Sample External Analysis
Sample External Analysis
There are many factors that can affect a company’s overall profit and performance, some of which are beyond the control of the company. In the case of Fossil Corp., we will be focusing on the major external factors that may have caused the company’s actual revenue and growth to differ materially from the expected future figures.
Economic Conditions
Economic Cycles:
The retail market is a highly elastic sector and as such is affected by current economic conditions. Since Fossil Corp. is in the retail market, they will find that differing fluctuation in their gross profits are directly dependant on the current economic cycle. If the economy is weak, demand for their product will decrease and purchases of their products will decline as the population’s disposable income is low. Conversely, the opposite is also true; if the economy is strong, people will have more disposable income and will purchase more discretionary fashionable accessories offered by Fossil Corp.
Acts of Terrorism/War:
Any acts of Terrorism or war could have a serious affect on the economy and would create a downfall of economic growth for the year. This in turn might make it harder for the Fossil Corp. to acquire products from manufacturers for sale to their customers.
Seasonal Trends:
Fossil Corp. experiences some seasonal trends in the sale of its products. A significant portion of their net sales and operating income are generated during the third and fourth quarter of the fiscal year, which includes the “back to school” and Christmas seasons. The amount of profit generated during this time depends on the estimated sales forecasted for those seasons. If by chance, there is an economic down turn during this time, sales will slump and inventory will increase, leading to lower operating and profit margins.
Government Regulations
Imports and import restrictions: Fossil Corp. has not control over the tariff regulations set by the U.S. and the other countries which manufacture and sell their goods. Any modifications in these regulations could result in Fossil Corp. having to set new quotas or pay the additional cost.
Compliances: Since Fossil Corp. is an american company, they are subject to regulations by the government, such as the U.S. Food and Drug Administration. If the government decides to alter these regulations, Fossil Corp. will have no choice but to meet these demands. This could result in higher operating costs and consequently a decrease in overall profit. As well, Fossil Corp. might be required to completely redesign a given product or hence stop production of that product.
Manufacturing
Third-Party Manufacturers: Fossil Corp. products are produced by third party manufacturers. Unfortunately, Fossil Corp. does not have long-term contracts with these manufacturers but instead relies on the business relationships that they have developed with these companies. Although this is a common and acceptable practice in the business world, it creates an uncertainty that might turn out to be very costly for the company.
As well, Fossil Corp. cannot oversee the labor practices of these third-party manufactures. This in turn places Fossil Corp in danger of losing a supplier or even worse, possibly tarnishing the image of the company, if the manufacturer