Examples of threats

Threats are generated by factors external to the organization, it reduces market opportunities or lead to lower profitability. The risk must be distinguished from the weaknesses of the organization (the source of which is within the company and also has a negative impact on its financial results). The threat within the meaning of strategic management is always something OUTSIDE of the organization, something to that management has no direct influence, something that may change in unexpected, negative direction without connection to the activities of the company.

Threats unlike opportunities, are always negative in nature, managers should monitor environment of the company to adequately and pro-actively react before they notice any sign of threat and take protective and preventive measures before the onset of their negative effects.

Types of threats can be divided depending on the nature of the environment factor which is their source. The most distinguished sources of threats in the environment of the company, are:

Political factors

• power in the country was taken over by political forces favoring limiting economic freedom and proclaiming populist announcements,
• industry in which the company acts is negatively evaluated by the ruling political party, its representatives threatens the imposition of additional tax burden and limit the scope of activities,
• political climate prevailing in the country, does not promote cooperation and trust between business and government organizations,
• social unrest in the country and specter of riots, reduce the demand for luxury goods and services,
• customs and tax charges policy assumes their increase, as the government has to balance the budget for the implementation of the electoral populist promises,
• drastic change in the political arena, major parties are losing their position in favor of the new populist movement, often proclaiming extremist slogans.

Economic factor influencing business

• economic integration means that more and more foreign competitors begins to operate freely in the local market,
• demand for products and services in the industry in which the company operates is declining steadily,
• most large competitors enter the market, due to its increasing profitability and prospects for further dynamic growth.
• competitors generate new and innovative products to meet the needs of customers so far absent, which exerts pressure to change product range of the company,
• interest rates rise, reducing the availability of credit, raise the cost of capital investment for the development of the company,
• barriers to entry on market, in which the company operates are low, increasing the attractiveness of this market encourages companies to enter the competition is what drives him and exerts a negative pressure on prices,
• inflation remains at a high level, limits the possibility of long-term planning of purchases, sales and investment projects
• Unfavourable exchange rates reduce the profitability of exports, cause that there are more and more foreign competitors, in the international arena there are also more and more significant players.
• level of economic development is falling, there is a crisis and general uncertainty about the future, causing a decline in consumption and investment demand,
• Real income of population is falling, which translates into a decrease in demand for goods produced and sold by the company,
• new market segments are emerging not yet supported by the company that distract existing customers and decreases demand for old products and services,
• competitors introduce new products with higher quality and lower price,
• provider exert growing pressure to increase the prices of raw materials / goods / materials, increasing their bargaining power,
• customers are putting increasing pressure on reducing prices, increasing their strength and tender leverage by various consumer organizations,
• competitive companies to consolidate, the leading competitor takes over smaller companies which significantly increases the competitive pressure,
• there is a real danger of the emergence of the market substitutes for company's products and services, with improved quality and lower price,
• there are new barriers to international trade emerging, possible embargo on trade with certain countries, customs and transport difficulties are rising,

Social and cultural factors

• globalization makes the customer requirements grow, more and more difficult to break with the products of poor quality and high price,
• social networks generate fashion for products and services of the industry in which the company operates, but it is hard to satisfy in profitable manner.
• changing demographic profile of the population reduces the demand for products and services offered by the company,
• there is a decline in population (demographic crisis), which translates into a potential long-term decline in demand,
• Increasing awareness of the population in terms of health and safety, which results in a decrease in demand for our products and services (e.g. cigarettes, alcoholic beverages)
• age structure of the population in a market served by the company is unfavorable, number of people in the age group which is a target market for company's products, decrease significantly,
• people are less and less susceptible on advertising and react negatively to common promotional activities,
• there is generally a negative attitude concerning the assessment of the economic situation and job prospects in the future, people are afraid of the deterioration of the economic situation, the loss of jobs and sources of income,
• professionals are leaving to work abroad, seeing the worsening employment prospects and a career in the country,

Technological factors

• difficult access to technology, foreign companies have patents on key production technologies, development of innovative products is thus not possible, acquisition costs of patents is very high,
• increasing access to technology for foreign companies, it makes the productivity of competing companies as well as production costs fall,
• research units prefer to cooperate in the implementation of new technologies with competitors,
• in industry in which the company operates technology clusters are organized focusing mainly competitors of the company,
• competitors are using more efficient and environmentally friendly technologies,
• it is difficult to obtain support in the form of grants for the establishment of research and development centers,
• state does not actively support research and development initiatives and foreign patent protection,
• speed of technological change makes the machines become obsolete before it has time to amortize.
• rapid technological change shorten the product life cycle, so that the company can not get a fair rate of return on investment in technological development,

See more examples of Technological factors affecting business.

Legal factors affecting business

Negative legal factors affecting business include:

• changing laws make it harder to conduct business,
• there is a need to obtain new approvals, licenses, permits to operate in the industry,
• importance of trade barriers (customs, tax) in international trade is increased in the industry in which the company operates,
• there are increased limitations resulting from the employment regulations,
• there are increased regulatory burden associated with the functioning of trade unions,
• new types of taxes are imposed, not previously present,
• there is a real threat of nationalization of the assets of the company,
• reduced legal protection of constitutional property rights and economic freedom,
• increased risks associated with the activities of law enforcement agencies: the police, tax and customs authorities,
• increased number of possible control which are disruptive to course of business processes,

Natural environment factors

• Increasing pollution increases the cost of the company, which must buy expensive filtering devices to maintain the optimal level of pollution
• restrictions imposed on the companies benefiting from the environment, increase operating costs and reduce competitive position in relation to firms from countries where there is no real pressure on the environment protection,
• changing climatic conditions in the area, on which the company can operate, causes decreasing number of potential customers,
• constraints arising from environmental law negatively affect the sale of previously produced, traditional products,

Ethical factors

• increasing emphasis on corporate social responsibility increases the cost of the enterprise and makes it difficult to carry out actions incompatible with the generally accepted ethical values,
• more and more potential business partners, is putting pressure on the company to respect excessive ethical standards.

See also other: Ethical factors affecting business

Author: Krzysztof Wozniak

Examples of threats — recommended articles

Opportunities and threats — External environment — Examples of opportunities — Domestic market — Political factors affecting business — Basic industry — Barriers to exit — STEEPLE analysis — Environmental factors affecting business