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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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