Suppliers are crucial to an organization since they supply companies with raw materials (Blythe, 2004, p67). Companies need materials to facilitate their operations so that they can market the output in the market. The company should know its raw material requirements before entering an industry and pre-determine their suppliers. An industry that has few suppliers of raw materials gives them the power to control the industry. The suppliers also become powerful if the cost of switching between them is high resulting to a negative impact on the company.
Consumers on the other hand posses power since they are the market that the company’s products are targeted. Their power is evident in an industry where there is no product differentiation and switching between products is less costly. Consumers are sensitive to prices offered on various products. Products that are lowly priced tend to attract consumers easily than highly priced products. Low priced products increase the purchasing power of consumers thus it is easier for them to identify with them.
The threat of substitute products is also to be considered when making an entry in an industry. Substitute products offer consumer satisfaction at low prices. This provides consumers with ease of choosing from a wide range of products to satisfy their needs. The macro environment refers to the external environment that the company has no control over. The elements of the macro environment consist of technological, political & legal, economical, socio-cultural, and international variables (Hargroves & Smith, 2005, p45). These variables heavily impact on the business and result into losses.
Technological variables refer to the changes in technology which seek to improve on the efficiency of production methods. Efficient production methods seek to reduce on the cost of production and passing the benefits to the consumer by way of low pricing. Socio-cultural variables refer to the norms and beliefs that characterize the environment that the company operates in. These beliefs define the way an organization operates in its environment and how it relates to its consumers, suppliers and the society at large. Political variables play a major factor in transforming the business environment.
Political leaders have a lot of power vested in them and may use this power to their advantage. They can pass legislation that could lead to growth in their businesses at the detriment of others. The legal aspects provide boundaries to which the business can extend their operations. Economic factors refer to the economic environment of the industry within which the company operates in. These include policies implemented by the government, business cycles and balance of payments. Importation of capital goods can be done when the economy is facing a boom as opposed to when it’s facing a recession.
International variables refer to pressure from international organizations who aim at control of an industry to protect international industries. These organizations implement policies that are aimed to generally control an industry and avoid malpractices. There are also intergovernmental relations that aim at streamlining the operations of their economies in matters regarding trade. Companies will therefore have to adhere to the policies. Companies in these industries are affected by the relevant policies which could hurt the company’s operations (Hargroves & Smith, 2005, p98).