Introduction
Business entities operate within a given environment; the managers should be aware of the situation so as to come up with relevant strategic approaches. Besides, business entities are required to make a decision on the appropriate strategies to enhance their competitiveness. The knowledge about the internal and external factors affecting or likely to affect the performance of the entity can best be acquired through the application of models. In essence, the most prominent models used in the environmental analysis include the PESTE, SWOT, Porter’s Five, and Four corner’s analysis. Therefore, the rationale of this assessment is to provide a critical evaluation of the identified models as well as discuss what makes a credible source in academic work.
External Analysis Models
PESTE Model
PESTE as a model is used in evaluating the political, economic, social, technological, and environmental factors. The political factors highlight the aspects such as the government regulation to market, the tax policies, trade restrictions, the governing law and the political stability (Gupta 35). In any investment endeavor, a business manager should confirm that the government is supportive, protects the market players, and has put in place the favorable policies with limited restriction. In a politically stable environment, a business can strive due to the reduced threat of forced takeover and the protection of the staff and other business resources from civil unrest and theft. Therefore, the model is critical for a business intending to exploit the market in regions and countries whose political dynamics and situation may differ from those in the currently exploited market (Nikolaou 43). Countries characterized by civil wars, coups, crises during power transition, and high level of political impunity are less considered when selecting the markets to undertake an investment.
The economic environment encompasses those factors affecting the cost of capital and return on investment of business. The primary factors considered include the interest rate, economic growth, and inflation (Mohammad, Abdullah, and Shamsher 1448). Additionally, these factors influence the purchasing power of the target customers in the market. Specifically, the knowledge in this context can assist in determining whether a business can make preferred profits by serving the market.
The social aspect puts into consideration the factors influencing the purchasing behavior and pattern as well as the target population size. In fact, the marketer role is to find out whether the target market has the population to support the target sales volume and revenue level (Gupta 41). Additionally, the implication of the cultural and religious beliefs to the consumption of the product or service offered should be considered. Some cultural practices may hinder the purchase and consumption of the product; hence, no need for investing in such a market.
Technological factors entail the changes required in the operations affecting the operations and processes through the initiatives such as automation (Madadipouya 23). The changes in technology bring the new ways of doing businesses and can lead to the closure of the market players whose approaches and machinery are not updated towards the market demand. The factors can also be a barrier to entry as the potential market players who have inadequate technological resources may not venture into a business.
The environment in which a company operates should be favorable regarding the geographic location, climate, natural resources, as well as waste disposal regulation. As such, the location of the business should be safe, and near or highly connected to the market, suppliers, and other stakeholders. The climate should be appropriate for the production, distribution, and marketing to take place. For instance, a heavy cloth seller would prefer wet and cold regions to sell its products to the customers. Therefore, caring for the environment is a considerably important aspect as it assures a healthy and habitable environment. Furthermore, in a market where waste disposal is not well managed, then an investor will have significantly lower consideration.
PESTE analysis can be used in any of the business industry or sectors because the approach assists in enhancing the knowledge of the external environment beyond an organization and the industry. Therefore, it is highly recommended for a business investing in the foreign countries with each of the markets considered separately. However, the model has two weaknesses in its operations. First, the model does not consider the nature of the business being analyzed and the industry concerned. The factors considered can be considerably attractive, but a market fails to succeed in the market due to internal weakness and industrials competition. Secondly, the model does not provide strategic suggestions to assist marketers to perform better in the market. Finally, the model only assists in enhancing knowledge about the target market.
SWOT Analysis
The model is the acronym of strength, weaknesses, opportunities, and weaknesses relating to a given company. SWOT analysis is also used in analyzing the internal environment regarding the strength and weaknesses as well as the external factors including the opportunities and threats. In essence, the external factors are independent of the organization, but are considered important towards the survival of the business. The opportunities are the favorable conditions which can be profitable to the organization if properly leveraged. On the other hand, the threats are likely to impede the realization of the corporate desire. Therefore, as rational marketer strives to optimize the opportunities, he/she should also strive to identify and reduce the threats.
For effective identification of the opportunities and threats, one can concentrate on four areas. The first area is the customers’ analysis in which segments, motivations, and purchasing patterns are analyzed. The knowledge about the factors influencing the target customers to buy or not buy the products can assist a marketer in applying appropriate strategies. Secondly, competitive analysis is applied to assist in the identification of the opportunities in enhancing the competitiveness of business. For instance, one can identify the threats in the market through the knowledge of the plans of the key competitors. Besides, one can pinpoint the market players with whom to form strategic groups with and achieve a better competitive edge. Thirdly, the market analysis gives the knowledge about the opportunities such as market growth and distribution systems (Clardy 102). Moreover, market analysis assists in the identification of threats such as entry barriers. Lastly, the environmental exploration can assist in the determination of threats and opportunities arising from the technological, governmental, and the economic trends in the current or target market.
SWOT is considered as a strong strategic model because it puts into consideration both the environmental and external factors affecting the performance of a company. It can be used in enhancing one’s understanding of the business; hence, assisting in the capitalization of the strengths, the exploitation of opportunities, as well as reducing or eliminating of weakness (Afonina 27). The tool can also be applied in the development of business goals and determination and realization of strategies. Nevertheless, it is not a perfect approach because of the underlying weakness as stated below. The first limitation is that it does not provide solutions and alternative approaches upon which the goals can be realized. Secondly, the model can assist in the identification of threats and opportunities, but not all of them are relatively important. Therefore, SWOT analysis can mislead the management in decision making; hence, reduce business competitiveness if caution is not taken.
Four Corner’s Analysis
The four corner’s analysis is used in analyzing competitors of the company and assist in generating insights about the future (Isoherranen 30). The tool is based on the fact that competitors would always try to apply outstanding strategies that reduce the market share of the other players while expanding their base. The model assists in the realization of these expectations in three ways. First, it is used in the development of a profile of the potential strategic changes the key competitors are likely to make, and how their success can affect the company concerned. Secondly, the tool can be used to determine the possible response from each of the competitors amid the realization of the strategy by other players. In other words, it would be important to note how stiff the competition in the market is. Thirdly, it would be imperative to determine how each competitor can react to the shifts in the industry and the environment. Consequently, the specific company can easily determine whether it can cope with strategic actions of the competing entities.
The model is divided into the motivation and actions with each having two components. Under the motivation, there are the drivers and management assumptions. The drivers, including the financial goals, corporate culture, organizational structure, external constraints can assist in the determination of possible action by the competitors which is done in consideration with their tactical and strategic goals and the possible way of reaching them (Isoherranen 31). For instance, if a competitor has a strong financial strength and the external constraint is not immense, then it can easily respond to external threats. Management’s assumptions include the perception and assumptions by the market player about itself and others in the industry. The assumptions comprise the perception on the strength and weakness, cultural traits, and the forces in the industry. In fact, a company that believes in its strengths, the knowledge about the weakness, and understands the industrial forces is likely to respond to market dynamics appropriately. Therefore, a company using four corner’s analysis can enhance its capability and readiness to avoid being overtaken by events as competitors overcome the shocks of the marketing environment.
A marketer would also be interested in understanding the strategy applied by its competitor. Upon the identification of the tactic, the firm determines whether the scheme brings success or failure. Additionally, the marketers evaluate the likelihood and capability of the competitors in adopting the new strategy (Isoherranen 32). The entity using the tool should beware or discover how the competitor under investigation creates value, the place where the business is choosing to invest, and the networks and relationships developed.
Furthermore, the capabilities refer to the strengths and weaknesses exhibited by the competitor under investigation. A strong competitor is likely to respond to external threats. In fact, the financial strength, marketing skills, reliable distribution channels, and leadership qualities are some of the key indicators of strong competitors (Isoherranen 30). Therefore, a marketer should compare capability indicators to those of the relevant competitors and determines the areas to rectify and match the competition.
The model is considerably strong because it advocates for a deeper analysis of the competitors. As such, the approach gives the marketer interested in the analysis the opportunity to understand the key strategies and approaches used by the competitors in succeeding in the industry (Chi and Sun 408). Besides, it assists the firm in preparing for a possible change in tactic by the competitors. Nevertheless, the model may not be reliable for a marketer in an industry with a large number of particular competitors. In essence, it would cost a lot of resources and time to undertake such investigations. However, it is important to note that getting some of the business secrets would be hard because to access because they are highly guarded.
As it is palpable from the discussion, it is clear that the models are immensely important for business entities. However, the models are different regarding approaches and elements put into consideration. Therefore, each model can be used in different situations to serve different needs. For instance, the SWOT analysis can be used by a business entity interested in understanding its internal capabilities and limitations as well as opportunities and weaknesses (Clardy 101). The PESTEL analysis would be best applied by a firm interested in investing in a foreign market with different political, economic, social, and environmental factors. The Four Corner’s Analysis can be used by a firm in a stiff competition environment to measure its relative competitive capability.
The Use of Porter’s Five Forces in Internal Analysis and Strategy
Porter’s Five Forces is a management model used in analyzing the industry in which an investor is operating or intended to exploit. The model is used in determining the competition existing in the market and the potential implication to the profitability and attractiveness. An attractive competitive environment is a key ingredient towards the realization of the corporate objectives. Therefore, marketers are required to consider the factors affecting their capability to excel, including the threat of new entrants, substitution, rivalry, and the powers of the suppliers and buyers (Kim-Keung 6469). The components in this regard are micro-environment, which influences how a business entity serves its market. However, the model can be used in assessing the internal environment and modifying the strategies to enhance performance and profitability.
The bargaining power of the buyers is immensely critical to an organization irrespective of the industry in which it operates. Indeed, the clients are the key reasons or target because they are the consumers of the product or service offered. Therefore, they contribute to the revenue and reported profits. The bargaining power is acquired when there are many substitutes in the market, making it easy for the buyers to shift from one company to the other. The shift by the customers would have a negative impact on the revenue and profitability. In fact, to reduce the gap of the bargaining power, a company should look at the internal factors likely to assist in attracting and retaining customers. First, customer satisfaction should be enhanced through quality service and fair prices. A manager should determine how effective the contact staff serves the customers. Accordingly, friendly customer services will encourage returning buyers and make purchases in the future and or inform others of the value received from the seller (Rachapila and Jansirisak 176). Secondly, if a company is reliant on one or a few buyers, then the firm should come up with a strategy to retain them or increase the customer base. For example, a strong negotiating team can be set to assist the company in signing long-term contracts with the buyers to secure the sales and market share. Lastly, a marketer should think of differentiating its products such that the buyers would feel a reason to choose them from among the competitors. The strategy would make the products and services unique and attractive to the target market.
It is worth noting that the suppliers play a vital role in influencing the effectiveness and profitability of a company. The vendors provide a marketer with the products for sale and materials for the manufacturing entities. Therefore, the bargaining power of the suppliers is critical due to its implications on the cost and quality of products offered (Porter 27). The bargaining powers of the suppliers can arise from two fundamental factors. First, the aspect is enhanced in a situation where there are few vendors compared to the businesses served. Therefore, the recipients of the supplies become the price taker. Secondly, the vendors enjoy a significant level of bargaining power when it is possible to shift from one buyer to the other at minimum cost. In an industry where the suppliers dictate on the price, quality, and quantity, the buyers/market players are at risk of having their operations affected because supply is low, while their profitability is being affected due to likely high prices charged.
The knowledge about the power of suppliers can be applied in the internal analysis and strategic development of a company. A company in this regard should have a systematic mechanism to reduce the implication of the powers. It would be important to determine whether the company has internal mechanisms to attract and retain suppliers despite the presence of alternative buyers in the market (Dulcic, Gnjidie, and Alfirevic 1082). For instance, the company should have a close working relationship with the suppliers, a situation which can be realized through the timely payment for the supplies received from the vendors. Besides, a company can seek to establish a strategic partnership with the key suppliers in a vertical integration approach. Therefore, the arrangement would imply that the suppliers would give the partner the priority in supplying the commodities concerned at the agreed or fairer prices. Lastly, a company can also think of outsourcing the suppliers from vendors across the world; this is in the case of those relying on the local suppliers. Bringing on board the extra suppliers would consequently reduce the bargaining power of the suppliers.
To start with, the threat of new entrants is a market force brought by the entry or the attempt of new competitors to join the marketplace. The threat is high in a market where the interested players find it easier to enter and stabilize in the market. The presence of barriers to entry plays a role in reducing the threat because they discourage the entry and impede the success (Dalken 2). In essence, the force is critical because it leads to the depletion of the business’s market share. The new firms can bring in innovative strategies which will change the dynamics in the industry.
Consequently, the knowledge about the threat of new firms can be largely applied in the internal analysis and strategic redefinition. Profitable industry in the absence of barriers such as high cost, inadequate inputs, and the presence of large-scale players and dominant brand, is characterized by a significant risk of facing the threat. Such a company should look at its internal strengths and opportunities to reduce the threat. For instance, the management should ensure that its operations are always undertaken using the latest specialized technology to keep off the threat of innovation by the new entrants. The requirement can be realized in three folds. First, the firm should develop a strong financial capability to assist in boosting its ability to face the dynamics brought in by the new players. Secondly, the research and development teams should be highly alert and committed to identifying trends and advise the executives on the best course of action at any given time (Mahmood, Mahdi, and Bayat, 161). Lastly, a culture of accepting change should be highly upheld to speed up the shifting from one strategy to another. Eventually, a company upholding these values stands a chance of overcoming the threats arising from the new firms interested in taking over a portion of the market share.
The threat of substitute arises when there are other products satisfying the similar needs of the customers. The presence of such products is of a fundamental concern because it lowers the potential profit for the players. In the presence of the alternative products, a firm has a lower opportunity to set preferred prices as the buyers would shift to the sellers with attractive rates. Upon analyzing the threat, a company can look at the internal strategies and approaches and modify them to face off or reduce the threat (Chege and Orwa 373). For instance, the company can come up with internal mechanisms to differentiate its products against the substitutes. Elements such as enhanced quality and attractive packaging can assist in the differentiation. Furthermore, brand loyalty strategies such as discounts and loyalty points and reward can be used to keep the existing customers intact while striving to attract more clients.
In a competitive market, there exist players whose desire is to maximize their share of revenue and profits earned. Such an industry is said to have a competitive rivalry upon which the prices and strategy applied by the players aim at overcoming the threat of the rivalry (Elisante 7). The customers have the option of moving to the alternative providers. Therefore, a company in such a market should strive to make its offering attractive to the consumers. Internal strategies that are relevant to improving the quality of services and products offered, reduction of cost, and retention of customers are enormously important.
In the final analysis, it is clear the Porter’s Five Forces assist in the investigation of the macro-factors within an industry. However, the model can be used by business managers to analyze the internal environment to determine whether it matches with the expectations in the industry. The tool can be used by both an existing organization and one interested to operate in the industry. Nevertheless, the model is ideal for market players in a competitive environment because it assists them in enhancing their internal capability to survive in the marketplace. A firm operating in a perfect competition and monopolistic competition structures are considerably encouraged to use Porter’s Five Forces model. Such marketers face stiff competition regarding inputs and market share. Contrarily, a monopoly company dominates the industry in the market; hence, has the powers to control the suppliers and dictate the prices charged to customers. The model may not have an alternative because of its effectiveness in analyzing the nature of the industry in which specific forces affecting the attractiveness and profitability are incorporated. Nevertheless, the model can only be complemented by others to strengthen the strategic applications.
Credibility of a Source
The market, social, and academic research are important in the creation of new knowledge applied in academia. The key objective of a study or investigation is to gather credible and reliable data and information for decision-making. The quality of the information collected fundamentally depends on the credibility of the source (Metzger and Flanagin 212). Therefore, it is imperative to identify the key factors to consider while selecting and using the data and information from a source. As a marketer, accurate and timely information for decision making is critical in avoiding strategic mistakes in a firm.
The first factor determining the credibility of a source concerns the author. An author puts down information in either in the digital or print platform for the readers to view and apply where possible. A source authored by a known and respected person in the particular field is considered credible and acceptable. The second fact refers to the publication time. The date is of fundamental concern. For instance, older sources are likely to contain outdated information which is not relevant to the current situation. The other imperative factor is the purpose of the source (Metzger and Flanagin 216). A source with clear objectives and unbiased information is considered reliable. For instance, if the information in a particular source was authored to alter and persuade other people’s views, then the reference is likely to be subjective; hence, not preferred for either academic, social, or marketing decision-making. Besides, one should seek to establish whether a source has provided enough proof of the ideas and statements presented. A source that makes claims and fails to support the facts should be avoided based on the lack of evidence.
In another perspective, one can consider the category of the source to determine its credibility. In this case, primary sources are the documents, speeches, or evidence compiled during the time of the study. Sources such as autobiographies, diaries, and letters among others are primary sources. Such sources are preferred because they offer the current state of the topic at the time of the study. Secondary sources present data and information from the interpretation and analysis of the primary sources. As such, textbooks, databases, and literary reviews are secondary sources. In essence, primary sources are considerably more credible compared to the secondary sources.
In conclusion, when doing research one makes use of information gathered from various sources, which should be cited correctly for two reasons. The first reason is to recognize and acknowledge the source of the information. In fact, this is an ethical requirement aimed at avoiding plagiarism and acknowledging the efforts made by the author or the source of the information. The second reason is to enhance the credibility of the information presented. In essence, with the proper referencing, a reader can verify the information by reading through the cited sources.
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