JAN 2025 Group-2

Financial Management &

Strategic Management

Strategic Analysis - External Evnvironment

Lecture No.- 1

By- CA Sunil Keswani

of previous lecture
1 Doubt Solving
to be covered
1 Concept & Questions
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Chapter – 2
Strategic Analysis: External Environment

Business Environment
►It consist of all factors which have impact on business operations.
►It can be classified as internal and external environment.
►Internal environment consist of people within the organisation.
►External environment consist micro and macro environment e.g. shareholders,
industry competitive forces, political factors, legal factors etc.

Strategic Analysis
►The strategic analysis
- is a component of business planning that has a methodical approach,
- makes the right resource investments,
- and may assist business in achieving its objective.

►The two important situational considerations are:

(1) industry and competitive conditions, and
(2) an organisation’s own capabilities, resources, internal strengths, weaknesses,
and market position.

►The strategic analysis is a continuous process with two limitations:

►First, it gives a lot of innovative options but doesn't tell which one to pick.
The options can be overlapping, confusing or difficult to implement.

►Second, it can be time consuming at times, hurting overall organisational

functioning.

Issues to consider for Strategic Analysis:

(a)Strategy - result of choices taken over a period of time
evolves over - radically changes to speed up growth
a period of - influenced by experience
time
(b)Balance of - Meeting internal strengths and weaknesses with external opportunities
external and and threats.
internal - No perfect match exist.
factors - Thus, strategic analysis uses workable balance.
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(c)Risk - Identify potential imbalances or risks and assess them consequences.

- External – due to inconsistencies in strategy and environment
- Internal – due to forces withing organisation

Framework of Strategic Analysis

Strategic Analysis

External Analysis Internal Analysis

Strategic strengths, weaknesses,

Opportunities, threats, trends, and
problems, constraints, and uncertainties
Strategic uncertainties

Strategy Identification & Selection

Ø Identify strategic alternatives
Ø Select strategy
Ø Implement the operating plan
Ø Review strategies

Strategy And Business Environment

►Business keeps a close and continuous interaction with environment which
helps in following ways:
Determine Find new needs and wants of the consumers, changes in laws, changes
opportunities in social behaviours, and tells what new products the competitors are
& threats bringing in the market to attract consumers.

Give The business is aware and understands the changes happening around,
direction for it can plan and strategies to have successful business.
growth
Continuous The managers are motivated to continuously update their knowledge,
Learning understanding and skills to meet the predicted changes in the realm
of business.
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Image Environmental understanding helps the business organizations to

Building improve their image by showing their sensitivity to the environment
in which they operate. Understanding the needs of the environment
help to showcase that the business is aware and responsive to the
needs. It creates a positive image and helps it to prosper and win over
the competitors.

Meeting It helps the businesses to analyse the competitors’ strategies and

Competition formulate their own strategies accordingly. The idea is to flourish
and beat competition for its products and services.

►Strategic analysis covering internal and external environment is highly relevant

to achieve competitive advantage, as well as ensure high performance for survival
and growth.
Strategic Analysis

Micro Macro
- Related to small area or immediate - Portion of the outside the world
periphery of organisation
- Can be controlled by organisation - Can't be controlled by organisation
- Have direct impact on organisation - Have indirect impact on organisation
- narrow in scope - Broad in scope

›»Elements of Macro Environment

Demographic »Means characteristics of population.

Environment
»such as race, age, income, education, possession of assets, house
ownership, job position, region, and the degree of education.
»Data about these are of importance to both businesses and economists.
Particularly, they need to address following issues:
o What demographic trends will affect the market size of the
industry?
o What demographic trends represent opportunities or threats?
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Socio-Cultural »It represents a complex group of factors such as social traditions,

Environment values and beliefs, level and standards of literacy, the ethical standards
and state of society, the extent of social stratification, conflict,
cohesiveness and so forth.

»It differs from demographics in the sense that it is not the

characteristics of the population, but it is the behaviour and the belief
system of that population.

»Core belief of society tends to be persistent and difficult to change.

»Thus, businesses have to adjust to social norms and beliefs to operate
successfully.

Economic »It refers to the overall economic situation including conditions at the
Environment regional, national and global levels.

»Purchasing power depends on current income, prices, savings, circulation

of money, debt availability.

»It includes factors like GDP, per capital income, market for goods and
services, interest rates, inflation etc.

»High interest rate are detrimental for the business with debt.

Political-Legal »It includes factors like general level of policy development, degree of
Environment politicization, economic issues, law and order, political stability etc.

»Business is highly guided and controlled by government policies and thus

needs to consider changes in regulatory framework.

»Businesses prefer to operate in a country where there is a sound legal

system.

Technological »Technology has changed the way people communicate and do things.
Environment
»Technology has also changed the ways of how businesses operate now.
»Technology and business are linked and are interdependent on one
another.

»Technology act as both opportunity and threat.

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»Business can effectively adopts technological innovations to their

strategic advantage.

PESTLE- A tool to Analyse Macro Environment

►It is a way of scanning the macro environment factors that have influenced or
are likely to affect the organisation.
►Earlier it was PEST but now legal and environment factors are included.
►It encourages management to be proactive and structured thinking in decision
making.
►'PESTLE analysis is an increasingly used and recognized analytical tool, and it is
an acronym for:

►The Key Factors

Political Political factors are how and to what extent the government
factors intervenes in the economy and the activities of business firms.
Political factors may also influence goods and services which the
government wants to provide or be provided and those that the
government does not want to be provided.
Economic Economic factors have major impacts on how businesses operate and
factors take decisions.
Example: interest rates affect a firm's cost of capital and therefore
to what extent a business grows and expands.
Exchange rates affect the costs of exporting goods and the supply
and price of imported goods in an economy.
Social factors Social factors affect the demand for a company's products and how
that company operates.
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Technological Technological factors can determine barriers to entry, minimum

factors efficient production level and influence outsourcing decisions.
Furthermore, technological shifts can affect costs, quality, and lead
to innovation.
Legal factors Legal factors affect how a company operates, its costs, and the
demand for its products, ease of business.
Environmental Environmental factors affect industries such as tourism, farming, and
factors insurance. Growing awareness to climate change is affecting how
companies operate and the products they offer--it is both creating
new markets and diminishing or destroying existing ones.

Internationalization of Business
►Enables a business to enter new markets in search of greater earnings and less
expensive resources.
►Additionally, expanding internationally enable a business to achieve greater
economies of scale and extend the lifespan of its products.

►A business can approach internationalisation systemically with the aid of

international strategy planning.

►Characteristics of a global business

To be specific, a global business has three characteristics:
ü It is a conglomerate of multiple units (located in different parts of the
globe) but all linked by common ownership.
ü Multiple units draw on a common pool of resources, such as money, credit,
information, patents, trade names and control systems.
ü The units respond to some common strategy. Besides, its managers and
shareholders are also based in different nations.

Developing internationally
►The steps in international strategic planning are as follows:
ü Evaluate global opportunities and threats and rate them with the internal
capabilities.
ü Describe the scope of the firm's global commercial operations.
ü Create the firm's global business objectives.
ü Develop distinct corporate strategies for the global business and whole
organisation.
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Why do businesses go global?

ü The first and foremost reason is the need to grow.
ü There is rapid shrinking of time and distance across the globe.
ü It is being realised that the domestic markets are no longer adequate. The
competition present domestically may not exist in some of the international
markets.
ü There can be varied other reasons such as need for reliable or cheaper
source of raw-materials, cheap labour, etc.
ü Companies often set up overseas plants to reduce high transportation
costs. It may be cheaper to produce near the market to reduce the time
and costs involved in transportation.
ü The trade tariffs and custom barriers are getting lowered, resulting in
increased flow of business.
ü To form strategic alliances to leverage their respective comparative and
competitive advantages.

International Environment
►Assessments of the international environment can be done at three levels:
multinational, regional, and country.
Multinational - Involves identifying, anticipating, and monitoring significant
environmental components of the global environment on a large scale.
analysis - Analyse macro environment, Govt. intervention etc.
- These characteristics are evaluated based on their present and
expected future impact.

Regional - It is a more in-depth evaluation of the critical factors in a specific

environmental geographical area.
analysis - The emphasis would be on discovering market opportunities for a
goods, services, or innovations in the chosen location.

Country - It has to take a deeper look at the important environmental factors.

environmental - The analysis must be customised for each of the countries to develop
analysis effective market entrance strategies.