Course Code:BUAD 823
Course Title:Environment of Business
Course Tutor:Dr. Kabiru JinjiriGROUP 5 MEMBERS:
S/No Names Registration Number Specialization
1 Agoha Ijeoma AdakuABUMBA02015000845 HR
2 Garuba ZuliatuABUMBA02015005861 HR
3 Inegbeboh Jude ABUMBA02015001867 HR
4 Nwagbogwu Josey ABUMBA02015002507 HR
QUESTION FOR GROUP ASSIGNMENT
Select any business organization of your choice operating in the manufacturing sector to discuss the impact of the nine (9) factors of competitive environment on its business operations.
A competitive environment is the dynamic external system in which a business competes and functions. Direct competitors are businesses that are selling the same type of product or service. For example, in the telecommunications sector in Nigeria, MTN is a direct competitor of Airtel. Indirect competitors are businesses that still compete even though they sell a different service or product. The products or services offered by indirect competitors are those that can be substituted for one another; for instance, airlines are indirectly competing with trains and buses. We can therefore say that the more sellers of a similar product or service, the more competitive the environment is.
Due to constant technological advancements and ever-changing consumer tastes, Companies are constantly churning out new products and services or modifying current brands in order to stay afloat in a competitive environment. A wide array of products to choose from can be confusing for the consumers but competition is good since it helps to provide the best products and services at the best price. Hence, it is important that every Company understands the competitiveness of its operating environment to aid them in formulating strategies that will help to maintain stability and relevance.
The business environment is classified into internal and external environment. The internal environment consists of those factors that the organization can control to a certain level and examples are employees, finance, management, internal culture, business processes, etc. On the other hand, the external environment comprises of elements beyond the control of the organization. The process by which organizations monitor all other activities affecting their business is known as environmental scanning. To remain competitive, a company must consider who their biggest competitors are while considering its own size and position in the industry.
Increasing urbanization and population growth have boosted the growth in Nigeria’s fast moving consumer goods (FMCG) sector which includes food and beverages, personal care and home care. One of the Companies in this sector is Nigerian Bottling Company Plc. (also called NBC). NBC bottles and sells carbonated and non-carbonated soft drinks, fruit drinks, juices, bottled water and energy drinks. Some of its brand name products are Coca-Cola, Fanta, Sprite, Schweppes, Eva Water, and Five Alive. The company was incorporated in 1951 and is based in Lagos, Nigeria. Nigerian Bottling Company Plc is a subsidiary of Coca-Cola Hellenic Bottling Company S.A.
The nine (9) factors of competitive environment impacting on the business operations of Nigerian Bottling Company Plc. are:
Political Factors: NBC’s products must be up to standard because their processes are highly regulated by government agencies such as National Agency for Food and Drugs Administration and Control (NAFDAC) and Standards Organization of Nigeria (SON). These agencies ensure that the manufacture, importation, exportation, sale and distribution of items such as food, water, drugs, etc., are regulated for the safety of the consuming public. The company needs to consider the political environment when creating business strategies because changes in established laws may prevent NBC from distributing their products. The entire political environment includes looking at government policies and the risk and instability of current political factors. Political risks can include an unexpected loss of ownership due to government takeover (nationalization), changes in taxation policy, trade regulations, labor laws, government stability, etc. It will be wise for NBC to anticipate issues by performing a political risk analysis since political factors can impact on the stability and profitability of the business.
Economic Factors: The economic factors of the business environment are all the variables that impact how the consumer spends their money and the power of that purchase. An example of an economic factor is the recent recession in Nigeria. During a recession, consumer spending patterns change since people spend less and save more. Another economic factor is the exchange rate of the country. The exchange rate in Nigeria has been unstable in recent times and this can have an extensive impact on the profitability of NBC. Other examples of economic factors are interest rate, inflation rate, increased spending power, percentage of people in a pensionable age, etc.
Social Factors: with the advancement of technology, companies feel the pressure to completely integrate themselves with the recent changes. Social Media has helped NBC to increase interactive engagement with the customers and effectively position their brand. NBC must continually strive to stay ahead of its competitors like Pepsi while effectively engaging its target market.
Technological Factors: Technology has advanced in all parts of the world and has made an impressive change to the way businesses operate nowadays. The importance of these changes depends on the business market. Often, the competitive environment of a business is altered because of changes in technology or the way that people purchase the products. NBC’s advancement in technology (better machines and modified products) has created new markets and opportunities to improve their profit margins. NBC has used social media technology to connect with audiences when they launched their name campaign on Coca Cola bottles by putting real names of people on their bottles. This campaign became more popular and improved their sales because almost everyone wanted to buy bottles of Coca Cola which had their names or that of family and friends. This is proof that new technology produced new opportunities for NBC to create, sell and promote their products.
Legal Factors: NBC retains all rights related to their business and this includes past and future products developed with a patented process. The legal environment includes the laws and regulations of a state. The laws and regulations will influence the way in which an organization will market or sell the product and services. The legal factors influence trade agreements between different governments and states.
Environmental factors: Water is one of the most important ingredients for producing drinks. NBC ensures that they have access to good water which is a raw material for their products. Also, NBC must observe environmental laws as they manufacture their products, else, heavy fines may be imposed on them or production might be delayed or stopped. Weather changes also impact their sales. For instance, people buy more drinks when the weather is warmer because they get thirsty more frequently.
Competition among Existing Competitors: NBC has competitive advantages such as loyal customers, good locations, good supply chains and a better understanding of the market over its competitors like PepsiCo.
Threat of Substitute Products: Substitute products give consumers the opportunity to choose alternatives based on price or quality. This increases competition, since a consumer can easily forgo buying a particular product in place of another. For instance, a consumer may decide to buy Pepsi instead of Coca Cola since the price of 50cl of the former costs the same as 35cl of Coca Cola. NBC needs to invest more in developing brand loyalty based on consumers’ preferences to maintain and even increase its market share.
Threat of New Entrants: If an industry has low barriers to entry, a business faces the risk of competition from new entrants. New entrants can introduce tactics like lower pricing and aggressive marketing strategies in an effort to attract customers. This actually happened in Nigeria a few years ago when the Aje Group, a multinational beverage company introduced their product called Big Cola into the market. The new entrant was a source of concern for NBC because it was relatively cheaper than Coca-Cola and its other variants. However, NBC was able to retain its market share by taking advantage of customer loyalty, extensive distribution channels and proper brand positioning.
Environmental scanning is an ongoing process and organizations are always refining the way their particular company or business goes through the process. Environmental scanning reinforces productive strategic plans and policies that can be implemented to make the organization get the maximum use of the business environment they are in. Environmental scanning not only helps the business find its strengths in its current environment but it also finds the weakness of competitors, identifies new markets, potential customers and up and coming technological platforms and devices that can be best used to sell/market the product or service. Environmental scanning helps a business improve their decision-making process and build a strong brand.
Carey, J., The Five Elements of Porter’s Competitive Forces Model. Retrieved from:
http://smallbusiness.chron.com/five-elements-porters-competitive-forces-model-77015.htmlFrue,K., (2016). Pestle Analysis of Coca-Cola. Retrieved from:
http://pestleanalysis.com/pestle-analysis-of-coca-cola/Musa, T, B., et al. (2016). BUAD 823: Environment of Business, Ahmadu Bello University Press
Ltd., Ahmadu Bello University, Zaria, Nigeria.Wikipedia, the free encyclopedia. Market environment. Retrieved From: