External Environment in the Asia Pacific Region

Asia-Pacific Marketing Federation Certified Professional Marketer

Copyright Marketing Institute of Singapore

Outline

Introduction The Companys Microenvironment The Companys Macroenvironment The Competitors Porter's Five Forces Model

Introduction
Definition: The Companys environment consists of "the actors and forces outside marketing that affect marketing management's ability to develop and maintain successful transactions with its target customers"
Kotler et al, 1994

Introduction (contd)
Companies must evaluate both micro and macroenvironment to identify any trends that may affect their marketing strategies, and opportunities that can be developed into competitive advantages Porter's Five Forces model analyses market
structures to determine market attractiveness taking into consideration the micro and macro environments in its construction

Companys Microenvironment
Relates to the internal forces or forces close to the company over which some control is possible Top management Other functions e.g. finance and accounting, R& D, manufacturing and purchasing Suppliers Marketing intermediaries (channel partners) Customers Competitors Public

Companys Macro-environment

Relates to the larger forces having an

impact on society as a whole A company has little influence on these forces and therefore can only adapt its marketing mix to account for the resulting opportunities and threats

Major forces of the macroenvironment

Demographic Economic Natural Technological Cultural Political/legal

Demographic Environment
Demographic trends: Changing age structure Changing family structure Geographic shifts in population Higher education level & more white collar job holders Increasing globalization of cities such as Singapore

Economic Environment
Economic trends affecting consumers buying power and spending pattern

Change in per capital real income

Disposable Discretionary Income distribution

Savings & debt Consumer expenditures Change in interest rates and cost of living

Natural environment
Natural trends include those natural resources used in production or those affected by marketing activities Raw material shortages Increase in energy cost Increase pollution levels Increase in Governmental intervention in natural resource management

Technological Environment
Consists of forces that affect new technology, new product development and market opportunities Faster pace of technological change Shorter PLC Higher R&D budgets Concentration on minor improvements Increased regulations

Cultural Environment
Affect society's basic values, perceptions, preferences and behaviors Core cultural values and beliefs Secondary cultural values Sub cultures

Legal and Political Environment

Trends in the legal and political environment include Increased legislation regulating business Singapores Fair Trading Act (impending) Changing government agency enforcement Growth of public interest groups Regional groupings ASEAN FTZ

Competitive Analysis

Who are your competitors? Do you know about your close competitors
strengths and weaknesses? How detail should we analyze the competition? Use a systematic approach Analysis competition at various levels (next
slide)

Levels of Competition
Generic Competition
Form Competition

Industry Competition
Brand Competition

Levels of Competition (contd)

Generic competitione.g. Honda against Silver
Sea Cruise for the same consumer dollars Form competitione.g. Toyota against manufacturers of other vehicles that provide the same service such as Yamaha (motorcycle) Industry competitione.g. Honda against Mercedes, Lexus etc who make the same products or class of products (different prices) Brand competitione.g. Honda against Toyota, Nissan etc. who offer similar products and service to the same customers at similar prices

Industry Competition

Different industries can sustain different

levels of profitability; partly due to the difference in industry structure Porters Model of Industry Competition, commonly know as Porters Five Forces provides a framework for analyzing the influence of the forces on the industry to determine the industrys profitability and competitiveness

Porters Model of Industry Competition

Barriers to Entry

Suppliers

Industry degree of rivalry

Buyers

Substitutes
(Source: Aakers pp.8487)

Porters 5 Forces Barriers to Entry

Absolute cost
advantages Proprietary learning curve Access to inputs Government policy Economies of scale

Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products

(Source: Michael Porter, On Competition)

Threats of Substitutes Switching costs Buyer propensity to substitute Relative price performance of
substitutes

(Source: Michael Porter, On Competition)

Buyer Power

Bargaining leverage Threat of backward integration Buyer volume Buyer information Product differentiation Buyer concentration vs. Brand identity industry Price sensitivity Substitutes available Buyers' incentives
(Source: Michael Porter, On Competition)

Supplier Power
Supplier concentration Switching costs of Importance of volume firms in the industry
to supplier Differentiation of inputs Impact of inputs on cost or differentiation

Presence of

substitute inputs Threat of forward integration Cost relative to total purchases in industry

(Source: Michael Porter, On Competition)

Degree of Rivalry

Exit barriers Industry growth Industry concentration ratio Fixed costs/Value added Product differentiation Buyers' incentives
(Source: Michael Porter, On Competition)