Tools of Environmental Analysis
The businesses always make internal and external business analysis. the internal business analysis studies the factors which are under the control. and the external business analysis study the factors that are beyond the control. Business environmental analysis enables the business organization to formulate appropriate strategies. It contributes to achieving the expected objective or help to solve a specific problem for which the strategy is formulated. International businesses are required to be more serious about the business environment, specifically the external business environment, which is beyond the control of the business organization. The following are the tools used by all business organizations to understand the external business environment.
1. SWOT (Strengths, Weaknesses, Opportunities, and Threats)
2. PEST (Political, Economic, Social, Technological)
The necessary tools for conducting an environmental analysis to understand the business from all perspectives are listed above. Let us see in detail how these tools are implemented for business execution with excellence.
1. SWOT (Strengths, Weaknesses, Opportunities, and Threats)
Strength
Strength indicates the factor in which the business organization has expertise and achievement.
Strong brand reputation
A brand is a product or business organization that has been developed through numerous efforts, beginning from the launch of the product in the market or during the establishment of the new business setup. It indicates how effectively the business organization meets or satisfies the customers via products or services. It also indicates how well it satisfies the customers via the five Rs, which include the right product, the right place, the right price, the right quality, and the right quantity. These five R illustrate about businesses make products available to customers, set prices that meet their affordability, provide the quality customers expect, and supply enough quantity to keep products in the market at all times
Examples
Coca-Cola, PepsiCo, Hyundai, and Honda are international products that made their brands by excellence in business execution. And satisfying customers.
Skilled Workforce
Every business organization expects its employees to be capable of better performance that contributes significantly to the success of the business. A skilled workforce indicates how employees have the potential to achieve any objective of the organization effectively and solve any problem the business faces.
Examples
The skilled workforce of TATA Consultancy enables the organization to be a leader in the industry.
The skilled workforce in Chinese manufacturing industries contributes for making them more capable. of producing the products that are sold across the globe.
Operational efficiency
It indicates how well the business organization utilizes the resources (labour, capital, and assets). It can be indicated by different ratios such as operating ratio, operating profit ratio, inventory turnover ratio, asset turnover ratio, and ROCE (Return on Capital Employed). Operational efficiency of any business organization in international business environment enable business to get absolute advantage based on how effectively they utilizes the resources.
Weakness
Lack of innovation
It indicates how much less the business implements the innovations in the business execution. Innovation is an imperative necessity for any business to survive on the market.
Examples
Some Indian mobile companies fail to implement innovation and cannot survive in the market.
Limited brand recognition
This indicates that the business has failed to meet customers’ expectations, which has prevented the company from gaining their trust. Without getting the customer’s trust, the brand image of the product cannot be possible.
Example
Freshfizz is a new company in soft drinks that offers fruit-flavoured soft drinks, which are good and affordable. Because few people are aware of the product, sales have not increased as effectively as those of other soft drinks. On the other side, Coca-Cola has high brand recognition.
So FreshFizz has limited brand recognition.
Poor customer service
Many business organizations in the market, however, sell good products, but they fail to provide good services to the customer, due to which customers may turn to other alternative products.
Example
TechNova Mobiles sells mobile phones at an affordable price but fails to provide the required service to the customers, due to which it loses the market. In fact, customers developed a negative perception of the company because it ignored their requests for assistance with technical issues.
Inefficient operations
To achieve growth and success, it is essential to execute every operation towards achieving the business objectives. Inefficient operations indicate the lack of excellence in the execution of various business operations. These operations include day-to-day activities such as input and output in production. Avoiding rejection in the production process and getting more output.
Inefficient operations happen when a company is not implementing appropriate planning and strategy for excellence in the execution of various internal activities, such as optimum or effective use of money, men, material, and machines.
Example
Most of the furniture manufacturing companies use old machinery for various operations. Due to this, their capability, accuracy, and innovations cannot be implemented, and such companies will no longer survive in the market. They face problems such as delayed orders, increased costs, and losing customers due to competitors’ efficiency in operations.
Weak Financial Position
Weak financial indicators indicated the insufficiency in working capital, poor profitability, declining cash flows, low market performance, high debt burden, liquidity problems, etc. To make the company financially stable, it is essential to overcome these problems.
Examples
Many new manufacturing companies face the problems of finance due to high costs and low sales. Their financial needs, such as working capital and expansion, cannot be met effectively. They may face problems such as delay in supplier payment, failure to pay bank interest on loans, and failure to motivate the employees via financial incentives.
Dependence on a few clients
Diversity and a larger customer base are the essential parts of any business that need to be maintained to survive in the market. If a business is not expanding its market or customer base, the business will no longer survive in the market.
Opportunities
Every business expects to find new opportunities in the market, as the current opportunities may not be there in the future. Innovation and diversification can significantly provide new opportunities in the market. Specifically, the international market is always providing opportunities to the business.
Examples
Any business that acquires the largest share of the domestic market can have many opportunities in the international market.
Threats
A threat is an external business environmental factor that is beyond the control of the organization. It can harm the business or negatively influence the business. For every business organisation, when running business activities across national boundaries, it is crucial to consider these factors to know how they can negatively affect the business. After studying possible threats to the business, the business organization can make appropriate policies or strategies to survive in the international business environment.
PEST
PEST (Political, Economic, Social, and Technological) belongs to the external business environment, which is beyond the control of a business organization but influences the business positively or negatively, depending upon the business, country, Government, customers, etc.