The environment wherein a given firm operates presents both challenges and opportunities to the organization (Lesca, 2013). Therefore, it is important for starting firms to analyze their business environment so as to establish an effective strategic position. The purpose of this analysis, the business environment is divided into the general and industry environment.
The general environment refers to aspects that affect all business that operates in a given market. The proposed security firm will begins its operations in the American market. A significant environmental factor that affects businesses in this market is politics. Various political factors can affect the operations of the proposed security firm. These factors include taxation policies, policies on gun control and other security policies (Strom, 2010). However, these political factors do not have a significant implication on the proposed business as the policies are least likely to change in the foreseeable future.
Another element of the general environment is the economy. Various aspects of the economy are likely to affect the proposed business including economic growth, the unemployment rate, interest rates, and inflation (Lesca, 2013). A high economic growth, low unemployment rate, low interest and inflation rates will favor the business by increasing the purchasing power of the targeted consumers. However, power economic performance is likely to affect the business negatively. Current trends indicate the performance of the U.S. economy will improve, in the near future.
Social-cultural developments are another element of the general environment that is likely to affect the security firm. A significant social factor that is going to affect the business is people perception about security. With security threats such as terrorism becoming prevalent, people are likely to demand more security services (Strom, 2010). Another social factor that will affect the business is income. A spike in the earning level of the population will boost the demand for security services.
Technological developments are also part of the external environments. Innovations in the technological field may present opportunities or threats to the business. Technological advancements are likely to give rise to sophisticated security threats; hence, they will increase demand for security services (Strom, 2010). Technological innovations may also introduce new and efficient ways of doing things; hence, they may increase the competitiveness of the firm. Technological advancements may also affect the business adversely by making the firmís existing technologies obsolete.
The industry environment refers to all factors that affect firms that function in a given industry. The Porters Five Forces model aids firm to analyze the industry environment by scrutinizing five major forces that operate in this environment. The first force is rivalry. Rivalry refers to the degree of competition among existing firms (Lesca, 2013). The U.S. private security industry has a high level of rivalry. The industry comprises of numerous players, both large and small. Big players within this industry include Wells Fargo, DynCorp, and AlliedBarton (Strom, 2010). Apart from these large competitors, the industry comprises of numerous small company. Strong rivalry implies that the proposed company needs to find sustainable ways of differentiating it services in order to compete.
The second force is the threat of new entrants. The threat of new entrants in U.S. private security industry is high since the industry has minimal legal requirements and companies require relatively low amount of capital to start. Similarly, consumer switching costs is also low making it easy for new entrants to survive in the industry (Demsey, 2010). The only barrier to entry is the high degree of rivalry that characterized the industry. The proposed company will have to develop a strong brand identity and build customer loyalty in order to deal with this threat.
Another force is the threat of substitutes. The term substitute refers to a service or product that can be utilized for the same intention as the companyís product. The threat of substitute in the private security industry is negligible as there are very few substitutes to private security services (Strom, 2010). The only substitute is for the citizens to rely on the public security services, which does not provide certain aspects such as personal protection. Similarly, public security agencies cannot conduct investigations on private matters such as infidelity.
The fourth force is the bargaining power of suppliers. The private security industry comprises of numerous suppliers including weapon manufacturers and vendors, IT solutions vendors, motor vehicle manufacturers and dealers (Dempsey, 2010). Some suppliers such as vehicle and weapon vendors are large and power; hence, have a strong bargaining power. This means that they are likely to charge high prices for their supplies. The proposed security company will deal with this threat by entering into strategic partnerships with other security firms so as to increase our bargaining power when dealing with these powerful suppliers.
The final force is the bargaining power of buyers. The private security industry comprises of different categories of clients. Some clients are large and powerful such as banks, companies, education and other institutions (Dempsey, 2010). There are also small and fragmented customers such as individual home owners and people with troubled marriages. The proposed business targets the individual market. It seeks to provide security services to individual home owners and investigative services to people with troubled marriages. The bargaining power of these consumers is low; hence, the firm will be able to control prices.
Dempsey, J. (2010). Introduction to private security. USA; Cengage Learning
Lesca, N. (2013). Environmental scanning and sustainable development. USA; John Wiley & Sons
Strom, K. (2010). The private security industry. Retrieved from https://www.ncjrs.gov/pdffiles1/bjs/grants/232781.pdf