathan et al. , 2017).

Given the positive attitudes to local shops and small-scale businesses, large convenience stores are often perceived as less favorable for everyday purchases (Ramanathan et al. , 2017). Therefore, for 7-Eleven to succeed in the UK market, it will be necessary to battle the competitors’ influence, improving the consumers’ interest in shopping in a novel large convenience store.

The competitive factor in the convenience store industry of SA is highly distinct from the UK’s aspect. As such, this sphere is not rivaled by multiple influential opponents, given that SA remained a secluded country for an extended period of time (Institute of Export and International Trade, 2019). In this regard, the SA market is highly more favorable for entry, allowing the entering organization to establish a prominent position easily. However, it might be strenuous for 7-Eleven to gain the consumers’ approval due to the local competitors’ knowledge of the major customs.

The Threat of New Entrants

Another element that must be considered when entering the UK market is the possibility of other non-resident corporations opening their branches in the country. As a highly developed country, economic affluence and structure are beneficial for development, the UK can be highly attractive for various enterprises that are not yet present in the state. However, such a tendency can prove to be a disadvantage, as the presence of multiple competitors incredibly diminishes the chance of successful entry (Khurram, 2020). However, less internationally popular brands are more likely to suffer from such limitations (Khurram, 2020). In this regard, 7-Eleven has a higher potential in the UK market, as it is well-known around the globe and it already has several branches in other countries.

In comparison with the UK convenience store sector, the SA sphere is less likely to be targeted by other entrants. The differences between Western and SA culture, the distinct environment of the Gulf region, and the focus on Islamic law typically avert other businesses from opening new branches in SA (Institute of Export and International Trade, 2019). Therefore, it is possible that 7-Eleven might not encounter a considerable threat from other international companies aiming for the SA market.

Possible Substitutes

Alternative products and services are also essential characteristics of a micro-environment analysis. Such entities as resellers or substitutes that can replace the given product and provide the customer with a different means of attaining the necessary items can be highly dangerous for a new organization in the local market (Khurram, 2020). While some substitutes might be more affordable, others might adhere to the nation’s culture or particular demands, meaning that the services of the company that just entered the industry might be ignored (Khurram, 2020).

The presence of small businesses that act as an alternative to convenience stores may negatively impact 7-Eleven’s success in the market, hindering the development of the UK branch. In light of this information, 7-Eleven’s executives will be forced to gain the consumers’ interest by distinguishing the enterprise from other entities that have a different approach to selling everyday items.

The dangers of substitutes become especially evident upon the examination of the SA market. Although rather famous, convenience stores and retail shops have alternatives like local bazaars and markets having distinct qualities that cannot be substituted by large-scale supermarkets (Rizvi and Sabir, 2018). In addition, consumers report that large-scale convenience stores often lack the necessary appearance and customer-personnel communication, which decreases the chances of establishing a proper connection to the vendor (Rizvi and Sabir, 2018). As such, 7-Eleven will be compelled to account for such differences.

Supplier Power

Retail stores are highly dependent on high-quality suppliers who offer the necessary resources for conducting business practices. However, suppliers can be understood as entities that provide physical materials and as parties that distribute labor or ready products (Khurram, 2020). The UK possesses a developed economy that is highly favorable for securing different types of physical resources, from energy to construction materials and merchandise for selling (Edrich, 2020). Gaining access to labor is also rather easy given the positive labor force trends, suggesting that 7-Eleven might not encounter substantial difficulties in this area.

To efficiently manage the new branch in SA, 7-Eleven must rely on credible vendors to supply the necessary resources. The overall distribution of energy and physical materials in SA is rather efficient, meaning corporations do not usually experience complications when acquiring necessary resources (Institute of Export and International Trade, 2019). However, given the geographical and cultural differences, 7-Eleven will be forced to account for the contrasts between the materials typically supplied by Western vendors, as particular items might be inaccessible.

Finally, the demand element must be properly examined to ascertain the buyers’ interest in the given product. Being one of the numerous convenience stores in the UK, 7-Eleven remains one of the various corporations that offer similar services. From this perspective, it will be crucial to demonstrate the enterprise’s uniqueness, positively impacting the customers’ perceptions of the brand (Khurram, 2020). Considering that switching to a different vendor is a long process that demands significant effort from the enterprise, 7-Eleven will be required to adjust its entry strategy accordingly.

Given the aforementioned presence of convenience stores’ substitutes in SA, the demand for 7-Eleven’s products might be lowered. Local shops and markets that replace large-scale supermarkets might be the factors that compel Saudi Arabians to decrease the demand for big retail shops (Rizvi and Sabir, 2018). However, given the growing diversification of the economy and the ongoing infrastructure developments, it is possible that the interest in hypermarkets will increase steadily (Institute of Export and International Trade, 2019). Therefore, 7-Eleven might be able to establish a strong presence in SA; nevertheless, it will still be essential to consider that the Saudi Arabian population will be interested in different products compared to Western consumers.

Entry Mode Selection

United kingdom: establishing a subsidiary.

The UK law endorses the creation of subsidiaries or UK establishments for international companies aiming to begin their operations in the country. Subsidiaries are often chosen as the most effective pathway as this structure constitutes an independent legal entity (Edrich, 2020). In comparison to the UK establishment option, which forces the parent company to take full responsibility for any profits and losses, the subsidiary is regarded as an independent body and is thus easier to maintain for an international business (Edrich, 2020). From this perspective, it is recommended that 7-Eleven to establish a subsidiary to enter the UK market, retaining control over the branch but simultaneously ensuring that legal ramifications are not attributed to the parent company.

Saudi Arabia: Creating a Partnership

However, for the SA market, it would be more beneficial to employ the partnering and strategic alliance entry mode, which focuses on the establishment of a business connection between a local enterprise and 7-Eleven. Given that the SA economy and market are highly distinct from those of a developed country, securing the aid of a local organization would allow sharing of necessary costs and reducing the entry risk (Burton, 2016). However, it would be crucial to consider integration problems, ensuring that corporate cultures’ integration problems are addressed.

To conclude, a thorough analysis of the macro-and micro-environment for the 7-Eleven corporation was presented in this report, highlighting the business implications that follow the entry into the markets of the United Kingdom and Saudi Arabia. To properly adapt to the state’s economy and efficiently introduce the company’s products, the 7-Eleven executives should carefully consider the numerous aspects connected to launching a new corporate branch in different market environments.

The features of the UK economy appear to be highly advantageous for entry, although additional considerations are needed when examining competition and demand factors. In contrast, the SA environment is unique, including multiple legal and social aspects to be addressed during entry. In this regard, it is suggested that establishing a subsidiary in the UK is the effective approach, while, in the SA, it is possible to start a partnership with a local company to improve 7-Eleven’s entry’s success.

About Us – 7-Eleven Corporate (no date). 7-Eleven. Web.

Burton, E. (2016) Business and entrepreneurship in Saudi Arabia: opportunities for partnering and investing in emerging businesses . New York: John Wiley & Sons.

Department for Environment, Food & Rural Affairs (2019) Measuring and reporting environmental impacts: guidance for businesses . Web.

Edrich, S. (2020) Doing business in the UK . London: Austin Macauley.

Feys, B. (2015) PESTLE analysis: understand and plan for your business environment . London: 50Minutes.com.

Institute of Export and International Trade (2019) Doing Bussiness in Saudi Arabia . Web.

Khurram, A. (2020) ‘Revisiting Porter Five Forces Model: Influence of non-governmental organizations on competitive rivalry in various economic sectors, Pakistan Social Sciences Review, 4(1), pp. 1–15.

Ramanathan, U. et al. (2017) ‘Impact of customer loyalty and service operations on customer behavior and firm performance: empirical evidence from UK retail sector’, Production Planning & Control [Preprint] . Web.

Rizvi, D. and Sabir, A. (2018) ‘The relationship between customer satisfaction and service quality with special reference to the hypermarkets in Saudi Arabia’, Research in Economics and Management, 3, pp. 160–165.

UN (2021) World economic situation and prospects . Web.

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IvyPanda. (2022, December 22). Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses. https://ivypanda.com/essays/entering-a-new-market-for-7-eleven-macro-and-micro-environment-analyses/

"Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses." IvyPanda , 22 Dec. 2022, ivypanda.com/essays/entering-a-new-market-for-7-eleven-macro-and-micro-environment-analyses/.

IvyPanda . (2022) 'Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses'. 22 December.

IvyPanda . 2022. "Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses." December 22, 2022. https://ivypanda.com/essays/entering-a-new-market-for-7-eleven-macro-and-micro-environment-analyses/.

1. IvyPanda . "Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses." December 22, 2022. https://ivypanda.com/essays/entering-a-new-market-for-7-eleven-macro-and-micro-environment-analyses/.

Bibliography

IvyPanda . "Entering a New Market for 7-Eleven: Macro- and Micro-Environment Analyses." December 22, 2022. https://ivypanda.com/essays/entering-a-new-market-for-7-eleven-macro-and-micro-environment-analyses/.

An Alternative Approach to Protect Micro-Cracked Reinforced Concrete Under a Marine Environment

24 Pages Posted: 15 Jun 2024

Chanachai Thongchom

Thammasat University

Penpichcha Khongpermgoson Sanit-in

affiliation not provided to SSRN

Weerachart Tangchirapat

Chai jaturapitakkul, suban sanit-in.

The effects of micro-crack deterioration in reinforced concrete beams on the corrosion of reinforcing steel bars were investigated in this study. Reinforced concrete beams having dimensions of 150x150x600 mm were investigated when fly ash (FA) was replaced OPC at rates of 0, 15, 30 and 45% by weight of binder, with the water-to-binder ratio of all concrete beams at 0.45. A reinforced concrete beam was cast and reinforced with two round bars (diameter of 12 mm). The reinforced concrete beam was loaded until micro-cracks appeared with opening sizes in the range 0.1-0.25 mm. After that, the beam was soaked in 3% sodium chloride solution and subjected to electrical charging by direct current at 5 voltages for 7 days, while the chloride content was investigated by drilling the concrete beam and titration, with rusting of the reinforcing bar determined to find the weight loss. Furthermore, this research aims to establish prevention guidelines and mitigate the effects of chloride penetration in micro-cracked concrete by enhancing the quality of additive material or fly ash and employing galvanic cathodic protection to guard against steel corrosion. The prevention measures involved the removal of large particle sizes of fly ash, sieving out particles larger than No.30, and grinding to achieve high fineness, ensuring that particles retained on a sieve No.325 were less than 5%. Subsequently, the improved fly ash was utilized as a binder, replacing OPC at a rate of 35% by weight of binder. The test results showed that the use of 15% FA to replace OPC slightly improved the compressive strength of concrete after 28 days to 51.6 MPa for PF-15 concrete, while the control concrete using only OPC as a binder (PC) had a compressive strength of 51.0 MPa. In addition, increasing the replacement of OPC with FA improved the chloride penetration resistance of the concrete, with the detected chloride content being lower than for OPC concrete, along with reducing the weight loss of the reinforcing steel bars in the concrete beams. Additionally, the improvement of fly ash (IPF concrete) can reduce the electric current to less than 20 mA, while control concrete (PC) and concrete using fly ash as a partial cementitious material (PF) exhibited electric currents about 80-100 mA and 40-20 mA, respectively. Another alternative for protecting against steel corrosion is the use of galvanic cathodic protection (GCP) in concrete, which can help reduce the electric current to 10 mA.

Keywords: Chloride resistance, Concrete deterioration, Corrosion protection, Fly ash, Galvanic cathodic protection, Weight loss of steel reinforcement

Suggested Citation: Suggested Citation

Thammasat University ( email )

Bangkok, 10200 Thailand

Penpichcha Khongpermgoson Sanit-in (Contact Author)

Affiliation not provided to ssrn ( email ).

No Address Available

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