Assignment 1

4 page essay

Assignment 1: Strategic Management and Strategic Competitiveness

Choose one (1) public corporation in an industry with which you are familiar. Research the company on its own Website, the public filings on the Securities and Exchange Commission EDGAR database (

http://www.sec.gov/edgar.shtml

), in the University’s online databases, and any other sources you can find. The annual report will often provide insights that can help address some of these questions.

Write a
four-page
paper in which you:

1. Assess how globalization and technology changes have impacted the corporation you researched.

2. Apply the industrial organization model and the resource-based model to determine how your corporation could earn above-average returns.

3. Assess how the vision statement and mission statement of the corporation influence its overall success. 

4. Evaluate how each category of stakeholder impacts the overall success of this corporation. 

5. Use at least two (2) quality references. 
Note: Wikipedia and other Websites do not quality as academic resources.

Your assignment must follow these formatting requirements:

· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides;
citations and references must follow APA
or school-specific format. Check with your professor for any additional instructions.

©
R

ya
n
M

cV
ay

/
G

e
tt

y
Im

a

g
e

s

Studying this chapter should provide
you with the strategic management
knowledge needed to:

1. Explain the importance of analyzing
and understanding the fi rm’s external
environment.

2. Defi ne and describe the general
environment and the industry
environment.

3. Discuss the four activities of the
external environmental analysis
process.

4. Name and describe the general
environment’s seven segments.

5. Identify the fi ve competitive forces
and explain how they determine an
industry’s profi t potential.

6. Defi ne strategic groups and describe
their infl uence on the fi rm.

7. Describe what fi rms need to know
about their competitors and different
methods (including ethical standards)
used to collect intelligence about them.

CHAPTER 2

The External
Environment:
Opportunities,
Threats, Industry
Competition,
and Competitor
An

alysis

©
R
ya
n
M
cV
ay

/

G
e

tt

y
Im

ag
e

s

CHE-HITT-11-0505-002.indd 34CHE-HITT-11-0505-002.indd 34 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale

©
C

en
ga

ge
L

ea
rn

in
g.

A
ll

ri
gh

ts

re

se
rv

ed
.

N

o
di

st
ri

bu
tio

n
al

lo
w

ed
w

ith
ou

t e
xp

re
ss

a
ut

ho
ri

za
tio

n.

g
e

n
e

ri
c

p
h

o
to

c
re

d
it

The explosion that led to the subsequent
sinking of the oil and gas drilling platform on
April 20, 2010, sent ripples not only across the
Gulf of Mexico but also had a huge infl uence on
BP and its two subcontractors, Transocean and
Halliburton. The Deepwater Horizon spill was
the largest accidental offshore spill in history,
at 206 million gallons. In comparison, the 1989
Exxon Valdez tanker wreck spilled 11.3 million
gallons of oil. However, this was not BP’s only

large well-publicized disaster. In 2006 there was an environmental spill in Alaska, and in
2005 there was the largest refi nery explosion in Texas City, Texas, which killed 15 people.
These events, especially the Deepwater Horizon disaster, have put BP in the crosshairs not
only of regulators and government offi cials but also environmentalists. Furthermore, these
events have enabled doubts about its legitimacy with critical stakeholders on Wall Street,
and also infl uenced other
industry participants
(especially in the south-
eastern and southwestern
states associated with
offshore drilling in the
Gulf of Mexico) and its
customers. One immedi-
ate outcome of the disas-
ter was the replacement
of Tony Hayward, CEO at
the time of the disaster,
with Robert Dudley, on
July 10, 2010. Addition-
ally, BP announced a $32
billion charge realized on
its 2010 balance sheet
relative to past and cur-
rent expenses associated
with the disaster.

The strategic actions (see Figure 1.1) that BP will take relative to this disaster and to
position for future success will be infl uenced by continuing pressures from its external
environment. One of the main challenges for the fi rm’s strategic leader (Robert Dudley) is
to understand what the external environment’s effects are on the fi rm and to predict how
its future strategic actions might lead to success.

In the future, BP and all the other oil and gas fi rms focused on extracting such fuels
should expect regulatory change in the political/legal segment of the general environment
(the general environment and all of its segments are discussed in this chapter). In August
2010, President Obama appointed a federal commission to investigate the Deepwater Ho-
rizon oil spill. Their report, issued in January 2011, concluded that government oversight of
the industry needed to be fundamentally reformed and that oil company practices needed
to improve dramatically. One co-chairman of that commission, William Reilly, former head of
the Environmental Protection Agency, suggested that even with all techniques learned after
the Exxon Valdez disaster, and increased technology, the oil capture was rather pathetic;
“they collected 5 or 6% of what was spilled.” Because of this oversight commission, along
with congressional hearings on the report, it is virtually assured that more regulatory and
safety inspections of offshore drilling platforms and operations will be undertaken, both
from a company standpoint and the government agency responsible for such inspections,
the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Cer-
tainly one of the effects is that regulation of drilling permits has become more intense, and
in fact, very few have been approved since the Deepwater Horizon disaster.

The economic segment of the general environment will continue to produce demand
for energy, especially with the rise of emerging markets such as China and India, thus
exploration for hydrocarbon products will continue. Although demand for energy will

BRITISH PETROLEUM
(BP) AND ITS

ENVIRONMENT: HOW
THE DEEPWATER

HORIZON OFFSHORE
DRILLING PLATFORM

DISASTER IS SHAPING
ITS STRATEGY

CHE-HITT-11-0505-002.indd 35CHE-HITT-11-0505-002.indd 35 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh

ts
re

se
rv

ed
. N

o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

36
P

ar
t

1:
S

tr
at

e
g

ic
M

an
ag

e
m

e
n

t
In

p
u

ts

As described in the Opening Case and suggested by research, the external environment
affects a firm’s strategic actions.1 For example, British Petroleum (BP) seeks to expand its
oil reserves after the Deepwater Horizon oil and gas drilling platform disaster in the Gulf
of Mexico by forming joint ventures in Russia with Rosneft Corporation, and in India
with Reliance Industries.2 In addition, it is clear that BP’s strategic actions are affected
by conditions in other segments of its general environment, such as the political/legal,
social/cultural, and physical environment segments. As we explain in this chapter, a
firm’s external environment creates both opportunities (e.g., the opportunity for BP to
enter other global markets) and threats (e.g., the possibility that additional regulations in
its markets will reduce opportunities to extract oil and gas). Collectively, opportunities
and threats affect a firm’s strategic actions.3

persist, the pressure to use alternative sources of energy will be driven by the sociocul-
tural segment of the environment because of the carbon emissions produced by such
hydrocarbons. However, the demand for energy and the slowdown in the economy seems
to have swamped the possible passage of any CO

2
emission legislation, which is needed for

our long-term future and health.
Technology increases have also affected many companies in this industry. Gas drilling

and fracturing have dramatically increased gas reserves and may provide a substitute for
other CO

2
emission-producing products such as coal. Coal is said to produce about 25 per-

cent of the CO
2
emissions in the United States.

The dramatic earthquake in Sendai, Japan at 9.0 on the Richter scale, and the subsequent
tsunami has also created questions relative to a critical substitute energy source, nuclear power.
Infl uence from the physical environment produced the problems seen in Japan. This infl uence
created a disaster despite the fact that the Japanese have been very careful in regard to con-
structing “safe” plants. The physical environment has an infl uence in the Gulf of Mexico, where
drillers have suggested that natural pressure in the Gulf has realized more accidents compared
to offshore reserves in the North Sea and Brazil, where deep water reserve pressures are lower.

BP has tried to rectify problems in the Gulf of Mexico by forming additional joint
ventures in the global arena. A recent venture with Rosneft Corporation, which is
similar to an existing Russian venture with other partners, has recently been proposed.
If the deal goes through, BP would help Rosneft explore opportunities in the arctic
region. “Rosneft insisted on a share swap, giving the Kremlin-controlled company a 5
percent stake in BP in exchange for 9.4 percent of Rosneft.” Similarly, BP has formed
a $7.2 billion investment with an Indian partner, Reliance Industries, giving it a 30
percent stake in oil and gas fi elds off the east coast and possibly as large as those
found in the North Sea. These deals signal the importance of the global segment of the
external environment with which BP and other integrated oil fi rms have to deal with
when contending with scarce reserves. The Russian reserves are 10 years away from
producing. Not only do large integrated energy fi rms such as BP have to source energy
globally, they also need to transport, refi ne, and distribute it through global partner-
ships, both internal and external, to the company.

As the BP example shows, assessing the infl uence of various segments of the external
environment is critical in assuring future success for any fi rm. This is especially true for
energy fi rms, which are part of a global integrated process of extracting energy, refi n-
ing various products, and distributing them around the world. The rise of China and India
coupled with the rise of Brazil as an energy power and Russia’s historic energy reserves
portends to their signifi cant infl uence in world markets. Understanding how these complex
processes work and how to deal with these segments of the external environment are criti-
cal in formulating strategies to be successful in such global environmental forces.

Sources: 2011, Business: Dancing with bears, BP in Russia, The Economist, February 5, 73; J. Ball, 2011,
Environment (special report)—lessons from the gulf—William Reilly on why the oil spill happened, and where the
industry goes from here, Wall Street Journal, March 7, R5; P. Elkind, D. Whitford, and D. Burke, 2011, An accident
waiting to happen, Fortune, February 7, 105–132; P. Hunter and P. Russell, 2011, Capitol hill views divided on oil-
spill report, Engineering News-Record, February 7, 7; A. Peaple, 2011, Reshaped BP fi nds east is no Eden, Wall
Street Journal, February 23, C14; R. Gold, 2010, Halliburton faulted over cement job, Wall Street Journal, www
.wsj.com, September 9; J. Weisman, 2010, BP softens political hit, Wall Street Journal, www.wsj.com, June 21.

CHE-HITT-11-0505-002.indd 36CHE-HITT-11-0505-002.indd 36 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

37
C

h
ap

te
r 2: T

h
e

E
xte

rn
al E

n
viro

n
m

e
n

t:

O
p

p
o

rt

u
n

itie
s, T

h
re

ats, I

n
d

u
stry C

o
m

p
e

titio
n

, an
d

C
o

m
p

e
tito

r A
n

alysis

Regardless of the industry in which they compete, the external environment influ-
ences firms as they seek strategic competitiveness and above-average returns. This chap-
ter focuses on how firms analyze their external environment. The understanding of
conditions in its external environment that the firm gains by analyzing that environment
is matched with knowledge about its internal organization (discussed in the next chapter)
as the foundation for forming the firm’s vision, developing its mission, and identifying
and implementing strategic actions (see Figure 1.1).

As noted in Chapter 1, the environmental conditions in the current global economy
differ from historical conditions. For example, technological changes and the continuing
growth of information gathering and processing capabilities increase the need for firms
to develop effective competitive actions on a timely basis.4 (In slightly different words,
firms have little time to correct errors when implementing their competitive actions.)
The rapid sociological changes occurring in many countries affect labor practices and the
nature of products demanded by increasingly diverse consumers. Governmental policies
and laws also affect where and how firms choose to compete.5 In addition, changes to
nations’ financial regulatory systems that were enacted in 2010 and beyond are expected
to increase the complexity of organizations’ financial transactions.6

Viewed in their totality, the conditions that affect firms today indicate that for most
organizations, their external environment is filled with uncertainty. To successfully deal
with this uncertainty and to achieve strategic competitiveness and thrive, firms must be
aware of and fully understand the different segments of the external environment.7

Firms understand the external environment by acquiring information about competi-
tors, customers, and other stakeholders to build their own base of knowledge and capa-
bilities.8 On the basis of the new information, firms take actions, such as building new
capabilities and core competencies, in hopes of buffering themselves from any negative
environmental effects and to pursue opportunities as the basis for better serving their stake-
holders’ needs.9 A firm’s strategic actions are influenced by the conditions in the three parts
(the general, industry, and competitor) of its external environment (see Figure 2.1).

Figure 2.1 The External Environment

General
Environment

Economic

Technological

Sociocultural

Physical

Political/Legal

Demographic

Industry
Environment

Threat of New Entrants
Power of Suppliers

Power of Buyers
Product Substitutes
Intensity of Rivalry

Competitor
Environment

Global

CHE-HITT-11-0505-002.indd 37CHE-HITT-11-0505-002.indd 37 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

38
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u
ts

The General, Industry, and
Competitor Environments
The general environment is composed of dimensions in the broader society that influ-
ence an industry and the firms within it.10 We group these dimensions into seven envi-
ronmental segments: demographic, economic, political/legal, sociocultural, technological,
global, and physical. Examples of elements analyzed in each of these segments are shown
in Table 2.1.

Firms cannot directly control the general environment’s segments. The recent bank-
ruptcy filings by General Motors and Chrysler Corporation highlight this fact. These
firms could not directly control various parts of their external environment, including
the economic and political/legal segments; however, these segments are influencing the
actions the firms are taking, including Chrysler’s alliance with Fiat.11 Because firms can-
not directly control the segments of their external environment, successful ones learn
how to gather the information needed to understand all segments and their implications
for selecting and implementing the firm’s strategies.

The industry environment is the set of factors that directly influences a firm and its
competitive actions and responses:12 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. In total, the interactions among these five factors determine an industry’s
profit potential; in turn, the industry’s profit potential influences the choices each firm
makes about its strategic actions. The challenge for a firm is to locate a position within
an industry where it can favorably influence the five factors or where it can successfully
defend against their influence. The greater a firm’s capacity to favorably influence its
industry environment, the greater the likelihood that the firm will earn above-average
returns.

I
uuu

ppp
nnn

sststt

TThhee GGeenneerraall,, IInndduussttrryy,, aanndd

Demographic segment • Population size
• Age structure
• Geographic distribution

• Ethnic mix
• Income distribution

Economic segment • Infl ation rates
• Interest rates
• Trade defi cits or surpluses
• Budget defi cits or surpluses

• Personal savings rate
• Business savings rates
• Gross domestic product

Political/Legal segment • Antitrust laws
• Taxation laws
• Deregulation philosophies

• Labor training laws
• Educational philosophies and policies

Sociocultural segment • Women in the workforce
• Workforce
• Diversity
• Attitudes about the quality of work life

• Shifts in work and career preferences
• Shifts in preferences regarding product and

service characteristics

Technological segment • Product innovations
• Applications of knowledge

• Focus of private and government-supported
R&D expenditures

• New communication technologies

Global segment • Important political events
• Critical global markets

• Newly industrialized countries
• Different cultural and institutional attributes

Physical environment
segment

• Energy consumption
• Practices used to develop energy sources
• Renewable energy efforts
• Minimizing a fi rm’s environmental footprint

• Availability of water as a resource
• Producing environmentally friendly products
• Reacting to natural or man-made disasters

Table 2.1 The General Environment: Segments and Elements

The general
environment is
composed of
dimensions in the
broader society that
infl uence an industry
and the fi rms within it.

The industry
environment is the set
of factors that directly
infl uences a fi rm and
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.

CHE-HITT-11-0505-002.indd 38CHE-HITT-11-0505-002.indd 38 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

39
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n

t: O
p

p
o

rtu
n

itie
s, T
h
re

ats, In
d

u
stry C
o
m
p
e
titio
n
, an
d

C
o

m
p
e
tito
r A
n
alysis

How companies gather and interpret information about their competitors is called
competitor analysis. Understanding the firm’s competitor environment complements
the insights provided by studying the general and industry environments.13 This means,
for example, that BP wants to learn as much as it can about its major competitors—such
as Exxon-Mobil and Royal Dutch Shell plc—while also learning about its general and
industry environments.

Analysis of the general environment is focused on environmental trends while an
analysis of the industry environment is focused on the factors and conditions influenc-
ing an industry’s profitability potential and an analysis of competitors is focused on
predicting competitors’ actions, responses, and intentions. In combination, the results of
these three analyses influence the firm’s vision, mission, and strategic actions. Although
we discuss each analysis separately, performance improves when the firm integrates the
insights provided by analyses of the general environment, the industry environment, and
the competitor environment.

External Environmental Analysis
Most firms face external environments that are highly turbulent, complex, and global—
conditions that make interpreting those environments difficult.14 To cope with often
ambiguous and incomplete environmental data and to increase understanding of the
general environment, firms engage in external environmental analysis. This analysis has
four parts: scanning, monitoring, forecasting, and assessing (see Table 2.2). Analyzing
the external environment is a difficult, yet significant, activity.15

Identifying opportunities and threats is an important objective of studying the
general environment. An opportunity is a condition in the general environment
that, if exploited effectively, helps a company achieve strategic competitiveness. For
example, recent market research results suggested to Procter & Gamble (P&G) after
its acquisition of Gillette, a shaving products company, that an increasing number
of men across the globe are interested in fragrances and skin care products. To take
advantage of this opportunity, P&G is reorienting toward beauty products to better
serve both men and women. The change constitutes an organization change focused
on combining product categories rather than its typical organization around a specific
branded product.16

A threat is a condition in the general environment that may hinder a company’s
efforts to achieve strategic competitiveness.17 Microsoft is currently experiencing a severe
external threat as smartphones are expected to surpass personal computer (PC) sales in
the near future. Although Microsoft has a smartphone operating system, Apple, Google,
and Research in Motion (BlackBerry phones) have operating platforms that are much
more popular than those using Microsoft’s platform. Although PC growth will continue
to expand, it is not growing at the rate that smartphones are, and possible substitution
may happen between PCs, smartphones, and additional devices, such as Apple’s iPad and

Scanning • Identifying early signals of environmental changes and trends

Monitoring • Detecting meaning through ongoing observations of environmental
changes and trends

Forecasting • Developing projections of anticipated outcomes based on monitored
changes and trends

Assessing • Determining the timing and importance of environmental changes and
trends for fi rms’ strategies and their management

Table 2.2 Components of the External Environmental Analysis

An opportunity is
a condition in the
general environment
that if exploited
effectively, helps
a company
achieve strategic
competitiveness.

A threat is a
condition in the
general environment
that may hinder a
company’s efforts
to achieve strategic
competitiveness.

ttsss,IInnn
dddd

uEExxtteerrnnaall EEnnvviirroonnmmeennttaall AAnnaallyyssiiss

CHE-HITT-11-0505-002.indd 39CHE-HITT-11-0505-002.indd 39 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

40
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts similar devices. The main software platform is needed to assure other software producers
will develop applications for the platform. Apple has large numbers of applications being
developed, and Google’s Android system software applications are rapidly increasing
as well. As such, Microsoft is in a severe catch-up position relative to its competition. It
recently formed a joint venture with Nokia Corporation to establish a firmer platform for
its existing software using Nokia’s large potential smartphone base. However, this threat
remains until this opportunity is realized.18

Firms use several sources to analyze the general environment, including a wide variety
of printed materials (such as trade publications, newspapers, business publications, and
the results of academic research and public polls), trade shows and suppliers, customers,
and employees of public-sector organizations. People in boundary-spanning positions
can obtain a great deal of this type of information. Salespersons, purchasing managers,
public relations directors, and customer service representatives, each of whom interacts
with external constituents, are examples of boundary-spanning positions.

Scanning
Scanning entails the study of all segments in the general environment. Through scanning,
firms identify early signals of potential changes in the general environment and detect
changes that are already under way.19 Scanning often reveals ambiguous, incomplete,
or unconnected data and information. Thus, environmental scanning is challenging
but critically important for firms, especially those competing in highly volatile environ-
ments.20 In addition, scanning activities must be aligned with the organizational context;
a scanning system designed for a volatile environment is inappropriate for a firm in a
stable environment.21

Many firms use special software to help them identify events that are taking place
in the environment and that are announced in public sources. For example, news
event detection uses information-based systems to categorize text and reduce the
trade-off between an important missed event and false alarm rates.22 The Internet
provides significant opportunities for scanning. Amazon.com, for example, records
significant information about individuals visiting its Web site, particularly if a pur-
chase is made. Amazon then welcomes these customers by name when they visit the
Web site again. The firm sends messages to customers about specials and new prod-
ucts similar to those they purchased in previous visits. A number of other companies
such as Netflix also collect demographic data about their customers in an attempt to
identify their unique preferences (demographics is one of the segments in the general
environment).

Philip Morris International continuously scans segments of its external environ-
ment to detect current conditions and to anticipate changes that might take place in
different segments. For example, PMI always studies various nations’ tax policies on
cigarettes (these policies are part of the political/legal segment). The reason for this
is that raising cigarette taxes might reduce sales while lowering these taxes might
increase sales.

Monitoring
When monitoring, analysts observe environmental changes to see if an important trend
is emerging from among those spotted through scanning.23 Critical to successful moni-
toring is the firm’s ability to detect meaning in environmental events and trends. For
example, Tesco, the United Kingdom’s largest retailer, plans to add Turkish, Sri Lankan,
Latin, Filipino, African, and South African cuisine to its food offerings. One analyst
noted, “Britain has become one of the most ethnically diverse nations on earth, and there
is a very strong, growing demand by those who have settled here to buy food from their
homelands.”24 Tesco already sells Asian, Oriental, Afro-Caribbean, Kosher, Polish, and
Halal foods. Continual monitoring of these trends is necessary for a large retailer such as
Tesco to maintain the right balance among its products.

CHE-HITT-11-0505-002.indd 40CHE-HITT-11-0505-002.indd 40 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

41
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

Effective monitoring requires the firm to identify important stakeholders and under-
stand its reputation among these stakeholders as the foundation for serving their unique
needs.25 (Stakeholders’ unique needs are described in Chapter 1.) Scanning and monitoring
are particularly important when a firm competes in an industry with high technological
uncertainty.26 Scanning and monitoring can provide the firm with information; they also
serve as a means of importing knowledge about markets and about how to successfully
commercialize new technologies the firm has developed.27

Forecasting
Scanning and monitoring are concerned with events and trends in the general environ-
ment at a point in time. When forecasting, analysts develop feasible projections of what
might happen, and how quickly, as a result of the changes and trends detected through
scanning and monitoring.28 For example, analysts might forecast the time that will be
required for a new technology to reach the marketplace, the length of time before differ-
ent corporate training procedures are required to deal with anticipated changes in the
composition of the workforce, or how much time will elapse before changes in govern-
mental taxation policies affect consumers’ purchasing patterns.

Forecasting events and outcomes accurately is challenging. Forecasting demand for
new technological products is difficult because technology trends are continually driving
product life cycles shorter. This is particularly difficult for a firm like Intel, whose prod-
ucts go into many customers’ technological products, which are consistently updated.
Increasing the difficulty, each new wafer fabrication or silicone chip technology produc-
tion plant that Intel invests in becomes significantly more expensive for each generation
of chip products. Having tools that allow better forecasting of electronic product demand
is increasingly important.29

During an economic downturn, forecasting becomes more difficult and more impor-
tant. For example, Procter & Gamble (P&G), Unilever, and Colgate-Palmolive, which
primarily sell branded products, have been pushed by retailers to lower their prices,
while at the same time these retailers are selling lower-priced, private-label goods. Thus,
these consumer product companies are forecasting the effects of the two trends noted as
they seek to project demand. Fortunately, these consumer product companies are seeing
demand increase for branded products as the economy improves.30

Assessing
The objective of assessing is to determine the timing and significance of the effects of envi-
ronmental changes and trends that have been identified.31 Through scanning, monitoring,
and forecasting, analysts are able to understand the general environment. Going a step fur-
ther, the intent of assessment is to specify the implications of that understanding. Without
assessment, the firm is left with data that may be interesting but of unknown competitive
relevance. Even if formal assessment is inadequate, the appropriate interpretation of that
information is important.

How accurate senior executives are concerning their competitive environments may
be less important for strategy and corresponding organizational changes than correctly
interpreting environmental trends. Thus, although gathering and organizing information
is important, appropriately interpreting that intelligence to determine if an identified trend
in the external environment is an opportunity or threat is paramount.32

Segments of the General Environment
The general environment is composed of segments that are external to the firm (see
Table 2.1). Although the degree of impact varies, these environmental segments affect
all industries and the firms competing in them. The challenge to each firm is to scan,
monitor, forecast, and assess the elements in each segment to determine their effects on

SSeeggmmeennttss ooff tthhee GGeenneerraall EEnnvviirroonnmmeenntt

CHE-HITT-11-0505-002.indd 41CHE-HITT-11-0505-002.indd 41 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

42
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts the firm. Effective scanning, monitoring, forecast-
ing, and assessing are vital to the firm’s efforts to
recognize and evaluate opportunities and threats.

The Demographic Segment
The demographic segment is concerned with a
population’s size, age structure, geographic dis-
tribution, ethnic mix, and income distribution.33
Demographic segments are commonly analyzed
on a global basis because of their potential effects
across countries’ borders and because many firms
compete in global markets.

Population Size
The world’s population doubled (from 3 billion to
6 billion) between 1959 and 1999. Current projec-
tions suggest that population growth will continue
in the twenty-first century, but at a slower pace.

The U.S. Census Bureau projects that the world’s population will be 9 billion by 2040.34
By 2050, India is expected to be the most populous nation in the world (with over 1.8
billion people). China, the United States, Indonesia, and Pakistan are predicted to be
the next four most populous nations in 2050. Firms seeking to find growing markets in
which to sell their goods and services want to recognize the market potential that may
exist for them in these five nations.

While observing the population of different nations and regions of the world, firms
also want to study changes occurring within different populations to assess their strategic
implications. For example, in 2011, 23 percent of Japan’s citizens were 65 or older, while
the United States and China will not reach this level until 2036.35 Aging populations
are a significant problem for countries because of the need for workers and the burden
of funding retirement programs. In Japan and other countries, employees are urged to
work longer to overcome these problems. Interestingly, the United States has a higher
birthrate and significant immigration, placing it in a better position than Japan and other
European nations.

Age Structure
As noted earlier, in Japan and other countries, the world’s population is rapidly aging.
In North America and Europe, millions of baby boomers are approaching retirement.
However, even in developing countries with large numbers of people under the age of
35, birth rates have been declining sharply. In China, for example, by 2040 there will be
more than 400 million people over the age of 60. The more than 90 million baby boom-
ers in North America may postpone retirement given the recent financial crisis. In fact,
data now suggest that baby boomers (those born between 1946 and 1965) are struggling
to meet their retirement goals and are uncertain if they will actually be able to retire as
originally expected. This is partly because of declines in the value of their homes as well
as declines in their other retirement investments—a number of baby boomers “are being
forced to postpone retirement, find cheaper housing, and cut living expenses” due to
a decline in their retirement assets between 2007 and 2009.36 The possibility of future
declines is creating uncertainty for baby boomers about how to invest and when they
might be able to retire.37 On the other hand, delayed retirements by baby boomers with
value-creating skills may facilitate firms’ efforts to successfully implement their strate-
gies. Moreover, delayed retirements may allow companies to think of creative ways for
skilled, long-time employees to impart their accumulated knowledge to younger employ-
ees as they work a bit longer than originally anticipated.

Caption to come, caption to come, caption to come,
Caption to come, caption to come,

caption to come

The demographic
segment is
concerned with a
population’s size, age
structure, geographic
distribution, ethnic
mix, and income
distribution.

CHE-HITT-11-0505-002.indd 42CHE-HITT-11-0505-002.indd 42 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

43
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

Geographic Distribution
For decades, the U.S. population has been shifting from the north and east to the west
and south. Firms should consider the effects of this shift in demographics as well.38 For
example, Florida is the U.S. state with the largest percentage of its population (17.6 per-
cent) 65 years or older. Thus, companies providing goods and services that are targeted
to senior citizens might pay close attention to this group’s geographic preference for
states in the south (such as Florida) and the southwest (such as Texas). Similarly, the
trend of relocating from metropolitan to nonmetropolitan areas continues in the United
States. These trends are changing local and state governments’ tax bases. In turn, business
firms’ decisions regarding location are influenced by the degree of support that different
taxing agencies offer as well as the rates at which these agencies tax businesses.

Geographic distribution patterns are not identical throughout the world. For exam-
ple, in China, 60 percent of the population lives in rural areas; however, the growth is in
urban communities such as Shanghai (with a current population in excess of 18 million)
and Beijing (over 15 million). These data suggest that firms seeking to sell their products
in China should recognize the growth in metropolitan areas rather than in rural areas.
Larger cities are expected to generate more growth in GDP per person than smaller cities
and also attract more human capital—people with talent to produce economic growth.39

Ethnic Mix
The ethnic mix of countries’ populations continues to change. For example, Hispanics
are now the largest ethnic minority (16 percent) in the United States, representing more
than 50 million of the total U.S. population of 308 million.40 In fact, the U.S. Hispanic
market is the third largest “Latin American” economy behind Brazil and Mexico. Spanish
is now the dominant language in parts of U.S. states such as Texas, California, Florida,
and New Mexico. Given these facts, some firms might want to assess the degree to which
their goods or services could be adapted to serve the unique needs of Hispanic consum-
ers. This is particularly appropriate for companies competing in consumer sectors such
as grocery stores, movie studios, financial services, and clothing stores.

Changes in the ethnic mix also affect a workforce’s composition. In the United States,
for example, the population and labor force will continue to diversify, as immigration
accounts for a sizable part of growth. Projections are that the combined Latino and Asian
population shares will increase to more than 20 percent of the total U.S. population by
2014. Interestingly, much of this immigrant workforce is bypassing high-cost coastal
cities and settling in smaller rural towns. Many of these workers are in low-wage, labor-
intensive industries such as construction, food service, lodging, and landscaping. For this
reason, if border security is tightened, these industries will likely face labor shortages.
In addition, well-trained medical and technical personnel have difficulties migrating to
the United States even when their skills are in demand. U.S. migration policies have not
maintained the same fluidity as global trade agreements; U.S. trade policies have been
liberalized while U.S. immigration policies have been tightened.41

Income Distribution
Understanding how income is distributed within and across populations informs firms
of different groups’ purchasing power and discretionary income. Studies of income
distributions suggest that although living standards have improved over time, varia-
tions exist within and between nations.42 Of interest to firms are the average incomes of
households and individuals. For instance, the increase in dual-career couples has had a
notable effect on average incomes. Although real income has been declining in general
in some nations, the household income of dual-career couples has increased, especially
in the United States. These figures yield strategically relevant information for firms. For
instance, research indicates that whether an employee is part of a dual-career couple can
strongly influence the willingness of the employee to accept an international assignment.
However, because of the worldwide economic downturn, many companies were still

CHE-HITT-11-0505-002.indd 43CHE-HITT-11-0505-002.indd 43 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

44
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts pursuing international assignments but changing them to avoid some of the additional
costs of funding expatriates abroad.43

The growth of the economy in China has drawn many firms, not only for the low-cost
production, but also because of the large potential demand for products, given its large
population base. However, the amount of China’s gross domestic product that makes
up consumption is the lowest of any major economy at less than one-third. In com-
parison, India’s domestic consumption of consumer goods accounts for two-thirds of its
economy, or twice China’s level. As such, many western multinationals are considering
entering India as a consumption market as its middle class grows extensively. Although
India as a nation has poor infrastructure, its consumers are in a far better position to
spend. Furthermore, the urban-rural income difference has been declining in India more
rapidly than in China. Because of situations like this, paying attention to the differences
between markets based on income distribution can be very important.44 Of course, the
recent global financial crisis may affect the size of the world’s “middle class.”

The Economic Segment
The economic environment refers to the nature and direction of the economy in which
a firm competes or may compete.45 In general, firms seek to compete in relatively stable
economies with strong growth potential. Because nations are interconnected as a result
of the global economy, firms must scan, monitor, forecast, and assess the health of their
host nation and the health of the economies outside their host nation.

As firms compete during the second decade of the twenty-first century, the world’s
economic environment is quite uncertain. Some businesspeople are even beginning to
question the ability of economists to provide valid and reliable predictions about trends
to anticipate in the world’s economic environment.46 The lack of confidence in predic-
tions from those specializing in providing such predictions complicates firms’ efforts to
understand the conditions they might face during future competitive battles.

In terms of specific economic environments, companies competing in Japan or desir-
ing to do so might carefully evaluate the economic impact of the earthquake, subsequent
tsunami, and radiation leaks at the nuclear power generation plants in Sendai.47 Although
the crisis in Japan is country specific, its ripple effects have been felt around the globe. For
example, many industries that source inputs from Japan, such as electronic gear and auto
parts, have had to close plants for short periods due to lack of critical inputs.

Because of its acknowledged economic growth, a number of companies are evaluat-
ing the possibility of entering Russia to compete or, for those already competing in that
nation, to expand the scope of their operations. However, “there is no denying that doing
business in Russia is not for the faint at heart.” 48 This unique, challenging, and sometimes
difficult-to-understand business environment presents significant risks in doing business
in Russia. This challenging environment can also be an advantage because it serves as an
entry barrier to limit the number of companies willing to enter and learn how to operate
effectively to reap the returns. Another country with growth opportunities is Vietnam, as
firms across the globe take note of how their government reforms and economic decen-
tralization are creating opportunities for investment for sourcing, as well as their develop-
ing consumer market.49

The Political/Legal Segment
The political/legal segment is the arena in which organizations and interest groups
compete for attention, resources, and a voice in overseeing the body of laws and regu-
lations guiding interactions among nations as well as between firms and various local
governmental agencies.50 Essentially, this segment represents how organizations try to
influence governments and how they try to understand the influences (current and pro-
jected) of those governments on their strategic actions.

When regulations are formed in response to new laws that are legislated (e.g.,
the  Sarbanes-Oxley Act dealing with corporate governance—see Chapter 10 for more

The economic
environment refers
to the nature and
direction of the
economy in which a
fi rm competes or may
compete.

The political/legal
segment is the arena
in which organizations
and interest groups
compete for attention,
resources, and a voice
in overseeing the body
of laws and regulations
guiding interactions
among nations as
well as between
fi rms and various
local governmental
agencies.

CHE-HITT-11-0505-002.indd 44CHE-HITT-11-0505-002.indd 44 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

45
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

information), they often influence a firm’s strategic actions. For example, less-restrictive
regulations on firms’ actions are a product of the recent global trend toward privatization
of government-owned or government-regulated firms. Much privatization in recent years
has been driven by government budget concerns and the need to raise funds by selling
government owned firms to reduce deficits.51 Some believe that the transformation from
state-owned to private firms occurring in multiple nations has substantial implications for
the competitive landscapes in a number of countries and across multiple industries.52

Firms must carefully analyze a new political administration’s business-related poli-
cies and philosophies. Antitrust laws, taxation laws, industries chosen for deregulation,
labor training laws, and the degree of commitment to educational institutions are areas
in which an administration’s policies can affect the operations and profitability of indus-
tries and individual firms across the globe. For example, President Obama’s administra-
tion has sought to pursue policies with the intention of reducing the amount of work
U.S. companies outsource to firms. This policy could affect information technology out-
sourcing firms based in countries such as India. When President Obama visited India in
2010, he bypassed visiting Bangalore, which is an outsourcing and technology center and
economic hotspot in India.53 The introduction of legislation in the U.S. Congress during
the early tenure of the Obama administration suggested at least some support for these
stated intentions. However, the legislation has not been enacted and has less likelihood
of passing since the 2010 midterm elections.54

To deal with issues such as those we are describing, firms develop a political strategy
to influence governmental policies that might affect them. Some argue that develop-
ing an effective political strategy is essential to the restructured General Motors’ efforts
to achieve strategic competitiveness since it received government funding during the
economic downturn. In addition, the effects of global governmental policies (e.g., those
related to firms in India that are engaging in IT outsourcing work) on a firm’s competi-
tive position increase the need for firms to form an effective political strategy.55

Firms competing in the global economy encounter an interesting array of political/
legal questions and issues. For example, the European sovereign-debt crisis has destabi-
lized the European Union. Starting with Greece and moving on to Ireland, Portugal, and
Spain, economies weakened by large public debt burdens have caused fiscal policies to be
much more restrictive, and still government debt is at sky-high levels which increases bond
rates.56 The debt crisis has put many banks at risk and discourages investment because con-
sumer consumption is likely to be limited. Another crisis in the Middle East and through-
out the Arab world is the political revolutions in country after country demanding political
reform. Starting with Tunisia and proceeding to Egypt, Libya, Bahrain, Syria, and other
states in the region, there is significant turmoil, which has cre-
ated significantly increased world oil prices.57 These are political
events which create uncertainty in the world’s business affairs
and make decision making more difficult.

The Sociocultural Segment
The sociocultural segment is concerned with a society’s atti-
tudes and cultural values. Because attitudes and values form the
cornerstone of a society, they often drive demographic, economic,
political/legal, and technological conditions and changes.

Societies’ attitudes and cultural values appear to be undergoing
possible changes at the start of the second decade of the twenty-first
century. In the United States, attitudes and values about health care
are an area in which sociocultural changes might occur. Specifically,
while the United States has the highest overall health care expen-
diture as well as the highest expenditure per capita of any country
in the world, millions of the nation’s citizens lack health insurance.
Although health care reform legislation was passed in the early part

The sociocultural
segment is concerned
with a society’s
attitudes and cultural
values.

Caption to come, caption to come, caption to come,
Caption to come, caption to come, caption to come

CHE-HITT-11-0505-002.indd 45CHE-HITT-11-0505-002.indd 45 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

46
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts of the Obama administration, it continues to be a bone of contention—especially since the
2010 midterm elections—with attempts made to repeal it and many states filing lawsuits.58
Continuing changes to the nature of health care policies can have a significant effect on busi-
ness firms,59 so they must carefully examine trends regarding health care in order to anticipate
the effects on their operations.

As the U.S. labor force has increased, it has become more diverse, as significantly
more women and minorities from a variety of cultures enter the workplace. In 1993, the
total U.S. workforce was slightly less than 130 million; in 2005, it was slightly greater than
148 million. It is predicted to grow to more than 192 million by 2050. In the same year,
2050, the U.S. workforce is forecast to be composed of 48 percent female workers, 11
percent Asian American workers, 14 percent African American workers and 24 percent
Hispanic workers.60 The growing gender, ethnic, and cultural diversity in the workforce
creates challenges and opportunities, including combining the best of both men’s and
women’s traditional leadership styles. Although diversity in the workforce has the poten-
tial to improve performance, research indicates that management of diversity initiatives
is required in order to reap these organizational benefits. Human resource practitioners
are trained to successfully manage diversity issues to enhance positive outcomes.61

Another manifestation of changing attitudes toward work is the continuing growth
of contingency workers (part-time, temporary, and contract employees) throughout the
global economy. This trend is significant in several parts of the world, including Canada,
Japan, Latin America, Western Europe, and the United States. In the United States, the
fastest growing group of contingency workers is those with 15 to 20 years of work experi-
ence. The layoffs resulting from the recent global crisis and the loss of retirement income
of numerous “baby boomers”—many of whom feel they must work longer to recover
losses to their retirement portfolios—are a key reason for this. Companies interested
in hiring on a temporary basis may benefit by gaining access to the long-term work
experiences of these newly available workers. Also, temporary workers are the first to be
employed as the economy revives after a downturn.62

Although the lifestyle and workforce changes referenced previously reflect the values
of the U.S. population, each country and culture has unique values and trends. National
cultural values affect behavior in organizations and thus also influence organizational
outcomes such as differences in CEO compensation.63 Likewise, the national culture
influences to a large extent the internationalization strategy that firms pursue relative to
one’s home country.64 Knowledge sharing is important for dispersing new knowledge in
organizations and increasing the speed in implementing innovations. Personal relation-
ships are especially important in China as guanxi (personal connections) has become a
way of doing business within the country and for individuals to advance their careers in
what is becoming a more open market society. Understanding the importance of guanxi
is critical for foreign firms doing business in China.65

The Technological Segment
Pervasive and diversified in scope, technological changes affect many parts of societ-
ies. These effects occur primarily through new products, processes, and materials. The
technological segment includes the institutions and activities involved in creating new
knowledge and translating that knowledge into new outputs, products, processes, and
materials. Given the rapid pace of technological change and risk of disruption, it is vital
for firms to thoroughly study the technological segment.66 The importance of these efforts
is suggested by the finding that early adopters of new technology often achieve higher
market shares and earn higher returns. Thus, both large and small firms should continu-
ously scan the external environment to identify potential substitutes for technologies that
are in current use, as well as to identify newly emerging technologies from which their
firm could derive competitive advantage.67

As a significant technological development, the Internet has become a remarkable
capability to provide information easily, quickly, and effectively to an ever-increasing

The technological
segment includes
the institutions and
activities involved
with creating new
knowledge and
translating that
knowledge into new
outputs, products,
processes, and
materials.

CHE-HITT-11-0505-002.indd 46CHE-HITT-11-0505-002.indd 46 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

47
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

percentage of the world’s population. Companies continue to study the Internet’s capa-
bilities to anticipate how it may allow them to create more value for customers in the
future and to anticipate future trends.

In spite of the Internet’s far-reaching effects, wireless communication technology is
becoming the next significant technological opportunity for companies to apply when
pursuing strategic competitiveness. Handheld devices and other wireless communi-
cations equipment are used to access a variety of network-based services. The use of
handheld computers with wireless network connectivity, Web-enabled mobile phone
handsets, and other emerging platforms (e.g., consumer Internet-access devices such as
the iPhone and iPad) has increased substantially and should soon become the dominant
form of communication and commerce.68

For example, eBay’s iPhone application has become “by far the largest m[mobile]-
commerce application in the world,” going from $600 million in volume in 2009 to between
$1.5 billion and $2 billion in 2010.69 Amazon’s Kindle is not only a reader but also provides
access to the Internet. With each new version of mobile devices such as the iPhone, iPad,
and Kindle, amazing additional functionalities and software applications are added.

The Global Segment
The global segment includes relevant new global markets, existing markets that are
changing, important international political events, and critical cultural and institutional
characteristics of global markets.70 There is little doubt that markets are becoming more
global and that consumers as well as companies throughout the world accept this fact.
Consider the automobile industry. The global auto industry is one in which an increasing
number of people believe that because “we live in a global community,” consumers in
multiple nations are willing to buy cars and trucks “from whatever area of the world.”71

When studying the global segment, firms (including automobile manufacturers)
should recognize that globalization of business markets may create opportunities to enter
new markets as well as threats that new competitors from other economies may also enter
their market. This is both an opportunity and a threat for the world’s automobile manu-
facturers—worldwide production capacity is now a potential threat to all global companies
where entering another market to sell a company’s products appears to be an opportunity.
In China, for example, even though car sales surged 37 percent in 2010, it is expected that
by 2015 they will reach production overcapacity and have a glut of extra cars. Because of
the global economic slowdown, in order to increase sales many car companies want to
enter foreign markets. This has led to overcapacity worldwide. To add to the problem in
China, labor unions have organized strikes to demand higher wages. For example at Toyota
Motor Corporation and Honda Motor Corporation, as young workers coming from rural
areas into urban areas are settling down to permanent work, they expect higher wages.
This signals that China is no longer a “bargain-basement market for placid workers.” This
is especially problematic for foreign automakers because by 2017 J. D. Power projects
Chinese brands will count for 45 percent of the country’s passenger-vehicle market.72

The markets from which firms generate sales and income are one indication of the degree
to which they are participating in the global economy. For example, H. J. Heinz Company, a
large global food producer, is acquiring a stake in Coniexpress S. A. Industrias Alimenticias,
a leading Brazilian manufacturer of tomato-based products, ketchup, condiments, and veg-
etables. The full fiscal year 2011, which ends April 27, is expected to have a sales growth of
2 to 3 percent, while sales in emerging economies such as its Asia-Pacific area grew 16.8
percent and the rest of the world outside its main North-American group grew 14.5 percent.
Thus, much of Heinz’s sales growth and its profit margins are coming from emerging mar-
kets.73 Likewise, much of SABMiller’s growth in beer is coming from emerging economies.
For example, at the 2010 World Cup, its purchase of Castle Lager allowed it to sell an extra
30 million bottles. Similar acquisitions of India’s Narang and Columbia’s Bavaria brands are
part of its $17 billion string of acquisitions since 1999, leading to its increased sales growth
in emerging markets.74 Citigroup’s CEO, Vikram S. Pandit, has steered his large financial

The global
segment includes
relevant new global
markets, existing
markets that are
changing, important
international
political events,
and critical cultural
and institutional
characteristics of global
markets.

CHE-HITT-11-0505-002.indd 47CHE-HITT-11-0505-002.indd 47 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

48
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts service company through the financial crisis with the help of a $45 billion taxpayer-funded
loan. However, Pandit sees much opportunity in developing markets, and as such, half of
Citigroup’s profit comes from developing countries. For instance, in Latin America and Asia
the bank increased its assets by $470 billion in 2010, an increase of 16 percent, by adding
customers in countries such as Brazil, Mexico, and India.75 Thus, for these companies and
so many others, understanding the conditions of today’s global segment and being able to
predict future conditions are critical to their success.

The global segment presents firms with both opportunities and threats or risks. Because
of the threats and risks, some firms choose to take a more cautious approach to competing
in international markets. These firms participate in what some refer to as globalfocusing.
Globalfocusing often is used by firms with moderate levels of international operations who
increase their internationalization by focusing on global niche markets.76 In this way, they
build on and use their special competencies and resources while limiting their risks within
the niche market. Another way in which firms limit their risks in international markets is
to focus their operations and sales in one region of the world.77 In this way, they can build
stronger relationships in and knowledge of their markets. As they build these strengths,
rivals find it more difficult to enter their markets and compete successfully.

In all instances, firms competing in global markets should recognize their sociocultural
and institutional attributes. Furthermore, Korean ideology emphasizes communitarianism,
a characteristic of many Asian countries. Korea’s approach differs from those of Japan and
China, however, in that it focuses on inhwa, or harmony. Inhwa is based on a respect of
hierarchical relationships and obedience to authority. Alternatively, the approach in China
stresses guanxi—personal relationships or good connections—while in Japan, the focus is on
wa, or group harmony and social cohesion. 78 The institutional context of China suggests a
major emphasis on centralized planning by the government. The Chinese government pro-
vides incentives to firms to develop alliances with foreign firms having sophisticated tech-
nology in hopes of building knowledge and introducing new technologies to the Chinese
markets over time.79 As such, it is important to analyze the strategic intent of foreign firms
when pursuing alliances and joint ventures abroad, especially where the local partners are
receiving technology which may in the long run reduce the foreign firms’ advantages.80

The Physical Environment Segment
The physical environment segment refers to potential and actual changes in the physical
environment and business practices that are intended to positively respond to and deal
with those changes.81 Concerned with trends oriented to sustaining the world’s physical
environment, firms recognize that ecological, social, and economic systems interactively
influence what happens in this particular segment.82

There are many parts or attributes of the physical environment that firms should con-
sider as they try to identify trends in this segment.83 Some argue that global warming is a
trend firms and nations should carefully examine in efforts to predict any potential effects
on the global society as well as on their business operations. Investors are seeking to take
advantage of this trend, calling it “green alpha,” by looking to profit by increasing environ-
mental sustainability.84 Energy consumption is another part of the physical environment
that concerns both organizations and nations. In Canada, for example, a representative of
the Energy Council of Canada said: “The electricity sector right now is 75 percent clean, and
the idea is that over a well-defined period of time we’ll be a 90 percent clean electricity sec-
tor.”85 Most of this clean power generation comes from hydroelectric produced electricity.

Because of increasing concern about sustaining the quality of the physical environ-
ment, a number of companies are developing environmentally friendly policies. Indra
K. Nooyi, CEO of PepsiCo, is pursuing a strategy called “capital performance with pur-
pose.” This strategy links green efforts in all businesses to the bottom line. Through this
approach, PepsiCo hopes to create technologies that can be replicated across its mul-
tiple facilities, thereby creating large savings. For example, Frito-Lay, a PepsiCo business
unit, operates the world’s seventh-largest private delivery fleet. In large urban areas it is

The physical
environment
segment refers to
potential and actual
changes in the physical
environment and
business practices
that are intended to
positively respond to
and deal with those
changes.

CHE-HITT-11-0505-002.indd 48CHE-HITT-11-0505-002.indd 48 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

49
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

The number of companies throughout the
world that recognize that they compete within
the confines of the physical environment and
that they are expected to reduce the nega-
tive effect of their operations on the physical

environment while competing continues to increase. Also, consumers concerned about the
physical environment value this trend.

Producing and selling additional “green” (i.e., environmentally friendly) products is one
company response to this trend. Siemens AG, a large diversified engineering firm similar to
General Electric in the United States, was traumatized by a global bribery scandal that led
to a new outside CEO, Peter Loscher, being appointed. His leadership led to a significant
restructuring effort. While Loscher divested telecommunication and information technology
businesses, he increased the focus on selling sustainability oriented products to both con-
sumers and industrial customers, including everything from light bulbs to high-speed trains
to factory controls.

Siemens generates $38 billion in sales from wind power, solar energy, and energy-
conserving electricity grids. It claims to be the lead offshore wind turbine producer, and
about one quarter of its 400,000 employees are what Siemens calls “green-collar workers”
that are focused sustainability products. This approach has allowed Siemens’ stock to surge
47 percent in 2009, almost twice the gain that GE’s stock achieved in the same period.
Interestingly, GE has also made a significant emphasis on the green consciousness of its
sales orientation.

In addition to products, companies across the globe are committing to or increasing
their commitment to environmental sustainability. McDonald’s, for example, has pursued
green restaurant design, sustainable packaging, and waste management, and seeks to
improve energy efficiency to reduce its environmental footprint. More importantly, it has
required its supply chain to strive to meet sustainability goals. For example, Cargill, Inc.,
a large basic food producer, has been recognized by McDonald’s as a “Global Best of
Green” supplier.

McDonald’s is one of Cargill’s largest customers, and
Cargill partners with them “in every area from menu devel-
opment, to restaurant operations and risk management
solutions.” McDonald’s supports an annual sustainability
conference in which it challenges its suppliers to meet
“best practices” to improve environmental sustainability.
For instance, Cargill invested millions to install anaero-
bic reactors at all of its largest beef and pork processing
plants. Through this process, Cargill reclaims methane
from wastewater lagoons and converts it to fuel the plants’
boilers. This process has reduced 30 percent of the natural
gas demand at 11 meat plants. Cargill estimates that this
process has reduced greenhouse gas emissions by more
than 1.3 million metric tons over the last four years: “It
reduces pollution, increases our renewable energy and
cuts costs.”

Procter & Gamble (P&G) recently announced increased
targets for its 2012 sustainability goals. Among the goals
are those to (1) “develop and market at least $50 billion
in cumulative sales of sustainable innovation products,
(2) deliver a 20 percent reduction (per unit of production)

FIRMS’ EFFORTS TO TAKE
CARE OF THE PHYSICAL

ENVIRONMENT IN WHICH
THEY COMPETE

S
U

S

T
A

IN
A

B
IL

IT
Y

• S
U

S
T
A

IN
A
B
IL
IT
Y
• S
U
S
T
A
IN
A
B
IL
IT
Y
• S
U
S
T
A
IN
A
B
IL
IT
Y

S T R A T E G I C F O C U S

CHE-HITT-11-0505-002.indd 49CHE-HITT-11-0505-002.indd 49 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

50
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts in carbon dioxide emissions, energy consumption, water usage and disposed waste from
P&G plants, and (3) enable 300 million children to Live, Learn and Thrive by delivering
three billion liters of clean water through P&G’s Children’s Safe Drinking Water program.”
Dutch consumer product giant Unilever also has an ongoing commitment to sustainabil-
ity. The firm’s sustainability actions include reducing water usage in its plants, working
with its suppliers to encourage sustainability practices on their parts, and improving the
eco-efficiency of their manufacturing facilities. Again, an important aspect of these sustain-
ability programs by large companies is that it extends to their supply chain. For example,
Walmart’s sustainability has an immense impact on both major and minor supply chain
partners.

Although many forces are pushing firms to become greener, not all the “green” claims of
products on store shelves are valid. According to a recent study reported in the Wall Street
Journal, 95 percent of consumer products examined committed at least one offense of
“green washing,” a term used to describe unproven environmental claims. Both TerraChoice
and Underwriters Laboratories offer green-certification programs, which could benefit many
manufacturers who seek to have third-party verification of their green or environmentally
friendly claims.

Although there are many firms whose claims are not verified, the examples noted
above signify a growing commitment by firms around the globe in response to emerg-
ing trends in the physical environment segment. In addition to positively responding
to the observed trends in this segment of the general environment, there is some evi-
dence that firms engaging in these types of behaviors outperform those failing to do
so, as the Siemens example illustrates. This emerging evidence suggests that these
behaviors benefit companies, their stakeholders, and the physical environment in which
they operate.

Sources: 2011, Betting on green, Economist, March 12, 22; 2011, Thinking outside (and inside) the box, Refrigerated and
Frozen Foods, March, 40–41; G. Colvin, 2011, Green forum, Fortune, April 11, 90–102; R. Pendrous, 2011, The green
giant of sustainable thinking, Profitable Production, March, 37; D. Stanford, 2011, Sustainability meets the profit motive,
Bloomberg Businessweek, April 4, 25–26; R. Weiss & B. Kammel, 2011, How Siemens got its Mojo back, Bloomberg
Businessweek, http://www.businessweek.com, January 27; G. Bounds, 2010, Health and Wellness: Misleading claims on
“green” labeling, Wall Street Journal, October 26, D4.

A
IN

A
B

IL
IT

Y
• S

U
S

T
A
IN
A
B
IL
IT
Y
• S
U
S
T
A
IN
A
B
IL
IT
Y

putting in an all-electric fleet of delivery trucks that it estimates will save 500,000 gal-
lons of diesel fuel a year, curbing greenhouse emissions by 75 percent over combustion
engines. This conversion also expects to save $700,000 in maintenance costs.86

We discuss other firms’ efforts to “reduce their environmental footprint” and to be good
stewards of the physical environment as a result of doing so in the following Strategic Focus.
As we note, the number of “green” products companies are producing continues to increase.

As our discussion of the general environment shows, identifying anticipated changes
and trends among external elements is a key objective of analyzing the firm’s general envi-
ronment. With a focus on the future, the analysis of the general environment allows firms
to identify opportunities and threats. It is necessary to have a top management team with
the experience, knowledge, and sensitivity required to effectively analyze this segment of
the environment.87 Also critical to a firm’s choices of strategic actions to take is an under-
standing of its industry environment and its competitors; we consider these issues next.

Industry Environment Analysis
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-
ture of competitive strategies that companies use in pursuing above-average returns. In
part, these strategies are chosen because of the influence of an industry’s characteristics.88

IInndduussttrryy EEnnvviirroonnmmeenntt AAnnaallyyssiiss

An industry is a group
of fi rms producing
products that are close
substitutes.

CHE-HITT-11-0505-002.indd 50CHE-HITT-11-0505-002.indd 50 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

51
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

Compared with the general environment, the industry environment has a more direct
effect on the firm’s strategic competitiveness and ability to earn above-average returns.89
An industry’s profit potential is a function of 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 (see Figure 2.2).

The five forces model of competition expands the arena for competitive analysis.
Historically, when studying the competitive environment, firms concentrated on com-
panies with which they competed directly. However, firms must search more broadly to
recognize current and potential competitors by identifying potential customers as well as
the firms serving them. For example, the communications industry is now broadly defined
as encompassing media companies, telecoms, entertainment companies, and companies
producing devices such as smartphones.90 In such an environment, firms must study many
other industries to identify firms with capabilities (especially technology-based capabili-
ties) that might be the foundation for producing a good or a service that can compete
against what they are producing. Using this perspective finds firms focusing on customers
and their needs rather than on specific industry boundaries to define markets.

When studying the industry environment, firms must also recognize that suppliers
can become a firm’s competitors (by integrating forward) as can buyers (by integrating
backward). For example, 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 a company’s competitors. Next, we examine the five forces the firm
analyzes to understand the profitability potential within the industry (or a segment of an
industry) in which it competes or may choose to compete.

Threat of New Entrants
Identifying new entrants is important because they can threaten the market share of exist-
ing competitors.91 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

Threat of
new entrants

Bargaining power
of suppliers

Bargaining power
of buyers

Threat of
substitute products

Rivalry among
competing firms

Figure 2.2 The Five Forces of Competition Model

CHE-HITT-11-0505-002.indd 51CHE-HITT-11-0505-002.indd 51 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

52
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts 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 efficient and to learn
how to compete on new dimensions (e.g., using an Internet-based distribution channel).

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 dis-
advantage even when they are able to enter. As such, high entry barriers tend to increase
the returns for existing firms in the industry and may allow some firms to dominate the
industry.92 Thus, firms competing successfully in an industry want to maintain high entry
barriers in order to discourage potential competitors from deciding to enter the industry.

Barriers to Entry
Firms competing in an industry (and especially those earning above-average returns) try
to develop entry barriers to thwart potential competitors. For example, the server market
is hypercompetitive and dominated by IBM, Hewlett-Packard, and Dell. Historically, the
scale economies these firms have developed by operating efficiently and effectively have
created significant entry barriers, causing potential competitors to think very carefully
about entering the server market to compete against them. Oracle, primarily a software-
oriented company, acquired Sun Microsystems, which is primarily a server hardware
company, to overcome the barriers to entry that exist in this industry. Oracle intends to
preload Oracle software into its new server line. “Hardware makers such as Dell and HP
are getting into software, and software companies like Oracle are getting into hardware;”
these “companies want to create the integrated hardware and software systems that can
satisfy a corporate customer’s every IT need.”93 The degree of success Oracle will achieve
as a result of its decision to enter the server market via an acquisition remains uncertain.

Several kinds of potentially significant entry barriers may discourage competitors
from entering a market.

Economies of Scale Economies of scale are derived from incremental efficiency
improvements through experience as a firm grows larger. Therefore, the cost of pro-
ducing each unit declines as the quantity of a product produced during a given period
increases. This is the case for IBM, Hewlett-Packard, and Dell in the server market, as
previously described.

Economies of scale can be developed in most business functions, such as marketing,
manufacturing, research and development, and purchasing.94 Increasing economies of
scale enhances a firm’s flexibility. For example, a firm may choose to reduce its price
and capture a greater share of the market. Alternatively, it may keep its price constant to
increase profits. In so doing, it likely will increase its free cash flow, which is very helpful
during financially challenging times.

New entrants face a dilemma when confronting current competitors’ scale economies.
Small-scale entry places them at a cost disadvantage. Given the size of Sun Microsystems
relative to the three major competitors in the server market, Oracle has found it difficult
to compete against its scale advantaged competitors.95 Additionally, large-scale entry
through such an acquisition, in which the new entrant manufactures large volumes of a
product to gain economies of scale, risks strong competitive retaliation.

Some competitive conditions reduce the ability of economies of scale to create an
entry barrier. Many companies now customize their products for large numbers of small
customer groups. Customized products are not manufactured in the volumes necessary
to achieve economies of scale. Customization is made possible by flexible manufacturing
systems (this point is discussed further in Chapter 4). In fact, the new manufacturing
technology facilitated by advanced information systems has allowed the development of
mass customization in an increasing number of industries. Although it is not appropriate
for all products and implementing it can be challenging, mass customization has become
increasingly common in manufacturing products.96 Online ordering has enhanced the

CHE-HITT-11-0505-002.indd 52CHE-HITT-11-0505-002.indd 52 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

53
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

ability of customers to obtain customized products. Companies manufacturing custom-
ized products learn how to respond quickly to customers’ needs in lieu of developing
scale economies.

Product Differentiation Over time, customers may come to believe that a firm’s
product is unique. This belief can result from the firm’s service to the customer, effec-
tive advertising campaigns, or being the first to market a good or service. The Coca-Cola
Company and PepsiCo have established strong brands in the soft drink market. These
brands compete with each other not only in the United States but around the world.
Because each has used a great deal of resources building their brands, customer loyalty
is strong. These companies battle each other for market leadership, which has changed
back and forth over the years.97 Although Diet Coke is currently the lead brand in the soft
drink market, PepsiCo is leading the way in regard to innovation in social media, such as
advertising on Facebook and Twitter as well as other approaches through the Internet.98
When considering entry into the soft drink market, a company needs to pause to exam-
ine how one can overcome the brand image and consumer loyalty to these two giants in
this global industry. One needs significant resources to capture market share, although
many firms are doing so that have the resources to produce private label products such
as Walmart.

Companies such as Procter & Gamble (P&G) and Colgate-Palmolive spend a great
deal of money on advertising and product development to convince potential custom-
ers of their products’ distinctiveness and of the value buying their brands provides.
Customers valuing a product’s uniqueness tend to become loyal to both the product and
the company producing it. In turn, customer loyalty is an entry barrier for firms think-
ing of entering an industry and competing against the likes of P&G and Colgate. To
compete against firms offering differentiated products to individuals who have become
loyal customers, new entrants often allocate many resources. To combat the perception
of uniqueness, new entrants frequently offer products at lower prices. This decision,
however, may result in lower profits or even losses.

Capital Requirements Competing in a new industry requires a firm to have
resources to invest. In addition to physical facilities, capital is needed for inventories,
marketing activities, and other critical business functions. Even when a new industry is
attractive, the capital required for successful market entry may not be available to pursue
the market opportunity.99 For example, defense industries are difficult to enter because
of the substantial resource investments required to be competitive. In addition, because
of the high knowledge requirements of the defense industry, a firm might acquire an
existing company as a means of entering this industry, but it must have access to the
capital necessary to do this. Obviously, Oracle had the capital required to acquire Sun
Microsystems as a foundation for entering the server market.

Switching Costs Switching costs are the one-time costs customers incur when
they buy from a different supplier. The costs of buying new ancillary equipment and
of retraining employees, and even the psychic costs of ending a relationship, may be
incurred in switching to a new supplier. In some cases, switching costs are low, such as
when the consumer switches to a different brand of soft drink. Switching costs can vary
as a function of time. For example, in terms of credit hours toward graduation, the cost
to a student to transfer from one university to another as a freshman is much lower than
it is when the student is entering the senior year.

Occasionally, a decision made by manufacturers to produce a new, innovative prod-
uct creates high switching costs for the final consumer. Customer loyalty programs, such
as airlines’ frequent flyer miles, are intended to increase the customer’s switching costs.
If switching costs are high, a new entrant must offer either a substantially lower price or

CHE-HITT-11-0505-002.indd 53CHE-HITT-11-0505-002.indd 53 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

54
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts a much better product to attract buyers. Usually, the more established the relationships
between parties, the greater the switching costs.

Access to Distribution Channels Over time, industry participants typically
develop effective means of distributing products. Once a relationship with its distribu-
tors has been built a firm will nurture it, thus creating switching costs for the distributors.
Access to distribution channels can be a strong entry barrier for new entrants, particu-
larly in consumer nondurable goods industries (e.g., in grocery stores where shelf space
is limited) and in international markets. New entrants have to persuade distributors to
carry their products, either in addition to or in place of those currently distributed. Price
breaks and cooperative advertising allowances may be used for this purpose; however,
those practices reduce the new entrant’s profit potential. Interestingly, access to distribu-
tion is less of a barrier for products that can be sold on the Internet.

Cost Disadvantages Independent of Scale Sometimes, established competitors
have cost advantages that new entrants cannot duplicate. Proprietary product technology,
favorable access to raw materials, desirable locations, and government subsidies are exam-
ples. Successful competition requires new entrants to reduce the strategic relevance of these
factors. Delivering purchases directly to the buyer can counter the advantage of a desirable
location; new food establishments in an undesirable location often follow this practice.

Government Policy Through licensing and permit requirements, governments can
also control entry into an industry. Liquor retailing, radio and TV broadcasting, banking,
and trucking are examples of industries in which government decisions and actions affect
entry possibilities. Also, governments often restrict entry into some industries because
of the need to provide quality service or the need to protect jobs. Alternatively, deregula-
tion of industries, exemplified by the airline and utilities industries in the United States,
allows more firms to enter.100 However, some of the most publicized government actions
are those involving antitrust. Often the Antitrust Division of the Justice Department of
the Federal Trade Commission will disallow a merger because it creates a firm that is too
dominant in an industry and would thus create unfair competition.101 Such a negative
ruling would obviously be an entry barrier for the acquiring firm.

Expected Retaliation
Companies seeking to enter an industry also anticipate the reactions of firms in the
industry. An expectation of swift and vigorous competitive responses reduces the likeli-
hood of entry. Vigorous retaliation can be expected when the existing firm has a major
stake in the industry (e.g., it has fixed assets with few, if any, alternative uses), when it
has substantial resources, and when industry growth is slow or constrained. For example,
any firm attempting to enter the airline industry at the current time can expect significant
retaliation from existing competitors due to overcapacity.

Locating market niches not being served by incumbents allows the new entrant to
avoid entry barriers. Small entrepreneurial firms are generally best suited for identifying
and serving neglected market segments. When Honda first entered the U.S. motorcycle
market, it concentrated on small-engine motorcycles, a market that firms such as Harley-
Davidson ignored. By targeting this neglected niche, Honda avoided competition. After
consolidating its position, Honda used its strength to attack rivals by introducing larger
motorcycles and competing in the broader market. Competitive actions and competitive
responses between firms such as Honda and Harley-Davidson are discussed more fully
in Chapter 5.

Bargaining Power of Suppliers
Increasing prices and reducing the quality of their products are potential means suppli-
ers use to exert power over firms competing within an industry. If a firm is unable to

CHE-HITT-11-0505-002.indd 54CHE-HITT-11-0505-002.indd 54 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

55
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

recover cost increases by its suppliers through its own pricing structure, its profitability
is reduced by its suppliers’ actions. A supplier group is powerful when

■ It is dominated by a few large companies and is more concentrated than the industry
to which it sells.

■ Satisfactory substitute products are not available to industry firms.
■ Industry firms are not a significant customer for the supplier group.
■ Suppliers’ goods are critical to buyers’ marketplace success.
■ The effectiveness of suppliers’ products has created high switching costs for industry

firms.
■ It poses a credible threat to integrate forward into the buyers’ industry. Credibility is

enhanced when suppliers have substantial resources and provide a highly differenti-
ated product.

The airline industry is one in which suppliers’ bargaining power is changing. Though
the number of suppliers is low, the demand for major aircraft is also relatively low. Boeing
and Airbus aggressively compete for orders of major aircraft, creating more power for
buyers in the process. When a large airline signals that it might place a “significant” order
for wide-body airliners which either Airbus or Boeing might produce, both companies
are likely to battle for the business and include a financing arrangement, highlighting the
buyer’s power in the potential transaction.

Bargaining Power of Buyers
Firms seek to maximize the return on their invested capital. Alternatively, buyers (custom-
ers of an industry or a 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.102 These outcomes are achieved by encouraging competitive battles among the
industry’s firms. Customers (buyer groups) are powerful when

■ They purchase a large portion of an industry’s total output.
■ The sales of the product being purchased account for a significant portion of the

seller’s annual revenues.
■ They could switch to another product at little, if any, cost.
■ The industry’s products are undifferentiated or standardized, and the buyers pose a

credible threat if they were to integrate backward into the sellers’ industry.

Consumers armed with greater amounts of information about the manufacturer’s costs
and the power of the Internet as a shopping and distribution alternative have increased
bargaining power in many industries. One reason for this shift is that individual buyers
incur virtually zero switching costs when they decide to purchase from one manufacturer
rather than another or from one dealer as opposed to any other.

Threat of Substitute Products
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 (and other sugar substitutes) places an upper limit on
sugar manufacturers’ prices—NutraSweet and sugar perform the same function, though
with different characteristics. Other product substitutes include e-mail and fax machines
instead of overnight deliveries, plastic containers rather than glass jars, and tea instead of
coffee. Newspaper firms have experienced significant circulation declines over the past
decade or more. The declines are due to substitute outlets for news including Internet
sources, cable television news channels, and e-mail and cell phone alerts. Likewise, sat-
ellite TV and cable and telecommunication companies provide substitute services for
basic media services such as television, Internet, and phone. However, as illustrated in
the Strategic Focus, the possible switching is becoming more complicated as consumer

CHE-HITT-11-0505-002.indd 55CHE-HITT-11-0505-002.indd 55 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

56
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u
ts

In the Internet era, as media content has
moved from a paper, tape, and film (or ana-
log) world to a digital world based on Internet
technology, new industry structures are emerg-
ing as firms begin to utilize that technology
and create commercial opportunities. This

process of new technology creation, utilization, and commercialization ultimately leads to
changes in organizational patterns, and in particular, strategic alliances and mergers and
acquisitions as firms restructure themselves around the utilization and commercial opportuni-
ties being created.

At the base of this new digital world are firms that offer digital services. In particular
focusing on television subscribers, there are about 64 million cable TV households and
32.5 million satellite consumers. However, although starting at a lower base, telecom TV
homes are growing at an increased rate relative to satellite and cable providers. In 2011
telecom television providers are at 8.5 million but are projected to be at 16 million by
2014. Each of these providers is seeking to bundle their services to provide not only tele-
vision but also broadband and telecommunication services. Many telecom providers are
also reaching/pursuing mobile phone services, especially as the penetration rate of land-

lines is decreasing and mobile phones are increasing.
Industry convergence is also being felt by device pro-

ducers such as Apple and other PC makers such as Dell
and HP. Apple has produced a smartphone, the iPhone,
which has sparked all other device makers to try to pro-
duce similar products. Such products now are offered by all
of the mobile phone producers, including Nokia, Samsung,
and Motorola, among others. Not only do the smartphones
provide telephone and texting capabilities but also increas-
ingly numerous multimedia applications, including music
and video as well as GPS services and general Internet
searches. There are new applications almost every day. The
opportunities here globally are even more significant than
the purchases of personal computers because the price is
lower.

The battle for a software platform among these smart-
phones is also important. The iPhone platform produced by Apple is currently in the lead,
but Google has been catching up through its Android platform. Although Microsoft is
behind, Nokia has recently moved to adopt the Microsoft platform. Research in Motion’s
(RIM) platform is also competing but is behind the Apple and Google platforms. The larger
the base of users in these platforms the more draw there is for independent software pro-
ducers to create new application uses for an increasing variety of smartphones, which draws
more consumers to the platform and the company’s devices.

The platform is also important in the home, where there is a battle for control of the
set-top box, which manages the media content available through televisions and other
home devices such as the personal computer. Again, Apple TV, Google TV, and firms such
as Netflix and Hulu are competing for this base, as are cable companies through video on
demand (VOD) services.

Finally, firms that actually produce the media—musicians, news organizations and news-
papers, television and movie producers, and publishers—want to make sure that their
content is available through all sources. Now, that means mobile as well as home devices,
where they can gain access to advertising dollars, which have been the traditional ways of

caption to come

THE MULTI-INDUSTRY
BATTLE FOR MOBILE

AND HOME DIGITAL
COMPUTING AND
ENTERTAINMENT

G
e
n
e
ri
c
p
h
o
to
c
re
d
it
s
S T R A T E G I C F O C U S

E
N

T
R

E
P

R
E

N
E

U
R

S
H

IP
• E

N
T
R

E
P
R
E
N
E
U
R
S
H
IP
• E
N
T
R
E
P
R
E
N
E
U
R
S
H
IP
• E
N

CHE-HITT-11-0505-002.indd 56CHE-HITT-11-0505-002.indd 56 01/08/11 8:39 PM01/08/11 8:39 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

57
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

demand for content changes through increasing use of mobile devices such as tablets
and smartphones.103 Tablets such as the iPad are reducing the number of PCs sold and
this is curtailing the growth of PC producers such as Taiwan’s Acer Computers, at least
until they can come out with their own successful tablet product.104 These products are
increasingly popular, especially among younger and technologically savvy people, and
as product substitutes they have significant potential to continue to reduce traditional
media sources such as newspaper circulation sales.

In general, product substitutes present a strong threat to a firm when customers face
few, if any, switching costs and when the substitute product’s price is lower or its quality
and performance capabilities are equal to or greater than those of the competing product.
Differentiating a product along dimensions that customers value (such as quality, service
after the sale, and location) reduces a substitute’s attractiveness.

Intensity of Rivalry among Competitors
Because an industry’s firms are mutually dependent, actions taken by one company usu-
ally invite competitive responses. In many industries, firms actively compete against
one another. Competitive rivalry intensifies when a firm is challenged by a competitor’s
actions or when a company recognizes an opportunity to improve its market position.

profiting from media. For example, people are going to movies in theaters less than they
used to, even with increased use of technology such as three dimensions (3D). More and
more people are watching media at home through big screen televisions and via VOD ser-
vices, which are available not only in the home but on mobile devices, netbooks, laptops,
and desktop PCs.

This convergence among players has led to acquisitions between buyers and suppli-
ers and competitors as well as multiple relationships and strategic partnerships through
strategic alliances, which have become the norm as firms compete to take advantage of
the resources available. A recent trend has been to partner with social network firms such
as Twitter and Facebook in order to better utilize social media and gain new advertising
dollars. This convergence makes competitor analysis much more difficult than it used to
be because it is difficult to say who is a competitor, who is a supplier, who is a buyer,
and who is a new entrant into the industry, and what products, services, and processes
will be substituted next as the industry structure evolves. One day a firm provides a
complementary product such as software to hardware producers, and the next day the
complementor (formally defined later in the chapter) makes an acquisition, as Oracle
did of Sun Microcomputers, and becomes a competitor to other server producers such
as Dell, HP, and IBM. Competitor analysis must take into consideration the technologi-
cal changes which lead to the utilization and commercialization of technologies. It also
must ultimately examine how such technological changes will lead to convergence of
competitors or other firms and associated organizational changes through alliances and
acquisitions and the possible re-creation of a new set of industry competitors, buyers and
suppliers.

Sources: P. Burrows, 2011, Mobile wars! Apple vs. Google vs. those other guys, Bloomberg Businessweek, http://www
.businessweek.com, February 16; J. Christensen, 2011, Industrial evolution through complementary convergence: The
case of IT security, Industrial & Corporate Change, 20(1): 57–89; J. Davis, 2011, Lenovo’s tablet, smartphone focus:
New business unit created, http://www.channelinsider.com, January 25; G. Rivlin, 2011, The problem with Microsoft,
Fortune, April 11, 45–52; G. Winslow, 2011, Map to TV everywhere, Broadcast & Cable, February 14, 23; 2010,
The competitive landscape, Multichannel News, http://www.multichannel.com, December 27; A. Pierce, 2010, The
convergence of communication technologies, Tech Directions, 70(5): 12–13; D. Sullivan & J. Yuening, 2010, Media
convergence and the impact of the internet on the M&A activity of large media companies, Journal of Media
Business Studies, 7(4): 21–40.

E
N
T
R
E
P
R
E
N
E
U
R
S
H
IP
• E
N
T
R
E
P
R
E
N
E
U
R
S
H
IP
• E
N

CHE-HITT-11-0505-002.indd 57CHE-HITT-11-0505-002.indd 57 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

58
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts Firms within industries are rarely homogeneous; they differ in resources and capa-
bilities and seek to differentiate themselves from competitors.105 Typically, firms seek to
differentiate their products from competitors’ offerings in ways that customers value and
in which the firms have a competitive advantage. Common dimensions on which rivalry
is based include price, service after the sale, and innovation.

Next, we discuss the most prominent factors that experience shows to affect the
intensity of firms’ rivalries.

Numerous or Equally Balanced Competitors
Intense rivalries are common in industries with many companies. With multiple com-
petitors, it is common for a few firms to believe 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
competitive battles between Airbus and Boeing exemplify intense rivalry between rela-
tively equal competitors, especially as airlines place bids for the new wide-body planes
they are producing. Coca-Cola and PepsiCo have a strong rivalry in drink products as
consumers demand not only great taste but real health benefits.106

Slow Industry Growth
When a market is growing, firms try to effectively use resources to serve an expand-
ing customer base. Growing markets reduce the pressure to take customers from com-
petitors. However, rivalry in no-growth or slow-growth markets (slow change) becomes
more intense as firms battle to increase their market shares by attracting competitors’

customers. For example, there is a growing trend for health care
of baby boomers, who are now reaching age 65. Growth can be
realized by managed-care firms like WellPoint Inc. and Aetna
Inc. without strong rivalry.107 The same is true for home health
care, but as regulation becomes more prominent in this indus-
try, growth is likely to slow and rivalry increase.108

Typically, battles to protect market share are fierce.
Certainly, this has been the case in the airline industry and in
the fast-food industry as McDonald’s, Wendy’s, and Burger
King try to win each other’s customers. The instability in the
market that results from these competitive engagements may
reduce the profitability for all firms engaging in such battles.

High Fixed Costs or High Storage Costs
When fixed costs account for a large part of total costs, compa-
nies try to maximize the use of their productive capacity. Doing
so allows the firm to spread costs across a larger volume of out-
put. However, when many firms attempt to maximize their pro-
ductive capacity, excess capacity is created on an industry-wide
basis. To then reduce inventories, individual companies typi-
cally cut the price of their product and offer rebates and other
special discounts to customers. However, these practices, com-
mon in the automobile manufacturing industry in the recent
past, often intensify competition. The pattern of excess capac-
ity 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 per-
ishable goods often use pricing strategies to sell products quickly.

G
e
n
e
ri
c

P
h

o
to

C
re

d
it

Photo caption to come

CHE-HITT-11-0505-002.indd 58CHE-HITT-11-0505-002.indd 58 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

59
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

Lack of Differentiation or Low Switching Costs
When buyers find a differentiated product that satisfies their needs, they frequently
purchase the product loyally over time. Industries with many companies that have suc-
cessfully differentiated their products have less rivalry, resulting in lower competition
for individual firms. Firms that develop and sustain a differentiated product that cannot
be easily imitated by competitors often earn higher returns. However, when buyers view
products as commodities (i.e., as products with few differentiated features or capabili-
ties), rivalry intensifies. In these instances, buyers’ purchasing decisions are based pri-
marily on price and, to a lesser degree, service. Personal computers are a commodity
product. Thus, the rivalry between Dell, Hewlett-Packard, Lenovo, and other computer
manufacturers is strong and these companies are always trying to find ways to differen-
tiate their offerings (Hewlett-Packard now pursues product design as a means of differ-
entiation). Apple has been able to maintain a differentiation strategy through ease of use
of its software applications and it integration capabilities with other software platforms.

High Strategic Stakes
Competitive rivalry is likely to be high when it is important for several of the competi-
tors 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 and is doing quite well. This market is quite important to Sony and
other major competitors, such as Hitachi, Matsushita, NEC, and Mitsubishi, suggesting
that rivalry among these competitors will remain strong.

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. mar-
ketplace because it is the world’s largest single market for automobiles and trucks. Due to the
high stakes involved in the United States for both Japanese and U.S. manufacturers, rivalry
among the global firms from these two countries is intense. With the excess capacity in this
industry we mentioned earlier in this chapter, there is every reason to believe that the rivalry
among global automobile manufacturers will remain intense in the foreseeable future.

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 them to
remain in an industry when the profitability of doing so is questionable. Exit barriers are
especially high in the airline industry. Although earning even average returns is difficult
for these firms, they face substantial exit barriers, such as their ownership of specialized
assets (e.g., large aircraft).109 Common exit barriers include the following:

■ Specialized assets (assets with values linked to a particular business or location)
■ Fixed costs of exit (such as labor agreements)
■ Strategic interrelationships (relationships of mutual dependence, such as those

between one business and other parts of a company’s operations, including shared
facilities and access to financial markets)

■ Emotional barriers (aversion to economically justified business decisions because of
fear for one’s own career, loyalty to employees, and so forth)

■ Government and social restrictions (often based on government concerns for job
losses and regional economic effects; more common outside the United States).

Interpreting Industry Analyses
Effective industry analyses are products of careful study and interpretation of data and infor-
mation from multiple sources. A wealth of industry-specific data is available to be analyzed
by individual country. Because of globalization, international markets and rivalries must be

IInntteerrpprreettiinngg IInndduussttrryy AAnnaallyysseess

CHE-HITT-11-0505-002.indd 59CHE-HITT-11-0505-002.indd 59 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

60
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts 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 competitive-
ness. 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.110

Analysis of the five forces in the industry allows the firm to determine the industry’s
attractiveness in terms of the potential to earn adequate or superior returns. 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 bargain-
ing positions, strong competitive threats from product substitutes, and intense rivalry
among competitors. These industry characteristics make it 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.111 Next, we
explain strategic groups as an aspect of industry competition.

Strategic Groups
A set of firms that emphasize similar strategic dimensions and use a similar strategy is
called a strategic group.112 The competition between firms within a strategic group is
greater than the competition between a member of a strategic group and companies
outside that strategic group. Therefore, intrastrategic group competition is more intense
than is interstrategic group competition. In fact, more heterogeneity is evident in the per-
formance of firms within strategic groups than across the groups. The performance lead-
ers within groups are able to follow strategies similar to those of other firms in the group
and yet maintain strategic distinctiveness to gain and sustain a competitive advantage.113

The extent of technological leadership, product quality, pricing policies, distribution
channels, and customer service are examples of strategic dimensions that firms in a stra-
tegic group may treat similarly. Thus, membership in a particular strategic group defines
the essential characteristics of the firm’s strategy.114

The notion of strategic groups can be useful for analyzing an industry’s competitive
structure. Such analyses can be helpful in diagnosing competition, positioning, and the
profitability of firms within an industry.115 High mobility barriers, high rivalry, and low
resources among the firms within an industry limit the formation of strategic groups.116
However, research suggests that after strategic groups are formed, their membership
remains relatively stable over time, although recent research does examine how change
occurs.117 Using strategic groups to understand an industry’s competitive structure
requires the firm to plot companies’ competitive actions and competitive responses along
strategic dimensions such as pricing decisions, product quality, distribution channels,
and so forth. This type of analysis shows the firm how certain companies are competing
similarly in terms of how they use similar strategic dimensions.

Strategic groups have several implications. First, because firms within a group offer
similar products to the same customers, the competitive rivalry among them can be
intense. The more intense the rivalry, the greater the threat to each firm’s profitability.
Second, the strengths of the five industry forces differ across strategic groups. Third, the
closer the strategic groups are in terms of their strategies, the greater is the likelihood of
rivalry between the groups.

Competitor Analysis
The competitor environment is the final part of the external environment requiring study.
Competitor analysis focuses on each company against which a firm directly competes.

SSttrraatteeggiicc GGrroouuppss

CCoommppeettiittoorr AAnnaallyyssiiss

A set of fi rms that
emphasize similar
strategic dimensions
and use a similar
strategy is called
a strategic group.

CHE-HITT-11-0505-002.indd 60CHE-HITT-11-0505-002.indd 60 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

61
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

For example, Coca-Cola and PepsiCo, Home Depot and Lowe’s, and Boeing and Airbus
are keenly interested in understanding each other’s objectives, strategies, assumptions,
and capabilities. Indeed, intense rivalry creates a strong need to understand competi-
tors.118 In a competitor analysis, the firm seeks to understand the following:

■ What drives the competitor, as shown by its future objectives
■ What the competitor is doing and can do, as revealed by its current strategy
■ What the competitor believes about the industry, as shown by its assumptions
■ What the competitor’s capabilities are, as shown by its strengths and weaknesses.119

Information about these four dimensions helps the firm prepare an anticipated
response profile for each competitor (see Figure 2.3). The results of an effective competi-
tor analysis help a firm understand, interpret, and predict its competitors’ actions and
responses. Understanding the actions of competitors clearly contributes to the firm’s
ability to compete successfully within the industry.120 Interestingly, research suggests
that executives often fail to analyze competitors’ possible reactions to competitive actions
their firm takes,121 placing their firm at a potential competitive disadvantage as a result.

Critical to an effective competitor analysis is gathering data and information that can
help the firm understand its competitors’ intentions and the strategic implications result-
ing from them.122 Useful data and information combine to form competitor intelligence,
the set of data and information the firm gathers to better understand and anticipate com-
petitors’ objectives, strategies, assumptions, and capabilities. In competitor analysis, the
firm gathers intelligence not only about its competitors, but also regarding public poli-
cies in countries around the world. Such intelligence facilitates an understanding of the

Competitor
intelligence is the
set of data and
information the fi rm
gathers to better
understand and better
anticipate competitors’
objectives, strategies,
assumptions, and
capabilities.

Figure 2.3 Competitor Analysis Components

Future Objectives
• How do our goals compare with our
competitors’ goals?
• Where will emphasis be placed in the
future?
• What is the attitude toward risk?

Current Strategy
• How are we currently competing?
• Does their strategy support changes
in the competitive structure?

Assumptions
• Do we assume the future will be volatile?
• Are we operating under a status quo?
• What assumptions do our competitors
hold about the industry and themselves?

Capabilities
• What are our strengths and weaknesses?
• How do we rate compared to our
competitors?

Response
• What will our competitors do in the
future?
• Where do we hold an advantage over
our competitors?
• How will this change our relationship
with our competitors?

CHE-HITT-11-0505-002.indd 61CHE-HITT-11-0505-002.indd 61 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

62
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts strategic posture of foreign competitors. Through effective competitive and public policy
intelligence, the firm gains the insights needed to make effective strategic decisions on
how to compete against its rivals.

When asked to describe competitive intelligence, it seems that a number of people
respond with phrases such as “competitive spying” and “corporate espionage.” These
phrases denote the fact that competitive intelligence is an activity that appears to involve
trade-offs.123 According to some, the reason for this is that “what is ethical in one country
is different from what is ethical in other countries.” This position implies that the rules of
engagement to follow when gathering competitive intelligence change in different con-
texts.124 However, firms avoid the possibility of legal entanglements and ethical quanda-
ries only when their competitive intelligence gathering methods are governed by a strict
set of legal and ethical guidelines.125 This means that ethical behavior and actions as well
as the mandates of relevant laws and regulations should be the foundation on which a
firm’s competitive intelligence-gathering process is formed. We address this matter in
greater detail in the next section.

When gathering competitive intelligence, firms must also pay attention to the com-
plementors of its products and strategy.126 Complementors are companies or networks
of companies that sell complementary goods or services that are compatible with the
focal firm’s good or service. When a complementor’s good or service adds value to the
sale of the focal firm’s good or service, it is likely to create value for the focal firm.

There are many examples of firms whose good or service complements other com-
panies’ offerings. For example, firms manufacturing affordable home photo printers
complement other companies’ efforts to sell digital cameras. Intel and Microsoft are
perhaps the most widely recognized complementors. The Microsoft slogan “Intel Inside”
demonstrates the relationship between two firms who do not directly buy from or sell
to each other but whose products have a strong complementary relationship. Alliances
among airline operations (e.g., the Star Alliance and the SkyTeam Alliance) find these
companies sharing their route structures and customer loyalty programs as means of
complementing each others’ operations. (Each alliance is a network of complementors.)
Recently, Continental Airlines announced that it was leaving the SkyTeam Alliance to
join the Star Alliance. The primary reason for this change was to provide greater global
coverage to Continental’s customers by combining its routes with those of the other
members of the Star Alliance. In essence, Continental’s conclusion was that the comple-
mentors of the Star Alliance created more value for its customers than did its comple-
mentors in the SkyTeam Alliance. Ultimately, Continental merged with United Airlines,
a key Star Alliance member.

As our discussion shows, complementors expand the set of competitors firms must
evaluate when completing a competitor analysis. For example, as illustrated in the Strategic
Focus, sometimes complementors change, as in the purchase of Sun Microsystems by
Oracle. After the acquisition Oracle was no longer a complementor of Dell and HP, but
a competitor. Similarly, Intel and Microsoft analyze each other’s actions in that those
actions might either help each firm gain a competitive advantage or damage each firm’s
ability to exploit a competitive advantage.

Ethical Considerations
Firms must follow relevant laws and regulations as well as carefully articulated ethi-
cal guidelines when gathering competitor intelligence. Industry associations often
develop lists of these practices that firms can adopt. Practices considered both legal
and ethical include (1) obtaining publicly available information (e.g., court records,
competitors’ help-wanted advertisements, annual reports, financial reports of publicly

EEtthhiiccaall CCoonnssiiddeerraattiioonnss

Complementors are
companies or networks
of companies that sell
complementary goods
or services that are
compatible with the
focal fi rm’s good or
service.

CHE-HITT-11-0505-002.indd 62CHE-HITT-11-0505-002.indd 62 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

63
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

held corporations, and Uniform Commercial Code filings), and (2) attending trade
fairs and shows to obtain competitors’ brochures, view their exhibits, and listen to
discussions about their products. In contrast, certain practices (including blackmail,
trespassing, eavesdropping, and stealing drawings, samples, or documents) are widely
viewed as unethical and often are illegal.

Some competitor intelligence practices may be legal, but a firm must decide whether
they are also ethical, given the image it desires as a corporate citizen. Especially with
electronic transmissions, the line between legal and ethical practices can be difficult
to determine. For example, a firm may develop Web site addresses that are similar to
those of its competitors and thus occasionally receive e-mail transmissions that were
intended for those competitors. The practice is an example of the challenges companies
face in deciding how to gather intelligence about competitors while simultaneously
determining how to prevent competitors from learning too much about them. To
deal with these challenges, firms should establish principles and take actions that are
consistent with them. Many firms follow the Strategy and Competitive Intelligence
Professionals, a professional association, code of professional practice and ethics deal-
ing with this issue.127

Open discussions of intelligence-gathering techniques can help a firm ensure that
employees, customers, suppliers, and even potential competitors understand its convic-
tions to follow ethical practices for gathering competitor intelligence. An appropriate
guideline for competitor intelligence practices is to respect the principles of common
morality and the right of competitors not to reveal certain information about their prod-
ucts, operations, and strategic intentions.128

■ The firm’s external environment is challenging and complex.
Because of the external environment’s effect on perfor-
mance, the firm must develop the skills required to identify
opportunities and threats existing in that environment.

■ The external environment has three major parts: (1) the
general environment (elements in the broader society that
affect industries and their firms), (2) the industry environ-
ment (factors that influence a firm, its competitive actions
and responses, and the industry’s profit potential), and (3)
the competitor environment (in which the firm analyzes each
major competitor’s future objectives, current strategies,
assumptions, and capabilities).

■ The external environmental analysis process has four steps:
scanning, monitoring, forecasting, and assessing. Through
environmental analyses, the firm identifies opportunities and
threats.

■ The general environment has seven segments: demographic,
economic, political/legal, sociocultural, technological, global,
and physical. For each segment, the firm has to determine
the strategic relevance of environmental changes and trends.

■ Compared with the general environment, the industry environ-
ment has a more direct effect on the firm’s strategic actions.
The five forces model of competition includes the threat of
entry, the power of suppliers, the power of buyers, product

substitutes, and the intensity of rivalry among competitors. By
studying these forces, the firm finds a position in an industry
where it can influence the forces in its favor or where it can
buffer itself from the power of the forces in order to achieve
strategic competitiveness and earn above-average returns.

■ Industries are populated with different strategic groups. A
strategic group is a collection of firms following similar strat-
egies along similar dimensions. Competitive rivalry is greater
within a strategic group than between strategic groups.

■ Competitor analysis informs the firm about the future objec-
tives, current strategies, assumptions, and capabilities of
the companies with which it competes directly. A thorough
analysis examines complementors that sustain a competitor’s
strategy and major networks or alliances in which competi-
tors participate. When analyzing competitors, the firm should
also identify and carefully monitor major actions taken by
firms with performance below the industry norm.

■ Different techniques are used to create competitor intel-
ligence: the set of data, information, and knowledge that
allows the firm to better understand its competitors and
thereby predict their likely strategic and tactical actions.
Firms should use only legal and ethical practices to gather
intelligence. The Internet enhances firms’ capabilities
to gather insights about competitors and their strategic
intentions.

S U M M A R Y

C
h

a
C

h
a

C
h
a
C

h
p

te
p

te
p

tet
r

2
r

2
r

22: T:T:TT
h

e
h

e
h
e
h

E
xt

E
xt
E
xt

E
te

rn
e

rn
e

rn
alalallE

n
v

E
n

v
E

n
v

E
iro
iro
iro
i

n
m
e
n

m
e

n
m
e
n

t:
n

t:
n

t:tO
p

O
p
O
p
O
p

o
r

p
o

r
p

o
rtu

n
tu

n
tu

n
t

iti
iti
iti
itie

s,
e

s,
e

s
T

h
T

h
T
h
T
h
re

a
re

a
re

ats,
ts,
tst

InInInI
d

u
s

d
u

s
d

u
s

d
try
try
try
t

C
o
C
o
C
o

C
m

p
e
m
p
e
m
p
e

tit
tit
tit
titio

n
io

n
io

n
i

, a,aan
d

n
d

n
dd

C
o

m
C

o
m
C
o
m
C
p
e

t
p

e
t

p
e

ttito
ito
ito
it

r

A
r

A
r

AA
n

al
n

al
n

allysi
ysi
ysiisss

CHE-HITT-11-0505-002.indd 63CHE-HITT-11-0505-002.indd 63 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

64
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u
ts

1. Why is it important for a firm to study and understand the
external environment?

2. What are the differences between the general environment
and the industry environment? Why are these differences
important?

3. What is the external environmental analysis process (four
steps)? What does the firm want to learn when using this
process?

4. What are the seven segments of the general environment?
Explain the differences among them.

5. How do the five forces of competition in an industry affect
its profit potential? Explain.

6. What is a strategic group? Of what value is knowledge
of the firm’s strategic group in formulating that firm’s
strategy?

7. What is the importance of collecting and interpreting
data and information about competitors? What practices
should a firm use to gather competitor intelligence and
why?

TO COME

R E V I E W Q U E S T I O N S

E X P E R I E N T I A L E X E R C I S E S

P

P
ar

P
ar

t
1

t
1

t
1

S:S: S
ttr

a
tr

att
e

g
te

gg
iicic

M

M
an

M
an
ag
e
ag
e

g
m

e
n
m
e
n
t

I
t

I
t

In
p

u
n
p
u

p
ttsts

CHE-HITT-11-0505-002.indd 64CHE-HITT-11-0505-002.indd 64 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

65
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis
TO COME

V I D E O C A S E

C
h
a
C
h
a
C
h
a
C
h
p
te
p
te
p

tet

r 2
r

2
r
22: T:T:TT
h
e
h
e
h
e
h
E
xt
E
xt
E
xt
E
te
rn
e
rn
e
rn
alalallE
n
v
E
n
v
E
n
v
E
iro
iro
iro
i
n
m
e
n
m
e
n
m
e
n
t:
n
t:
n
t:tO
p
O
p
O
p
O
p
o
r
p
o
r
p
o
rtu
n
tu
n
tu
n
t
iti
iti
iti
itie
s,
e
s,
e
s
T
h
T
h
T
h
T
h
re
a
re
a
re
ats,
ts,
tst
InInInI
d
u
s
d
u
s
d
u
s
d
try
try
try
t
C
o
C
o
C
o
C
m
p
e
m
p
e
m
p
e
tit
tit
tit
titio
n
io
n
io
n
i
, a,aan
d
n
d
n
dd
C
o
m
C
o
m
C
o
m
C
p
e
t
p
e
t
p
e
ttito
ito
ito
it

r A
r

A
r
AA
n
al
n
al
n
allysi
ysi
ysiisss

CHE-HITT-11-0505-002.indd 65CHE-HITT-11-0505-002.indd 65 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

66
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u
ts

1. H. Benbya & M. Van Alstyne, 2011, How
to find answers within your company, MIT
Sloan Management Review, 52(2): 65–75;
D. A. Bosse, R. A. Phillips, & J. S. Harrison,
2009, Stakeholders, reciprocity, and firm
performance, Strategic Management
Journal, 30: 447–456.

2. A. Peaple, 2011, Reshaped BP finds east
is no Eden, Wall Street Journal, February
23, C14.

3. D. Grégoire, P. Barr, & D. Shepherd,
2010, Cognitive processes of opportunity
recognition: The role of structural
alignment, Organization Science, 21(2):
413–431; P. Chattopadhyay, W. H. Glick,
& G. P. Huber, 2001, Organizational
actions in response to threats and
opportunities, Academy of Management
Journal, 44: 937–955.

4. M. Xu, V. Ong, Y. Duan, & B. Mathews,
2011, Intelligent agent systems for
executive information scanning, filtering
and interpretation: Perceptions and
challenges, Information Processing
& Management, 47(2): 186–201; C.
Weigelt & M. B. Sarkar, 2009, Learning
from supply-side agents: The impact of
technology solution providers’ experiential
diversity on clients’ innovation adoption,
Academy of Management Journal, 52:
37–60.

5. A. Chacar, W. Newburry, & B. Vissa, 2010,
Bringing institutions into performance
persistence research: Exploring the impact
of product, financial, and labor market
institutions, Journal of International Business
Studies, 41(7): 1119–1140; J. P. Bonardi,

G. I. F. Holburn, & R. G. Vanden Bergh,
2006, Nonmarket strategy performance:
Evidence from U.S. electric utilities,
Academy of Management Journal, 49:
1209–1228.

6. S. Hanson, A. Kashyap, & J. Stein,
2011, A macroprudential approach to
financial regulation. Journal of Economic
Perspectives, 25(1): 3–28.

7. M. Lopez-Gamero, J. Molina-Azorin, &
E. Claver-Cortes, 2011, Environmental
uncertainty and environmental
management perception: A multiple case
study, Journal of Business Research, 64(4):
427–435.

8. J. Harrison, D. Bosse, & R. Phillips, 2010,
Managing for stakeholders, stakeholder
utility functions, and competitive
advantage, Strategic Management
Journal, 31(1): 58–74; J. Uotila, M. Maula,
T. Keil, & S. A. Zahra, 2009, Exploration,
exploitation, and financial performance:
Analysis of S &P 500 corporations,
Strategic Management Journal, 30: 221–
231; J. L. Murillo-Luna, C. Garces-Ayerbe,
& P. Rivera-Torres, 2008, Why do patterns
of environmental response differ? A
stakeholder’s pressure approach, Strategic
Management Journal. 29: 1225–1240.

9. M. T. Lucas & O. M. Kirillova, 2011,
Reconciling the resource-based and
competitive positioning perspectives
on manufacturing flexibility, Journal of
Manufacturing Technology Management,
22(2): 189–203; A. Kacperczyk, 2009,
With greater power comes greater
responsibility? Takeover protection and

corporate attention to stakeholders,
Strategic Management Journal, 30:
261–285; C. Eesley & M. J. Lenox, 2006,
Firm responses to secondary stakeholder
action, Strategic Management Journal, 27:
765–781.

10. L. Fahey, 1999, Competitors, New York:
John Wiley & Sons; B. A. Walters & R. L.
Priem, 1999, Business strategy and CEO
intelligence acquisition, Competitive
Intelligence Review, 10(2): 15–22.

11. A. P. Kellogg & J. Bennett, 2009,
Chrysler’s bankruptcy deals blow to
affiliates, Wall Street Journal Online,
http://www.wsj.com, May 2.

12. E. L. Chen, R. Katila, R. McDonald, &
K. M. Eisenhardt, 2010, Life in the fast
lane: Origins of competitive interaction
in new vs. established markets, Strategic
Management Journal, 31(13): 1527–
1547; J. C. Short, D. J. Ketchen, Jr.,
T. B. Palmer, & G. T. Hult, 2007, Firm,
strategic group, and industry influences
on performance, Strategic Management
Journal, 28: 147–167.

13. G. J. Kilduff, H. A. Elfenbein, & B. M.
Staw, 2010, The psychology of rivalry:
A relationally dependent analysis of
competition, Academy of Management
Journal, 53(5): 943–969; K. P. Coyne & J.
Horn, 2009, Predicting your competitor’s
reaction, Harvard Business Review, 87(4):
90–97.

14. W. K. Smith & M. W. Lewis, 2011,
Toward a theory of paradox: A dynamic
equilibrium model of organizing, Academy
of Management Review, 36(2): 381–403;

N O T E S

PP
ar

P
ar
t
1
t
1
t
1
S:S: S
ttr
a
tr
att
e
g
te
gg
iicic

MM
an

M
an
ag
e
ag
e
g
m
e
n
m
e
n
t
I
t
I
t
In
p
u
n
p
u
p
ttsts

CHE-HITT-11-0505-002.indd 66CHE-HITT-11-0505-002.indd 66 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

67
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n

alysis
C

h
a
C
h
a
C
h
a
C
h

p
te

p
te

p
tet

r 2
r
2
r
22: T:T:TT
h
e
h
e
h
e
h
E
xt
E
xt
E
xt
E
te
rn
e
rn
e
rn
alalallE
n
v
E
n
v
E
n
v
E
iro
iro
iro
i
n
m
e
n
m
e
n
m
e
n
t:
n
t:
n
t:tO
p
O
p
O
p
O
p
o
r
p
o
r
p
o
rtu
n
tu
n
tu
n
t
iti
iti
iti
itie
s,
e
s,
e
s
T
h
T
h
T
h
T
h
re
a
re
a
re
ats,
ts,
tst
InInInI
d
u
s
d
u
s
d
u
s
d
try
try
try
t
C
o
C
o
C
o
C
m
p
e
m
p
e
m
p
e
tit
tit
tit
titio
n
io
n
io
n
i
, a,aan
d
n
d
n
dd
C
o
m
C
o
m
C
o
m
C
p
e
t
p
e
t
p
e
ttito
ito
ito
it
r A
r
A
r
AA
n
al
n
al
n
allysi
ysi
ysiisss

D. Sull, 2009, How to thrive in turbulent
markets, Harvard Business Review, 87(2):
78–88; J. Hagel, III, J. S. Brown, & L.
Davison, 2008, Shaping strategy in a
world of constant disruption, Harvard
Business Review, 86(10): 80–89.

15. J. A. Lamberg, H. Tikkanen, T.
Nokelainen, & H. Suur-Inkeroinen,
2009, Competitive dynamics, strategic
consistency, and organizational survival,
Strategic Management Journal, 30: 45–60.

16. E. Bryon, 2011, At P&G beauty makeover
needs to prove it has legs, Wall Street
Journal, January 26, B1.

17. 2011, The power of blindspots. What
companies don’t know, surprises them.
What they don’t want to know, kills them,
Strategic Direction, 27(4): 3–4; W. B.
Gartner, K. G. Shaver, & J. Liao, 2008,
Opportunities as attributions: Categorizing
strategic issues from an attributional
perspective, Strategic Entrepreneurship
Journal, 2: 301–315.

18. P. Burrows, 2011, Mobile wars! Apple vs.
Google vs. those other guys, Bloomberg
Businessweek, http://www.businessweek.
com, February 16; N. Wingfield, 2011,
Corporate news: Alliance no sure bet
for Windows phone, Wall Street Journal,
February 12, B3.

19. D. Chrusciel, 2011, Environmental
scan: Influence on strategic direction,
Journal of Facilities Management, 9(1):
7–15; W. H. Stewart, R. C. May, & A.
Kalla, 2008, Environmental perceptions
and scanning in the United States and
India: Convergence in entrepreneurial
information seeking? Entrepreneurship
Theory and Practice, 32: 83–106; K. M.
Patton & T. M. McKenna, 2005, Scanning
for competitive intelligence, Competitive
Intelligence Magazine, 8(2): 24–26.

20. A. Graefe, S. Luckner, & C. Weinhardt,
2010, Prediction markets for foresight,
Futures, 42(4): 394–404; J. O. Schwarz,
2008, Assessing the future of futures
studies in management, Futures, 40: 237–
246; K. M. Eisenhardt, 2002, Has strategy
changed? MIT Sloan Management Review,
43(2): 88–91.

21. Y. Hsu & C. Liu, 2010, Environmental
performance evaluation and strategic
management using balanced scorecard,
Environmental Monitoring and
Assessment, 170(1–4): 599–607; J. R.
Hough & M. A. White, 2004, Scanning
actions and environmental dynamism:
Gathering information for strategic
decision making, Management Decision,
42: 781–793; V. K. Garg, B. A. Walters,
& R. L. Priem, 2003, Chief executive
scanning emphases, environmental
dynamism, and manufacturing firm
performance, Strategic Management
Journal, 24: 725–744.

22. P. G. F. De Abreu, 2010, How good does
your early warning system have to be?,
Competitive Intelligence Magazine, www
.scip.org, October–December; C.-P. Wei
& Y.-H. Lee, 2004, Event detection from
online news documents for supporting

environmental scanning, Decision Support
Systems, 36: 385–401.

23. Fahey, Competitors, 71–73.
24. 2010, UK: Tesco extends ethnic food

range, Just-food global news, www
.just-food.com, November 30.

25. C. Dellarocas, 2010, Online reputation
systems: How to design one that does
what you need, MIT Sloan Management
Review, 51(3): 33–37; T. M. Jones, W.
Felps, & G. A. Bigley, 2007, Ethical theory
and stakeholder-related decisions: The
role of stakeholder culture, Academy of
Management Review, 32: 137–155.

26. X. Zhang, S. Majid, & S. Foo, 2010,
Environmental scanning: An application
of information literacy skills at the
workplace, Journal of Information Science,
36(6): 719–732; M. J. Leiblein & T. L.
Madsen, 2009, Unbundling competitive
heterogeneity: Incentive structures and
capability influences on technological
innovation, Strategic Management
Journal, 30: 711–735.

27. J. Calof & J. Smith, 2010, The integrative
domain of foresight and competitive
intelligence and its impact on R&D
management, R & D Management,
40(1): 31–39; F. Sanna-Randaccio & R.
Veugelers, 2007, Multinational knowledge
spillovers with decentralized R&D: A
game theoretic approach, Journal of
International Business Studies, 38: 47–63.

28. Fahey, Competitors.
29. S. D. Wu, K. G. Kempf, M. O. Atan,

B. Aytac, S. A. Shirodkar, & A. Mishra,
2010, Improving new-product forecasting
at Intel Corporation, Interfaces, 40(5):
385–396.

30. The Associated Press, 2010, Procter,
Colgate and Unilever profit as brands sell
again, The New York Times, www
.nytimes.com, April 29; E. Byron, 2009,
P&G investors need a little pampering,
Wall Street Journal Online, http://www
.wsj.com, April 30.

31. T. Sueyoshi & M. Goto, 2011,
Methodological comparison between
two unified (operational and
environmental) efficiency measurements
for environmental assessment,
European Journal of Operational
Research, 210(3): 684–693; P. E. Bierly,
III, F. Damanpour, & M. D. Santoro,
2009, The application of external
knowledge: Organizational conditions
for exploration and exploitation, Journal
of Management Studies, 46: 481–509;
Fahey, Competitors, 75–77.

32. M. Exu, V. Ong, Y. Duan, & B. Mathews,
2011, Intelligent agent systems for
executive information scanning, filtering
and interpretation: Perceptions and
challenges, Information Processing
& Management, 47(2): 186–201; M.
S. Hopkins, S. LaValle, F. Balboni, N.
Kruschwitz, & R. Shokley, 2010, 10
insights: A first look at the new intelligent
enterprise survey on winning with data,
MIT Sloan Management Review, 52(1):
22–31.

33. R. King, 2010, Consumer demographics:
Use demographic resources to target
specific audiences, Journal of Financial
Planning, 23(12): S4–S6; E. K. Foedermayr
& A. Diamantopoulos, 2008, Market
segmentation in practice: Review of
empirical studies, methodological
assessment, and agenda for future
research, Journal of Strategic Marketing,
16: 223–265.

34. U.S. Census Bureau, 2011, International
database, http://www.census.gov/ipc/
www/idb/worldpopinfo.php, March 29.

35. T. Kambayashi, 2011, Brief: Aging Japan
sees slowest population growth yet,
McClatchy-Tribune Business News, http://
www.mcclatchy.com, February 25; S.
Moffett, 2005, Fast-aging Japan keeps
its elders on the job longer, Wall Street
Journal, June 15, A1, A8.

36. E. S. Browning, 2011, Retiring boomers
find 401k (plans) fall short, Wall Street
Journal, February 19, A1, A11; S. Armour,
2009, Mortgage crisis robbing seniors of
golden years, USA Today, June 5–7, A1
& A2.

37. P. Hudomiet, G. Kezdi, & R. J.
Willis, 2011, Stock market crash and
expectations of American households,
Journal of Applied Econometrics, 26(3):
393–415; J. M. Nittoli, 2009, Now is no
time to skimp on retirement plans, Wall
Street Journal, http://www.wsj.com,
June 5.

38. P. O’Connor & C. Dougherty, 2010, South
gains in census—Count dents political
clout of snow belt, Wall Street Journal,
December 22, A1.

39. R. Dobbs, S. Smit, J. Remes, J. Manyika,
C. Roxburgh, & A. Restrepo, 2011, Urban
world: Mapping the economic power of
cities, Chicago: McKinsey Global Institute,
March.

40. S. Reddy, 2011, U.S. News: Latinos fuel
growth in decade, Wall Street Journal,
March 25, A2.

41. K. Zaidi, 2010, Harmonizing trade
liberalization and migration policy through
shared responsibility: A comparison of
the impact of bilateral trade agreements
and the GATS in Germany and Canada,
Syracuse Journal of International Law and
Commerce, 37(2): 267–297.

42. A. Mountford & H. Rapoport, 2011, The
brain drain and the world distribution
of income, Journal of Development
Economics, 95(1): 4–17; A. K. Fosu, 2008,
Inequality and the growth-poverty nexus:
Specification empirics using African
data, Applied Economics Letters, 15:
563–566; A. McKeown, 2007, Periodizing
globalization, History Workshop Journal,
63(1): 218–230.

43. A. Hain-Cole, 2010, Companies juggle
cost cutting with competitive benefits
for international assignments, Benefits &
Compensation International: A Magazine
for Global Companies, 40(5): 26.

44. J. Lee, 2010, Don’t underestimate India’s
consumers, Bloomberg Businessweek,
http://www.businessweek.com, January 21.

CHE-HITT-11-0505-002.indd 67CHE-HITT-11-0505-002.indd 67 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

68
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts 45. C. Chua & S. Tsiaplias, 2011, Predicting
economic contractions and expansions
with the aid of professional forecasts,
International Journal of Forecasting, 27(2):
438–451; L. Fahey & V. K. Narayanan,
1986, Macroenvironmental Analysis for
Strategic Management (The West Series
in Strategic Management), St. Paul,
Minnesota: West Publishing Company,
105.

46. F. Ackerman, E. A. Stanton, & R. Bueno,
2010, Fat tails, exponents, extreme
uncertainty: Simulating catastrophe
in DICE, Ecological Economics, 69(8):
1657–1665; P. Coy, 2009, What good are
economists anyway? BusinessWeek, April
27, 26–31.

47. J. Brinsley, 2011, Global economics:
Crisis in Japan, Bloomberg Businessweek,
March 21, 16–24; J. Simms, 2009, Losses
at Japan’s electronics companies are no
shock, Wall Street Journal Online, http://
www.wsj.com, February 4.

48. C. F. Fey & S. Shekshnia, 2011, The key
commandments for doing business in
Russia, Organizational Dynamics, 40(1):
57–66; J. Bush, 2009, The worries facing
Russia’s banks, Wall Street Journal Online,
http://www.wsj.com, April 13.

49. S. Leung, 2010, Vietnam: An economic
survey, Asian-Pacific Economic Literature,
24(2): 83–103; A. Peaple & N. P. Muoi,
2009, Vietnam’s market—the fizz is
deliberate, Wall Street Journal Online,
http://www.wsj.com, June 11.

50. G. F. Holburne & B. A. Zelner, 2010,
Political capabilities, policy risk, and
international investment strategy:
Evidence from the global electric
power generation industry, Strategic
Management Journal, 31(12): 1290–
1315; C. Oliver & I. Holzinger, 2008,
The effectiveness of strategic political
management: A dynamic capabilities
framework, Academy of Management
Review, 33: 496–520.

51. M. William, 2010, World news: Moscow
moves on selling assets, Wall Street
Journal, October 22, A15.

52. N. Boubakri & L. Bouslimi, 2010, Analysts
following of privatized firms around
the world: The role of institutions and
ownership structure, International Journal
of Accounting, 45(4): 413–442.

53. I. Williams, 2010, Obama bypasses India’s
outsourcing capital, World Blog from NBC
News, http://www.worldblog.msnbc.msn.
com, November 8; M. Srivastava, 2009,
The sudden chill at an Indian hot spot,
BusinessWeek, May 4, 59.

54. J. Hook, 2010, Senate outsourcing bill
stalls, Wall Street Journal, October 29, A2;
2009, Taking aim at out sources on U.S.
soil, BusinessWeek, June 15, 10.

55. R. Sachitand, 2010, Politics over business,
Business Today, November 14, 64; G. L.
F. Holburn & R. G. Vanden Bergh, 2008,
The effectiveness of strategic political
management: A dynamic capabilities
framework, Academy of Management
Review, 33: 521–540.

56. E. Milton, 2011, Europe’s debt crisis
continues, despite Ireland’s resolved debt,
On Wall Street, February, 35–36.

57. D. Strumpf, 2011, Oil-price forecast rises
on Libya unrest, Wall Street Journal,
March 9, C10.

58. R. Daly & J. Zigmond, 2011, Pushing for
cost savings: GOP legislation challenges
Obama’s requests, Modern Healthcare,
March 7, 8–9.

59. D. W. Brin, 2011, EHealth feels the pain
now, Wall Street Journal, March 9, B5;
T. Fetter, 2010, Tenet chief envisions
changing health landscape, Wall Street
Journal, December 18, B5.

60. 2009, Characteristics of the civilian labor
force, U.S. Department of Labor, Bureau
of Labor Statistics data, http://www.bls.
gov, June.

61. M. DelCarmen Triana, M. F. Garcia, & A.
Colella, 2010, Managing diversity: How
organizational efforts to support diversity
moderate the effects of perceived racial
discrimination on affective commitment,
Personnel Psychology, 63(4): 817–843.

62. 2011, Job creation increasing: Temporary
workers benefit, Journal of Property
Management, 76(2): 8; A. McConnon,
2009, For a temp giant, a boom in
boomers, BusinessWeek, June 1, 54.

63. 63 .T. Grenness, 2011, The impact of
national culture on CEO compensation
and salary gaps between CEOs and
manufacturing workers, Compensation &
Benefits Review, 43(2): 100–108.

64. P. Dimitratos, A. Petrou, F. Plakoyiannaki,
& J. E. Johnson, 2011, Strategic decision-
making processes in internationalization:
Does national culture of the focal firm
matter?, Journal of World Business, 46(2):
194–204; S. Michailova & K. Hutchings,
2006, National cultural influences on
knowledge sharing: A comparison of
China and Russia, Journal of Management
Studies, 43: 384–405.

65. C. M. Chan, S. Makino, & T. Isobe, 2010,
Does subnational region matter? Foreign
affiliate performance in the United
States and China, Strategic Management
Journal, 31(11): 1226–1243; J. B. Knight &
L. Yueh, 2008, The role of social capital in
the labour market in China, Economics of
Transition, 16: 389–414; P. J. Buckley, J.
Clegg, & H. Tan, 2006, Cultural awareness
in knowledge transfer to China—The role
of guanxi and mianzi, Journal of World
Business, 41: 275–288.

66. J. Euchner, 2011, Managing disruption:
An interview with Clayton Christensen,
Research Technology Management, 54(1):
11–17; R. K. Sinha & C. H. Noble, 2008,
The adoption of radical manufacturing
technologies and firm survival, Strategic
Management Journal, 29: 943–962.

67. B. I. Park & P. N. Ghauri, 2011, Key factors
affecting acquisition of technological
capabilities from foreign acquiring
firms by small and medium sized local
firms, Journal of World Business, 46(1):
116–125; K. H. Tsai & J.-C. Wang, 2008,
External technology acquisition and firm

performance: A longitudinal study, Journal
of Business Venturing, 23: 91–112.

68. Burrows, Mobile wars!; S. A. Brown,
2008, Household technology adoption,
use, and impacts: Past, present, and
future, Information Systems Frontiers, 10:
397–402.

69. A. Ignatius, 2011, How e-Bay developed
a culture of experimentation, Harvard
Business Review, 89(3): 92–97.

70. J. Spence & C. Gomez, 2011, MNEs
and corruption: The impact of national
institutions and subsidiary strategy,
Strategic Management Journal, 32(3):
280–300; L. F. Mesquita & S. G. Lazzarini,
2008, Horizontal and vertical relationships
in developing economies: Implications for
SMEs’ access to global markets, Academy
of Management Journal, 51: 359–380.

71. K. Kyung-Tae, R. Seung-Kyu, & O.
Joongsan, 2011, The strategic role
evolution of foreign automotive parts
subsidiaries in China, International Journal
of Operations & Production Management,
31(1): 31–55: J. R. Healey, 2009, Penske-
Saturn deal could change how cars are
sold, USA Today, June 8, B2.

72. B. McClellan, 2010, China success
clouded by labor strikes, overcapacity,
Ward’s Autoworld, November, 25.

73. 2011, Heinz agrees to acquire 80% stake
in a leading Brazilian food company:
Heinz also reports strong third-quarter
results with EPS of $0.84 on higher sales,
led by emerging markets top 15 brands
and North American consumer products,
Business Wire, March 3.

74. S. Cendrowski, 2010, SABMiller, Fortune,
July 26, 18.

75. D. Griffin, 2011, Pandit stakes Citi’s
future on emerging markets, Bloomberg
Businessweek, http://www.businessweek.
com, March 21.

76. K. E. Meyer, 2009, Uncommon
commonsense, Business Strategy
Review, 20: 38–43; K. E. Meyer,
2006, Globalfocusing: From domestic
conglomerates to global specialists,
Journal of Management Studies, 43:
1110–1144.

77. G. Qian, T. A. Khoury, M. W. Peng, & Z.
Qian, 2010, The performance implications
of intra- and inter-regional geographic
diversification, Strategic Management
Journal, 31: 1018–1030; C. H. Oh & A. M.
Rugman, 2007, Regional multinationals
and the Korean cosmetics industry, Asia
Pacific Journal of Management, 24: 27–42.

78. C. Ho & K. A. Redfern, 2010,
Consideration of the role of Guanxi in the
ethical judgments of Chinese managers,
Journal of Business Ethics, 96: 207–221;
X.-P. Chen & S. Peng, 2008, Guanxi
dynamics: Shifts in the closeness of ties
between Chinese coworkers, Management
and Organizational Review, 4: 63–80;
M. A. Hitt, M. T. Dacin, B. B. Tyler, & D.
Park, 1997, Understanding the differences
in Korean and U.S. executives’ strategic
orientations, Strategic Management
Journal, 18: 159–167.

PP
ar
P
ar
t
1
t
1
t
1
S:S: S
ttr
a
tr
att
e
g
te
gg
iicic
MM
an
M
an
ag
e
ag
e
g
m
e
n
m
e
n
t
I
t
I
t
In
p
u
n
p
u
p
ttsts

CHE-HITT-11-0505-002.indd 68CHE-HITT-11-0505-002.indd 68 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

69
C

h
ap
te
r 2: T
h
e
E
xte
rn
al E
n
viro
n
m
e
n
t: O
p
p
o
rtu
n
itie
s, T
h
re
ats, In
d
u
stry C
o
m
p
e
titio
n
, an
d
C
o
m
p
e
tito
r A
n
alysis

79. T. M. Hout & P. Ghemawat, 2010, China
vs the world, Harvard Business Review,
88(12): 94–103; M. A. Hitt, D. Ahlstrom,
M. T. Dacin, E. Levitas, & L. Svobodina,
2004, The institutional effects on strategic
alliance partner selection: China versus
Russia, Organization Science, 15: 173–
185.

80. T. K. Das & R. Kumar, 2011, Regulatory
focus and opportunism in the alliance
development process, Journal of
Management, 37(3): 682–708.

81. J. Harris, 2011, Going green to stay
in the black: Transnational capitalism
and renewable energy, Perspectives on
Global Development & Technology,
10(1): 41–59; L. Berchicci & A. King, 2008,
Postcards from the edge: A review of the
business and environment literature, in J.
P. Walsh & A. P. Brief (eds.) Academy of
Management Annals, New York: Lawrence
Erlbaum Associates, 513–547.

82. M. Delmas, V. H. Hoffmann, & M. Kuss,
2011, Under the tip of the iceberg:
Absorptive capacity, environmental
strategy, and competitive advantage,
Business & Society, 50(1): 116–154; M.
J. Hutchins & J. W. Sutherland, 2008,
An exploration of measures of social
sustainability and their application to
supply chain decisions, Journal of Cleaner
Production, 16: 1688–1698.

83. J. K. Hall, G. A. Daneke, & M. J. Lenox,
2010, Sustainable development and
entrepreneurship: Past contributions and
future directions, Journal of Business
Venturing, 25(5): 439–448.

84. K. Gilbert, 2010, Money from trees,
Institutional Investor, 44(9): 41–89; P.
K. Dutta & R. Radner, 2009, A strategic
analysis of global warming: Theory and
some numbers, Journal of Economic
Behavior & Organization, 71(2); 187–209.

85. T. Willatt & S. Saylor, 2011, Canada’s
“clean” image extends to clean power,
Power, 155(3): 32–34.

86. D. Stanford, 2011, Why sustainability
is winning over CEOs, Bloomberg
Businessweek, http://www.businessweek
.com, April 4.

87. V. Souitaris & B. Maestro, 2010,
Polychronicity in top management
teams: The impact on strategic
decision processes and performance
of new technology ventures, Strategic
Management Journal, 31(6): 652–678.

88. C. Yi-Min & L. Feng-Jyh, 2010, The
persistence of superior performance at
industry and firm levels: Evidence from
the IT industry in Taiwan, Industry &
Innovation, 17(5): 469–486; J. Galbreath
& P. Galvin, 2008, Firm factors, industry
structure and performance variation:
New empirical evidence to a classic
debate, Journal of Business Research, 61:
109–117.

89. J. J. Tarzijan & C. C. Ramirez, 2011, Firm,
industry and corporation effects revisited:
A mixed multilevel analysis for Chilean
companies, Applied Economics Letters,
18(1): 95–100; V. F. Misangyl, H. Elms, T.

Greckhamer, & J. A. Lepine, 2006, A new
perspective on a fundamental debate: A
multilevel approach to industry, corporate,
and business unit effects, Strategic
Management Journal, 27: 571–590.

90. D. Sullivan & J. Yuening, 2010, Media
convergence and the impact of the
internet on the M&A activity of large
media companies, Journal of Media
Business Studies, 7(4): 21–40.

91. C. Lutz, R. Kemp, & S. Gerhard Dijkstra,
2010, Perceptions regarding strategic and
structural entry barriers, Small Business
Economics, 35(1): 19–33.

92. F. Schivardi & E. Viviano, 2011, Entry
barriers in retail trade, Economic Journal,
121(551): 145–170; M. R. Peneder, 2008,
Firm entry and turnover: The nexus with
profitability and growth, Small Business
Economics, 30: 327–344; A. V. Mainkar,
M. Lubatkin, & W. S. Schulze, 2006,
Toward a product-proliferation theory of
entry barriers, Academy of Management
Review, 31: 1062–1075.

93. B. Stone & A. Ricadela, 2010. Oracle’s
Larry Ellison beats up on his rivals—again,
Bloomberg Businessweek, http://www.
businessweek, October 6.

94. S. Siew Kien, C. Soh, & P. Weil, 2010,
Global IT management: Structuring for
scale, responsiveness, and innovation,
Communications of the ACM, 53(3):
59–64; S. K. Ethiraj & D. H. Zhu, 2008,
Performance effects of imitative entry,
Strategic Management Journal, 29:
797–817; R. Makadok, 1999, Interfirm
differences in scale economies and the
evolution of market shares, Strategic
Management Journal, 20: 935–952.

95. T. Cari, 2011, Corporate News: Oracle’s
software sales zoom—licensed revenue
helps power 78 percent rise in net; Sun
hardware sales disappoint, Wall Street
Journal, March 25, B3.

96. X. Huang, M. Kristal, & R. G. Schroeder,
2010, The impact of organizational
structure on mass customization
capability: A contingency view,
Production & Operations Management,
19(5): 515–530; M. J. Rungtusanatham &
F. Salvador, 2008, From mass production
to mass customization: Hindrance factors,
structural inertia, and transition hazard,
Production and Operations Management,
17: 385–396.

97. N. Zmuda, 2011, How Pepsi blinked, fell
behind Diet Coke, Advertising Age, March
21, 1–6.

98. N. Zmuda & K. Patel, 2010, Pass or fail,
Pepsi’s Refresh will be case for marketing
textbooks, Advertising Age, February 8,
1–18.

99. T. Rice & P. E. Strahan, 2010, Does credit
competition affect small-firm finance?,
Journal of Finance, 65(3): 861–889.

100. 2011, Airline deregulation, revisited,
Bloomberg BusinessWeek, http://www
.businessweek.com, January 21.

101. J. Jaeger, 2010, Anti-trust reviews:
Suddenly, they’re a worry, Compliance
Week, 7(80): 48–59.

102. S. Bhattacharyya & A. Nain, 2011,
Horizontal acquisitions and buying power:
A product market analysis, Journal of
Financial Economics, 99(1): 97–115.

103. G. Winslow, 2011, Map to TV everywhere,
Broadcasting & Cable, February 14, 23.

104. B. Einhorn & R. Salamat, 2011, iPad
causes collateral damage in Taiwan,
Bloomberg Businessweek, April 11, 31.

105. D. G. Sirmon, M. A. Hitt, J. Arregle, & J.
Campbell, 2010, The dynamic interplay
of capability strengths and weaknesses:
Investigating the bases of temporary
competitive advantage, Strategic
Management Journal, 31(13): 1386–1409;
D. G. Sirmon, S. Gove, & M. H. Hitt,
2008, Resource management in dyadic
competitive rivalry: The effects of resource
bundling and deployment, Academy of
Management Journal, 51: 919–935.

106. C. Dieroff, 2011, Beverage trends:
Consumers want it all, Prepared Foods,
February: 49–55.

107. 2011, 2010 Managed care industry
report, Medical Benefits, 28(6), 5–6;
S. Nadkarni & V. K. Narayanan, 2007,
Strategic schemas, strategic flexibility,
and firm performance: The moderating
role of industry clockspeed, Strategic
Management Journal, 28: 243–270.

108. J. Tozzi, 2011, Home-care companies
brace for regulation, Bloomberg
Businessweek, March 21, 60–61.

109. R. García-Castro & M. A. Ariño, 2011,
The multidimensional nature of sustained
competitive advantage: Test at a United
States airline, International Journal of
Management, 28(1): 230–248; P. Prada
& M. Esterl, 2009, Airlines predict more
trouble, broaden cuts, Wall Street Journal
Online, http://www.wsj.com, June 12.

110. S. Nadkarni, P. Herrmann, & P.
Perez, 2011, Domestic mindsets and
early international performance: The
moderating effect of global industry
conditions, Strategic Management
Journal, 32(5): 510–531; S. E. Feinberg &
A. K. Gupta, 2009, MNC subsidiaries and
country risk: Internalization as a safeguard
against weak external institutions,
Academy of Management Journal, 52:
381–399.

111. M. E. Porter, 1980, Competitive Strategy,
New York: Free Press.

112. S. Kaplan, 2011, Research in cognition
and strategy: Reflections on two decades
of progress and a look to the future,
Journal of Management Studies, 48(3):
665–695; M. S. Hunt, 1972, Competition
in the major home appliance industry,
1960–1970 (doctoral dissertation, Harvard
University); Porter, Competitive Strategy,
129.

113. S. Cheng & H. Chang, 2009, Performance
implications of cognitive complexity: An
empirical study of cognitive strategic
groups in semiconductor industry, Journal
of Business Research, 62(12): 1311–1320;
G. McNamara, D. L. Deephouse, & R.
A. Luce, 2003, Competitive positioning
within and across a strategic group

C
h
a
C
h
a
C
h
a
C
h
p
te
p
te
p

tet
r 2
r

2
r
22: T:T:TT
h
e
h
e
h
e
h
E
xt
E
xt
E
xt
E
te
rn
e
rn
e
rn
alalallE
n
v
E
n
v
E
n
v
E
iro
iro
iro
i
n
m
e
n
m
e
n
m
e
n
t:
n
t:
n
t:tO
p
O
p
O
p
O
p
o
r
p
o
r
p
o
rtu
n
tu
n
tu
n
t
iti
iti
iti
itie
s,
e
s,
e
s
T
h
T
h
T
h
T
h
re
a
re
a
re
ats,
ts,
tst
InInInI
d
u
s
d
u
s
d
u
s
d
try
try
try
t
C
o
C
o
C
o
C
m
p
e
m
p
e
m
p
e
tit
tit
tit
titio
n
io
n
io
n
i
, a,aan
d
n
d
n
dd
C
o
m
C
o
m
C
o
m
C
p
e
t
p
e
t
p
e
ttito
ito
ito
it
r A
r
A
r
AA
n
al
n
al
n
allysi
ysi
ysiisss

CHE-HITT-11-0505-002.indd 69CHE-HITT-11-0505-002.indd 69 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

70
P

ar
t
1:
S
tr
at
e
g
ic
M
an
ag
e
m
e
n
t
In
p
u

ts structure: The performance of core,
secondary, and solitary firms, Strategic
Management Journal, 24: 161–181.

114. D. Williams, C. Young, R. Shewchuk,
& H. Qu, 2010, Strategic groupings
of U.S. biotechnology initial public
offerings and a measure of their market
influence, Technology Analysis & Strategic
Management, 22(4): 399–415; F. Zen
& C. Baldan, 2008, The strategic paths
and performance of Italian mutual banks:
A nonparametric analysis, International
Journal of Banking, Accounting and
Finance, 1: 189–214; M. W. Peng, J. Tan,
& T. W. Tong, 2004, Ownership types and
strategic groups in an emerging economy,
Journal of Management Studies, 41:
1105–1129.

115. W. S. DeSarbo & R. Grewal, 2008. Hybrid
strategic groups, Strategic Management
Journal, 29: 293–317; M. Peteraf & M.
Shanley, 1997, Getting to know you:
A theory of strategic group identity,
Strategic Management Journal, 18
(Special Issue): 165–186.

116. J. Lee, K. Lee, & S. Rho, 2002, An
evolutionary perspective on strategic
group emergence: A genetic algorithm-
based model, Strategic Management
Journal, 23: 727–746.

117. P. Ebbes , R. Grewal, & W. S. DeSarbo,
2010, Modeling strategic group dynamics:
A hidden Markov approach, Quantitative
Marketing and Economics, 8: 241–274;

J. A. Zuniga-Vicente, J. M. de la Fuente
Sabate, & I. S. Gonzalez, 2004, Dynamics
of the strategic group membership-
performance linkage in rapidly changing
environments, Journal of Business
Research, 57: 1378–1390.

118. T. Yu, M. Subramaniam, & A. A.
Cannella, Jr., 2009, Rivalry deterrence
in international markets: Contingencies
governing the mutual forbearance
hypothesis, Academy of Management
Journal, 52: 127–147.

119. Porter, Competitive Strategy, 49.
120. J. E. Prescott & R. Herko, 2010, TOWS:

The role of competitive intelligence,
Competitive Intelligence Magazine,
13(3): 8–17; L. Capron & O. Chatain,
2008, Competitors’ resource-oriented
strategies: Acting on competitors’
resources through interventions in factor
markets and political markets, Academy of
Management Review, 33: 97–121.

121. D. B. Montgomery, M. C. Moore, &
J. E. Urbany, 2005, Reasoning about
competitive reactions: Evidence from
executives, Marketing Science, 24:
138–149.

122. K. Xu, S. Liao, J. Li, & Y. Song, 2011,
Mining comparative opinions from
customer reviews for competitive
intelligence, Decision Support Systems,
50(4): 743–754; S. Jain, 2008, Digital
piracy: A competitive analysis, Marketing
Science, 27: 610–626.

123. J. G. York, 2009, Pragmatic sustainability:
Translating environmental ethics into
competitive advantage, Journal of
Business Ethics, 85: 97–109.

124. R. Huggins, 2010, Regional competitive
intelligence: Benchmarking and policy-
making. Regional Studies, 44(5):
639–658.

125. 2011, SCIP Code of ethics for CI
professionals, http://www.scip.org,
April 15; K. A. Sawka, 2008, The ethics
of competitive intelligence, Kiplinger
Business Resource Center Online, http://
www.kiplinger.com, March.

126. T. Mazzarol & S. Reboud, 2008, The
role of complementary actors in
the development of innovation in
small firms, International Journal of
Innovation Management, 12: 223–253;
A. Brandenburger & B. Nalebuff, 1996,
Co-opetition, New York: Currency
Doubleday.

127. SCIP Code of ethics for CI professionals,
http://www.scip.org, April 15.

128. C. S. Fleisher & S. Wright, 2009,
Examining differences in competitive
intelligence practice: China, Japan, and
the West, Thunderbird International
Business Review, 51: 249–261; A.
Crane, 2005, In the company of
spies: When competitive intelligence
gathering becomes industrial
espionage, Business Horizons, 48(3):
233–240.

PP
ar
P
ar
t
1
t
1
t
1
S:S: S
ttr
a
tr
att
e
g
te
gg
iicic
MM
an
M
an
ag
e
ag
e
g
m
e
n
m
e
n
t
I
t
I
t
In
p
u
n
p
u
p
ttsts

CHE-HITT-11-0505-002.indd 70CHE-HITT-11-0505-002.indd 70 01/08/11 8:40 PM01/08/11 8:40 PM

Not For Sale
©
C
en
ga
ge
L
ea
rn
in
g.
A
ll
ri
gh
ts
re
se
rv
ed
. N
o
di
st
ri
bu
tio
n
al
lo
w
ed
w
ith
ou
t e
xp
re
ss
a
ut
ho
ri
za
tio
n.

<< /ASCII85EncodePages false /AllowTransparency false /AutoPositionEPSFiles true /AutoRotatePages /None /Binding /Left /CalGrayProfile () /CalRGBProfile (sRGB IEC61966-2.1) /CalCMYKProfile (U.S. Web Coated \050SWOP\051 v2) /sRGBProfile (sRGB IEC61966-2.1) /CannotEmbedFontPolicy /Warning /CompatibilityLevel 1.4 /CompressObjects /Off /CompressPages true /ConvertImagesToIndexed true /PassThroughJPEGImages true /CreateJobTicket true /DefaultRenderingIntent /Default /DetectBlends true /DetectCurves 0.1000 /ColorConversionStrategy /LeaveColorUnchanged /DoThumbnails false /EmbedAllFonts true /EmbedOpenType false /ParseICCProfilesInComments true /EmbedJobOptions true /DSCReportingLevel 0 /EmitDSCWarnings false /EndPage -1 /ImageMemory 524288 /LockDistillerParams true /MaxSubsetPct 100 /Optimize false /OPM 1 /ParseDSCComments true /ParseDSCCommentsForDocInfo true /PreserveCopyPage true /PreserveDICMYKValues true /PreserveEPSInfo true /PreserveFlatness true /PreserveHalftoneInfo false /PreserveOPIComments false /PreserveOverprintSettings true /StartPage 1 /SubsetFonts true /TransferFunctionInfo /Preserve /UCRandBGInfo /Preserve /UsePrologue false /ColorSettingsFile (None) /AlwaysEmbed [ true ] /NeverEmbed [ true ] /AntiAliasColorImages false /CropColorImages true /ColorImageMinResolution 150 /ColorImageMinResolutionPolicy /OK /DownsampleColorImages true /ColorImageDownsampleType /Bicubic /ColorImageResolution 600 /ColorImageDepth 8 /ColorImageMinDownsampleDepth 1 /ColorImageDownsampleThreshold 1.00000 /EncodeColorImages true /ColorImageFilter /FlateEncode /AutoFilterColorImages false /ColorImageAutoFilterStrategy /JPEG /ColorACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/ColorImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/JPEG2000ColorACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/JPEG2000ColorImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/AntiAliasGrayImages false
/CropGrayImages true
/GrayImageMinResolution 150
/GrayImageMinResolutionPolicy /OK
/DownsampleGrayImages true
/GrayImageDownsampleType /Bicubic
/GrayImageResolution 600
/GrayImageDepth 8
/GrayImageMinDownsampleDepth 2
/GrayImageDownsampleThreshold 1.00000
/EncodeGrayImages true
/GrayImageFilter /FlateEncode
/AutoFilterGrayImages false
/GrayImageAutoFilterStrategy /JPEG
/GrayACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/GrayImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/JPEG2000GrayACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/JPEG2000GrayImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/AntiAliasMonoImages false
/CropMonoImages true
/MonoImageMinResolution 1200
/MonoImageMinResolutionPolicy /OK
/DownsampleMonoImages false
/MonoImageDownsampleType /Average
/MonoImageResolution 1200
/MonoImageDepth -1
/MonoImageDownsampleThreshold 1.50000
/EncodeMonoImages true
/MonoImageFilter /CCITTFaxEncode
/MonoImageDict << /K -1 >>
/AllowPSXObjects true
/CheckCompliance [
/None
]
/PDFX1aCheck false
/PDFX3Check false
/PDFXCompliantPDFOnly false
/PDFXNoTrimBoxError true
/PDFXTrimBoxToMediaBoxOffset [
0.00000
0.00000
0.00000
0.00000
]
/PDFXSetBleedBoxToMediaBox true
/PDFXBleedBoxToTrimBoxOffset [
0.00000
0.00000
0.00000
0.00000
]
/PDFXOutputIntentProfile ()
/PDFXOutputConditionIdentifier ()
/PDFXOutputCondition ()
/PDFXRegistryName
/PDFXTrapped /False
/CreateJDFFile false
/Description << /ENU
>>
>> setdistillerparams
<< /HWResolution [2400 2400] /PageSize [612.000 792.000] >> setpagedevice