Current Market Environment Scan
You wouldn’t want to invest in a company that is facing declining
sales or having a weak brand name. Before you buy any stock, the
first thing to be considered is the company’s future outlook. An
investor can conduct SWOT analysis (refer below)to determine the
potential of the company. In addition, make sure that the company is
a market leader with sound management.
SWOT Analysis
When we conduct a SWOT analysis for a company, we are in fact
comparing the Strengths, Weaknesses, Opportunities, and Threats
of the company. The purpose of this study is to learn how a company
can build on its strengths in order to exploit opportunities and
counter threats to correct company weaknesses.
Strengths. The strengths of a company can be in the form of: superior
efficiency, superior quality, superior innovation, and superior
customer responsiveness. Distinctive competencies, which arise from
a company’s resources and capabilities, are the unique strengths of a
company. Valuable distinctive competencies enable a company to
earn a profit rate that is above the industry average. And it is these
profits that determine the market price of the company.
Weaknesses. The weaknesses of a company are the opposites of the
strengths mentioned above: inefficiency, low quality, lack of
innovation, and not responsive to customers’ needs. These factors
will cause a company to lose its competitiveness to other players in
the industry. As a result, the company generates low or negative
profits.
Opportunities. Opportunities arise when environmental trends create
the potential for a company to achieve a competitive advantage. For
example, the introduction of Mesdaq Board created the opportunities
for many high tech companies to be able to achieve listing status in
Bursa Malaysia.
The extent of competitiveness in the environment will also give rise
to future opportunities and threats. To analyse the competition
environment, we need to look at the five forces: the risk of new entry
by potential competitors, the extent of rivalry among established
firms, the bargaining power of buyers, the bargaining power of
suppliers, and the threat of substitute products. Favorable conditions
in one or more of these factors will greatly enhance the profitability in
the industry.
Threats. Companies typically fail when either their strategy no longer
fits the environment in which they operate, or the competitive
environment becomes harsh in the industry. For example, when there
are more players in the industry, buyers become more powerful as
companies depend on them for business. In such circumstances,
buyers are a threat to the industry.
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