Business Environment Report

This report analyzes the business environment of the UK soft drinks sector using Porter's Five Forces Model and the Value Chain Model. It examines the competitive forces impacting the industry, including the threat of new entrants, substitute products, bargaining power of suppliers and buyers, and rivalry among existing firms. The report also analyzes the internal business environment of Evoca Cola, a UK-based soft drink company, using the Value Chain Model. It explores the company's primary and support activities and identifies potential adaptations to external business environmental forces. The report concludes by discussing the usefulness and limitations of Porter's Five Forces Model in understanding the business environment. Desklib provides past papers and solved assignments for students.

Business Environment

Table of Contents
INTRODUCTION...........................................................................................................................1
Main Body.......................................................................................................................................1
(a) Identification and Analysis of Porter's 5 Forces Model on the Soft Drinks Sector within the
UK economy...............................................................................................................................1
(b) Value Chain Model for the analysis of internal business environment.................................3
C .Adaptations that a firm could undertake in response to external business environmental
forces...........................................................................................................................................1
D. Usefulness and limitations of porter's five model in the business environment....................2
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
The present study focusses on Porter's 5 Forces Model and it analyses its current
environmental influences on soft drink sub sector within the UK economy. It will also describe
the value chain model for the analysis of internal business environment of the firm named Evoca
Cola. Evoca Cola is a carbonated soft drink of cola flavour produced and sold in UK. The study
will further explain appropriate adaptions Evoca Cola should undertake in response to the
external business environmental forces. It also highlights the usefulness and potential limitations
of the Porter's 5 Forces Model in understanding the business environment.
Main Body
A. Identification and Analysis of Porter's 5 Forces Model on the Soft Drinks Sector within the
UK economy
Michael Porter's 5 Forces Model is used to identify and analyse the 5 significant
competitive forces that impact and shape any industry. The model determines the
competitiveness and attractiveness of a respective market (Aithal, 2016). The impact of Porter's
5 Forces on the soft drink sector within the UK economy can be explained as :
Threat of new entrants or potential competitors :
Entry of new entrants is a threat to any industry. Entry barriers in soft drink sector is
relatively low in UK as the potential entrants have to enter into licensing deals, insurances and
other stated qualifications before establishing their brand in the market. A company requires a
huge capital investment before establishing its presence in the soft drink sector. Availability of
channels of distribution is also a challenge for any new entrant. The other big players in the soft
drink industry has enhanced goodwill and loyal customers which are not likely to try a new
brand. In present, consumers are switching more towards healthier options, the soft drink sector
faces threat of emerging health drink sectors. Experienced players run on economies of scale,
thus incur lower costs and improved performance (Bhardwaj, 2016).
Threat of substitute products :
There are many types of energy drinks, juices and sodas available in the market. The
consumers could also satisfy their wants by drinking beverages, freshly made juices or smoothies
instead of bottled pack soft drinks. For example, consumers may switch to coffee instead of soft
drinks. This is proved true as there is growth in sales of Starbucks in UK over the years. People

in UK love drinking coffee with right flavourings. Though customers will not switch to
substitutes if they incur additional costs. Customers are not likely to go for substitutes if the
brand loyalty is strong(Burns and Dewhurst, 2016).
The bargaining power of suppliers :
This is a significant competitive force. The main ingredients in soft drink manufacturing
include carbonated water, sweetener, phosphoric acid and caffeine. Its suppliers are not
concentrated. The supplier of commodities have the power to control the prices of ingredients.
External environment fluctuations and demand supply cycles results in price variation over time.
Natural disasters and calamities also regulate the price of commodities. Soft drink sector
companies can minimize the effect of these regulations by entering into contracts for supply of
raw material. Suppliers for soft drinks sector do not hold much competitive pressure and can be
switched easily by the manufactures (Carraher, 2018).
The bargaining power of buyers
An individual buyer of soft drink may possess a minimal level or does not possess any
bargaining power. The retailers with large order quantity inhabit bargaining power. Soft drink
sector companies do not directly sell to the end users, instead it deals with the channels of
distribution for the sale of their products. The distribution channels includes wholesalers,
retailers, fast food chain companies, vending machines companies and institutional campuses.
The giant buyers with large quantities possess the power to buy the products at discounts. Soft
Drinks companies sell its product to distribution channels at lower prices, that the distribution
network can sell it to end user with a profit. Buyers are highly sensitive to the price of soft drinks
and are willing to switch the brand if if one becomes much more expensive.
Rivalry among existing firms :
The brands of soft drink sector in UK provide similar level of offerings and similar
ingredients in their products. This effects the buying behaviour of customers and results in cut
throat competition. The soft drink players in UK such as Evoca Cola, Virgin Cola, Tango, etc.
faces tough rivalries among themselves. The brand identities provide competitive edge to the
existing players. The soft drink sector industry does not have rapid growth rate which makes it
difficult for the new entrants to compete with existing evolved businesses. Cut throat competition
in soft drink sector effects the pricing structure of soft drink companies. The slightest change in

price by one player may result in fluctuations in the price of other players too for continue being
in the evoked set of consumers (Huggins and Izushi, 2015).
B. Value Chain Model for the analysis of internal business environment
A value chain is pool of defined activities that a firm pursues in order to deliver or grant a
valuable product to the customers. A value driven product creates added value which leads to
competitive advantage and higher profitability. Value chain Analysis of Evoca Cola is explained
as :
Primary Activities
Inbound Logistics :
The inbound logistics of Evoca Cola is concerned with receiving materials from the
suppliers, storing the raw materials properly and handle the use of it within the firm. Evoca Cola
has healthy relationships with its suppliers which creates added value in this stage.
Production :
Evoca Cola uses raw material such as carbonated water, sweetener, phosphoric acid and
caffeine to process into final soft drink. The firm uses the latest technology process and
automation to create added value. Evoca Cola operates within UK, France and Algeria (Jain, and
et.al., 2017).
Outbound Logistics :
Evoca Cola delivers products to the end users by use of different distribution networks.
The distribution channels utilised by Evoca Cola includes distribution operations operated by the
firm, distributors, wholesalers, retailers and independent bottling partners.
Marketing and Sales :
Evoca Cola uses integrated and systematic marketing strategy by using sales promotion,
advertisement and public relations in a combined manner. Evoca Cola focusses on building
customer relationships through various campaign which adds in the goodwill of the company.
The promotion schemes of social events provide the company a competitive advantage.
Service :
Evoca Cola pursues after sales activities which maintain the value of the product to
buyers as soon as the product has been procured or consumed. Evoca Cola website has a
comprehensive FAQ that includes the major aspects of the product in efficient manner. The

website also address a range of queries related to the product or brand. It also enables customer
support system by extending telephonic communication by toll free numbers.
Support Activities
Infrastructure :
Evoca Cola uses administrative, accounting, financial and line management soft wares to
support organisation's operations activities. It uses enterprise resource planning software of SAP
to provide value to its process (Kraja and Osmani, 2015).
Human resource Management :
Evoca Cola recruits qualified and skilled employees. It undergoes the training and
development of staff for increasing the process efficiency. It provides a positive work place
culture which boosts the morale of employees and this multiply their work efficiency. Employees
are motivated by providing timely appraisal and rewards.
Technology Development :
The process of production of Evoca Cola is tech friendly. They update their software on
annual basis. The work activities are enriched with creativity and innovation and by establishing
technological improvements. The update of technology optimize the work process and also
provides a competitive edge to the organisation. The company uses automation system of
production which saves time and energy. The company extends the use of digitalization by
selling on different online platforms (Aithal, 2016).
Procurement :
Evoca Cola procures goods from suppliers at the best possible prices by building healthy
relationships which enforces timely and good quality supply of goods by suppliers. The high
quality raw materials enrich the process by delivering high value product which increase
customer satisfaction and brand loyalty. Evoca Cola enters into contractual agreement with
suppliers to avoid any price fluctuations and provide cost stability. The firm purchase the raw
materials from nearby suppliers which lead to lowering of costs and increased profits.

C .Adaptations that a firm could undertake in response to external business environmental forces
External business environment refers to the outside influences or factors that can impact
the business operations, An organisation must take several measures to adapt itself into the
external factors that can damage the operations and must react or act to in order to keep the flow
of operations in continuity.
A business or a firm can not control the aspects but can respond to the change, the
business managers should should be able to respond early to the change in external environment
and it depend on how early the managers identifies it. There are various factors which can affect
the external business environment and the different strategies used by the firm to overcome from
the same.
Economic conditions: The powerful economic conditions of nations have adverse effect
on spending habits or pattern of the citizens. External environment can affect the growth and
stability of the firm, so Evoca cola could lower the production cost and cost management
strategies at the phase of economic crises like rapid economic growth, inflation,change in
currency etc. ,hence it will help the firm to earn sufficient amount of profit rather than being in
loss (Burns and Dewhurst, 2016).
Market (Competition): The strength of a firm or business competition is constantly a
changing factor in external business environment., the competitors could change the marketing
strategies, prices or product line, Such changes taken by competitors cannot be indicted or
controlled but a manager of Evoca cola could keep an eye on the competitors strategies.
Technology: It has been a rapid change in the technology from the past 50 years and this
factor of the external environment is constantly exert pressure on firm or organisation. Evoca
cola can adapt sufficient quick change to the technological change in order to retain or gain its
market share. The technological change would not affect the packaging or design of the product
but could definitely affect the delivery of service.
Climatic or environmental change: The environmental change or climatic change in the
external factor can affect the business operations for instance: Evoca cola need a good weather to
produce its carbonated soft-drinks. Environmental change is a subtle threat and it needs to be
recognised and considered by the big firms like Evoca cola which can affect the operations of the
business, hence some measures like weather forecasting, time scheduling of the production etc.

Legal factors: The legal factors can adversely affect the operation and functioning of
Evoca cola which includes organisational laws, environmental law, legal business entities,
securities law, contract laws, employment law, consumer law, copyright law, Fraud law , the
firm (Evoca cola) could consider adaptability by instructing and guiding the employees about the
laws which they have to follow while working in the organisation (Mathooko and Ogutu , 2015).
Political factors: The managers of the business must address the political factors that can
minimize the risk of the business. Political factors may includes government policies,
bureaucracy, political stability and instability, foreign trade policies, trade restrictions and the
most important is taxation policy as it is considered as the most obvious change in the law by
legislation. As far as adaptability is concern, Evoca cola could prepare itself by developing a
habit of doing appropriate market research before entering into a new market in order to
minimize the risk of failure.
Demographic factors: Demographic factors in the external environment factor includes
Age, sex, marital status, income, family background, education, occupation, size of the family,
psychological factors, geographical regions, hence these factors plays a crucial role in the buying
behaviour of the consumer. The company or the firm (Evoca cola) could take measures to order
to bring adaptability to this factor. Evoca cola could produce the products after considering the
demographic factors such as the product of the company could appeal to certain income groups,
the company could develop the product for high-end customers as well as for lower income
group, the company could developed such product which could be likes by every age group.
Evoca cola could meet the buyer's requirement and need in certain geographic region which can
let them to earn higher profits and sales, they can sell the flavours of the drinks that are desired
by the customers in various areas, this can help the Evoca cola to generate high amount of profit
and sales (Aithal, 2016).
D. Usefulness and limitations of porter's five model in the business environment
Porter's five model have showed the five forces model which affect competitive
environment of a business, which are basically the bargaining power of suppliers, the
bargaining power of buyers, threat of rivalry and substitute products.
In a business environment, porter's five forces model determines a firm's competitive
environment, which basically affect the profitability of the company. The bargaining power of
suppliers and buyers could affect the ability of a company to increase the prices, manage costs,

respectively. Foe instance, if same type of carbonated soft drink is available with several
suppliers, then the buyers has bargaining power over each of the suppliers. However, if there's
only one supplier (Evoca cola) selling a particular type of product then the suppliers would have
the bargaining power over the buyers.
Threats of substitute goods can vary from industry to industry, the company should
develop unique product and ,it should be hard to imitate and the competitors would not be able to
make the similar product(Sölvell, 2015).
Low entry barriers can attract and encourages new competitors while the high entry
barriers could discourage the competitor to enter into the market. The goal of the company
should be consolidate the market I order to increase the power.
The five forces model have some major limitations in today's business environment
which are discussed as, the new business models and dynamics of market are not been taken into
account under porter's five forces model. The model should be used at broader level of entire
industry and is not designed for a smaller group/ market level. Another limitation is, which of the
porter's model shares the most competitive framework and that is of chronological thinking as it
is inherently static in nature (Jain and et.al., 2017). Brainstorming is the main purpose of porter's
model , it refers to a thinking exercise in order to demonstrate subjective attractiveness of given
industry landscapes. Hence, is not designed to decide the optimal organisations or industries with
certainty. As the static model, the model provide a snapshot of wider industries at some points, it
is beneficial for informing short term strategies but the applicability for information that are
coming out from the porter's model has been narrowed from the effect of rapidly evolving of
external factor. Other weakness of porter's model is, that a lot of people apply this model ways
that was never intended. The most common mistake by the managers is they try to apply the
model to specific company rather than to an industry as it can provide information to support
strategic discussion, but this tool is cannot be analysed by an individual company.
Challenge faced by the companies who apply Porter's five forces model is defining industry
clearly, companies could straddle various industries which depend on their business line, they
cannot group the similar business line company and amalgamate.
Porter's model puts emphasis only on external factors of the business environment and
completely ignore firm's specific factors. The institutional issue play a crucial role in controlling
and shaping the organisation or industry. But Porter's model treat it as factor and not as an

influential force. This model is based on industry, how the firms can do the revolutionary change
happens in the industries(Zhao and et.al., 2016).
CONCLUSION
From the above study, it can be summarized that the components of Porter's five forces model
and Value chain model helps the firm to identify and analyse the current environment which can
influence the operations of a company. A company could adapt several strategies or measures in
order to be adaptable according to the external environmental factors which are sometimes,
uncontrollable. Further, it summarized that the model (porter's five forces) have certain
advantages and disadvantages which the company should take into the accounts.
REFERENCES
Books and journal

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Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Carraher, S. M., 2018. An examination of an instrument to measure Porter’s Five Forces Model.
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Huggins, R. and Izushi, H., 2015. The Competitive Advantage of Nations: origins and
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Jain, V. and et.al., 2017. Supply chain resilience: model development and empirical
analysis. International Journal of Production Research. 55(22). pp.6779-6800.
Kraja, Y.B. and Osmani, E., 2015. Importance of external and internal environment in creation
of competitive advantage to SMEs.(Case of SMEs, in the Northern Region of
Albania). European Scientific Journal. ESJ. 11(13).
Mathooko, F. M. and Ogutu, M., 2015. Porter’s five competitive forces framework and other
factors that influence the choice of response strategies adopted by public universities in
Kenya. International Journal of Educational Management. 29(3). pp.334-354.
Sölvell, Ö., 2015. The Competitive Advantage of Nations 25 years–opening up new perspectives
on competitiveness. Competitiveness Review. 25(5). pp.471-481.
Zhao, Z. and et.al., 2016. Competitiveness assessment of the biomass power generation industry
in China: A five forces model study. Renewable Energy. 89 pp.144-153.