Netflix Business Environment Research Paper

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Netflix External and Internal Environments

Netflix is a video rental store that was founded in 1997 in Scotts Valley, California by Reed Hasting and Marc Randolph. The corporation’s business model is centered on mailing DVDs to its customers as well as providing online rental of videos. For its mailing services, Netflix uses its 35 warehouses across the United States. Since its inception, the company has continued to leverage on technology to improve its services and offerings to customers. This has contributed to its increased success and profitability over the years despite the changing conditions in its market. A critical component that has contributed to Netflix’s success and profitability over the years is an understanding of its external and internal environment. This paper examines Netflix’s external and internal environments with regards to its general business environment, five forces model of competition, external threats and opportunities, strengths and weaknesses, resources, capabilities and competencies, and future improvements.

General Environment

Netflix operates in the entertainment industry where it focuses on providing video rental services to its customers. Netflix provides streaming media video on demand products and various services including film production, film distribution, and television production services. Since inception, Netflix has developed to become the leading Internet entertainment service across the globe with more than 130 million paid memberships across 190 countries (Netflix, 2018). Through its video streaming services, Netflix’s customers can enjoy documentaries, television series, and feature films in different languages and genres. Therefore, the company’s external environment is the entertainment industry, which is increasingly competitive. Hitt, Ireland & Hoskisson (2015) define the general environment as the wider society that affects an industry and companies within it. The general environment comprises different dimensions including demographic, sociocultural, physical, economic, technological, political/legal, and global segments.

One of the segments of general environment that rank the highest in terms of its influence on Netflix’s operations is technological segment. Technological segment affect Netflix and the industry it operates in through increasing knowledge intensity and the emergence of the information age. Through technology diffusion and disruptive technologies, technology has changed its services from video rental services to providing video streaming services. The company continues to change its operations as technology generates widespread devices and gadgets. Secondly, Netflix’s operations are influenced by sociocultural factors, which play a critical factor in the entertainment industry.

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These sociocultural factors are brought by globalization, which has resulted in changes in customers’ buying behavior, their watching methods, and perspectives regarding price, quality and time of services.

Five Forces of Competition

Five forces model of competition is an important strategic management tool that is used by business organizations to help identify the most attractive area of operation. To achieve this, the model incorporates several variables and attempts to assess the complexity of competition. Therefore, the five forces model of competition is important to a firm with regards to analyzing and understanding competition as well as identifying the most attractive area of operation in order to enhance competitiveness and profitability (Hitt, Ireland & Hoskisson, 2015). Netflix operations and competitiveness is affected by the five forces model of competition as follows:

Bargaining Power of Suppliers

One of the five forces model of competition that is most significant for Netflix is the bargaining power of suppliers, which refers to means suppliers can use to exert their authority over companies competing within an industry (Hitt, Ireland & Hoskisson, 2015). This is one of the most significant forces affecting Netflix since suppliers providing video content own the content. Therefore, this industry is characterized by high bargaining power of suppliers that require suitable licensing deals and could generate legal issues. The high bargaining power of suppliers is attributable to their ownership of the video content that Netflix needs.

Threat of New Entrants

The second most significant force is threat of new entrants, which refers to identifying new entrants in terms of their potential competitiveness and market share (Hitt, Ireland & Hoskisson, 2015). Netflix’s industry is characterized by low barriers to entry, which have in turn resulted in high threat of new entrants. While the corporation is an industry leader, there is a high threat of new entrants due to the low barriers to entry and relatively weak customer loyalty.

Evaluation

Netflix has addressed these two forces in recent years through developing its economies of scale i.e. making incremental efficiency improvements. As shown in its recent annual report, Netflix addresses the high bargaining power of suppliers through….....

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