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3.1.3 SWOT Analysis

A) SWOT analysis

SWOT analysis – This is a tool that provides a business an outline of what advantages over competitors that they may have and what might be their vulnerabilities.

Internal considerations:

  • Strengths – This could be the capabilities that the business has e.g. a good reputation. It could also be some of the resources a business have or their marketing. For example, a large business may have the advantage of economies of scale, however a smaller businesses may benefit from their good customer service leading to brand loyalty.
  • Weaknesses – This weaknesses suggest in what areas a business may be weak in. For example, smaller businesses may be threatened by the lack of finance available to them meaning they are unable to expand quickly. However, weakness to a big business may be the difficulty of co-ordination due to their big size e.g. poor communication with supply chains.

External considerations:

  • Opportunities – An opportunity that the business may have is to expand. For example, if there was a lowering of interest rate then it may give the perfect opportunity for businesses to loan money and invest it in the business. There may also be opportunities for the business to develop their products.
  • Threats – This may be due to changes in legislation such as an increase in the minimum wage which may increase the businesses costs. It may also be new entrants into the market or changes to fashions and trends. This is a threat because the business may need to respond to it either in the present or in the future.

SWOT analysis can be used to make tactical and strategic decisions. For example, if there is new entrants into the market causing a threat then the business may lower its prices to try and retain its market share (tactic). Furthermore, if there is an opportunity to the business to expand then the business may do this causing a change in strategy (proactive).

 

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