Understanding The External And Internal Environment Commerce Essay

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External environment has effect on companies' performance. Companies must develop the skills required on to identify opportunities and threats existing in external environment. It is challenging and complex. There are three major parts in external environment: The general environment has six segments: demographic, economic, political/legal, sociocultural, technological, and global.

In terms of economic segment, according to Hoskisson, the economic environment refers to the nature and direction of the economy in which a firm competes or may compete ( Hoskisson, 2005) There are five aspects could be affected by Economic factor, which are income, inflation, recession, interest rate, exchange rate, moreover, there are also four major elements that affect business environment. The elements are economic growth, the business cycle, employment and unemployment. However, economic factors are the main elements that affect financial matters of a business like interest rates, tax and stock markets.

While the economy is growing, it could be a critical effect for company's success, but it not the only reason for company to succeed. The marketing department of a company is doing market research, market analysis, market strategy, and sales. It should focus on the economic situation whether the demand, prices and sales are going to be affected or not in current and future. Analyzing economic plays a very important role in determining actions a firm should take. So growth economy is good for companies' success.  In the time of economic growth when demand and sales increase, unemployment falls, and production goes up. Companies would consider how to accommodate these changes and adjust production and sales strategy as well as prices accordingly. For example, if people's income increase, customer are willing to buy products. The total demand from customers rises. Then the companies will increase its production .This will lead an increase number of the sales of companies. Companies earn more profit. But on the other side, during the economic growing time, because of the increase of people's income, the unemployment decrease and firms are in need of more workers. Trying to find employees become more difficult. Companies should provide develop and foster programs aimed at increasing employee satisfaction retain its workers. Then companies have to make additional efforts in recruitment in order to get labor. The taxation can affect the business because companies have to pay tax to the government on the energy they are using or have to pay some profit that they make to the government as tax. Interest rates are charged on every loan that a business takes from the bank. This can affect a business because if they keep on borrowing the loan they would have to pay extra money back to the bank this can affect a business in making profit. So the growth economic has double influence for success of business.

When economic growth is becoming slow or inflation, the demand and sales are falling. Company will try to cut production and selling costs. When unemployment rate is rising, companies must deal with issues associated with lying off firm's employees. The human resource department of companies should take necessary actions to make this process less painful and less problematic as possible for both the company and its employees. In difficult times, for examples, GFC, wars, terrorism and government instability are the main elements in influencing on business. Business may have more threats if there is a war. It is a warming sign if companies receive threat realized. It could make companies to be unable to pay full salaries, which means employees would default on mortgage and debit payments, triggering a meltdown in the lending and retail sectors and ripples out into wider economic disruption. Terrorism affects can be far reaching into commerce and trade, reaching businesses like communication systems, the Internet, medical systems like hospitals, as well as trade and transportation.It does not seem entirely farfetched to imagine that in some instances, barriers meant to safeguard populations from terrorism would actually amplify the risk: poor countries that might have to slow exports because of the cost of security measures are at risk, because of the effects of poverty, of political destabilization and rad.The party in government has a large say in what happens in the economy. If they put up taxes, then the disposable incomes of people tends to go down. With a reduction in income, people tend to be more cautious about how they spend their money.

Industries are populated with different strategic groups and industry environment has direct effect on the firm's strategic actions. Its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes and the intensity of rivalry among competitors. This is Porter's five forces of competition model. In total the interactions among these five forces determine an industry where an industry's profit potential. The greater a firm's capacity to favorably influence its industry environment, the greater is the likelihood that the firm will earn above-average returns.

The last part of the external environment is competitor environment. Competitor analysis focuses on each company against which a firm directly competes. Crucial to an effective competitor analysis is gathering data and information that can help the firm understand its competitor's intentions and the strategic implications resulting from them. It informs the firm about the future objectives, current strategies , assumptions, and capabilities of the companies with whom it compete directly.

Internal environment

The final step of the Environmental Analysis is internal environment. It consists of identifying resources and capabilities (in the form of the value chain), finding competencies, and determining what competitive advantages (hopefully sustainable) the organization has.

The internal environmental assessment, along with the external evaluation (macro and micro environment) already completed will provide all the information needed for the final SWOT Analysis.Resources, capabilities, and competencies should be evaluated with respect to goals, strategy, and the vision statement of the organization.


Resources can simply divide into two parts, tangible and intangible. For example:

tangible resources: financial, organizational, physical, and technological resources; intangible resources: human, innovation, and reputational resources.


Capabilities are the firm's capacity to deploy resources that have been purposely integrated to achieve a desired end state. There is a method to evaluate the firm's capabilities. (figure is below)INBOUND LOGISTICS

Inbound logistics covers everything that has to do with the obtaining, purchasing, storing, distributing (internally), and managing raw inputs, components, materials, and services.


Operations consist of all the processes, assets, and costs of turning raw materials into a final product or service.

Facilities (and maintenance), workers, designers, quality assurance, environmental protection, equipment, and assembly processes would be included in the evaluation of Operations


Outbound logistics encompasses all of the resources, capabilities, and processes required to distribute the final product or service.

Examples of outbound logistic items are warehousing, packaging, shipping, delivery vehicles (and maintenance), order picking, finished goods inventory control, distributor and customer supply chain management (CRM - customer relationship management).


Sales and Marketing is considered everything associated with marketing the product or service.

The sales force, personal selling, advertising, promotion, market research, web site, and dealer or distributor support are a few examples of Sales and Marketing.


Service is associated with providing assistance to the customer.

Some Service examples are installation, warranty work, maintenance, complaints, questions, repair, and technical assistance.


Competencies are accomplished by evaluating the organization's resources and capabilities and benchmarking.

Benchmarking may be done on several levels: industry, primary competition, and prior performance. Although the book focuses primarily on cost, benchmarking may also be accessed through efficiency and effectiveness. Some examples of efficiency benchmarking might be number of defective widgets produced; hours of downtime for machine X; or number of days from sale to delivery.

Efficiency types of measures should be used in conjunction with standard financial measures of benchmarking such as days in inventory or asset turnover ratios.

Finally, compare the organization's RC&Cs (especially the competencies) to the competition or industry. Make a note of those competencies in which the organization has an advantage over the industry or competition - these are most likely the core competencies and competitive advantage.

Cases analysis ( DELL, Apple, and

DELL- The Five Forces Models

The five forces model is developed by Michael Porter whom is a Harvard professor and called the godfather of contemporary strategic management. The five forces model is a strategic analysis tool, and the five forces which are following: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitutes and rivalry among competitors. The way to apply the five forces model on a retail business is easy, simply considering each one of these five forces individually as they exist in the external environment.

In terms of Dell, Dell Computer Corporation, established in October 1987, and it is defined as a computer systems company and a provider of computing products and services. Dell's primary product provides enterprise systems, desktop computers and laptop computer systems. Dell also markets and sells Dell/EMC storage products under a long-term strategic relationship with EMC Corporation The Company provides targeted services for consulting, deployment and support, as well as an extensive selection of peripheral hardware, including hand-held products, and computing software. The Company conducts operations worldwide through wholly owned subsidiaries. Sales outside the United States accounted for approximately 35% of the Company's revenues during the fiscal year ended February 1, 2002 (fiscal 2002).

bargaining power of suppliers

Large number of suppliers for components like hardware, keyboards, etc. But two major inputs are monopolized Microsoft standard for all PC's Intel standard for most PC's .High switching costs. Dell known for low cost and best quality computer, laptop and server manufacturer in the industry. The key behind dell success is maintaining better relationship and collaboration with the supplier of computer hardware and software

bargaining power of buyers,

Highly price sensitive. Reliability and customer service become important factors. Dell's products are very reliable and customer service is outstanding. These two factors help Dell to create certain brand royalty. But that's given the fact that the Company set the prices very low. If the prices are raised too high, customers will not hesitate to switch.

threat of new entrants,

The level of threat of new entrants of Dell is moderate. And the reasons for Dell are low capital investment for independent stores, and low product differentiation, brand name may be a barrier to entry, low economies of scale, no legal or governmental barriers, and decreasing profitability indicates that there is a threat of new entrants

threat of substitutes

In U.S.A, computer is a main device in daily life, it is almost one computer for every three people there. And the only substitute for PC is Apple Computer. However, the higher price and lack of software support prevent people from switching to Apple system.

Competitive rivalry within an industry

the main points of the competitive environment within this industry are high concentration price war, low margin, decreasing profitability, and Low differentiation. For example, Dell.com offers computers and laptops of high quality at low prices as compared to the competitors. EBay.com is a place where people like to go to purchase products online at low price However, in the midst of sever competition, Dell can still grow his market share in this campaign. That is a proof of Dell's business strategies has been successful.

Apple- The Five Forces Models

Apple Inc. (previously Apple Computer, Inc.) is an American corporation that designs and markets personal computers, computer software, computer system, and personal eletronic device. The most popular products of Apple Inc. include Mac personal computers, iPod, iPhone and  iPad. Apple software includes the Mac OS X operating system. August 2010, the company operates 301 retail stores within ten countries, and an online store where hardware and software products are sold. As of May 2010, Apple is one of the largest companies in the world and the most valuable technology company in the world, even having surpassed Microsoft.

In terms of five forces model, there are 2 main points need to be discuss

Threat of substitutes

Apple's entertainment products have face the threats of substitutes. For examples, satellite radio for music (XM, Sirius), entertainment media, media and music (XBOX, PS2), alternative means to acquire music (Music CDs, DVDs), alternative sources for videos (Cable, Broadcast, Theatres)

Competitive rivalry within an industry

Apple's main products are in an extremely competitive war. For example, Windows OS and media player for playing music and video ( Microsoft), the Linux also treat Mac OS X as his main Competitor, alternate sources of computer hardware (Dell, HP, Lenovo), small stylish MP3 players (Creative, Samsung, Sony), and online music stores similar to itunes stores (Napster)

However, the products Apple sells and the services Apple offers are not the best in this industry, but they are always standing on the first place. The main reason for Apple could be Marketing, Apple always knows how to get customers, even their products and services in technological aspect are not the best, but they know what customers want and need, and focus on it.

ABC-Balanced Scorecard analysis

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton.The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and