Examples of Competitive Environment

In the business plan of every small enterprise is a section analyzing the competitive environment. The competitive environment encompasses all the external factors that compete with the services or products of the small business. Ignoring any of these factors results in having an incomplete picture that can lead to four to eight percent growth value left on the table, according to SG Analytics. The most obvious examples of elements of a competitive environment are a business's direct competitors, but other examples are regulatory sources, indirect competitors and social and technological changes.

Regulatory and Licensing Demands

A small business's ability to compete and the environment in which it attempts to make a profit can be greatly affected by government regulations and professional licensing demands. For example, a spa's competitive environment can be altered if a state enacts regulations stating that all massage therapists must meet the same licensing demands as a cosmetologist. Likewise, the competitive environment of an insurance company can be altered significantly if the state passes no-fault reform laws. While ideally all competitors in the environment are subject to the same regulations, the regulations may create a greater cost burden or benefit to a smaller business.

Effect of Direct Competitors

In a healthy market economy, the competitive environment is filled with direct competitors. These include everyone who is in the same business. Within an industry, all businesses that offer the same products and services are in direct competition. For example, anyone who sells electronics is a direct competitor with other sellers of electronics. All media consulting firms are in direct competition with each other.

Effect of Indirect Competitors

Indirect competitors are those that are not the exact same type of business but are competing for the same consumer dollar. They may belong to the same industry, though that isn't a requirement. What creates the indirect competitive environment is that the businesses offer a different product or service.

For example, in the entertainment industry, a cable television channel competes for the entertainment dollar with ticket sellers for a sports stadium or concert. A fast food restaurant is in indirect competition with a buffet restaurant.

Social and Technological Trends

Often, the types of competitive environment a small business operates in is altered because of changes in technology or the way that people purchase products. For example, Amazon.com changed customer expectations and the way that businesses distributed products. Its innovations affected the competitive environment of a slew of consumer product businesses and opened several markets for small businesses that previously could not have hoped to compete with bigger corporations. Amazon.com inaugurated the idea of the "long tail," in which businesses could offer a wider variety of products that were sold at smaller volumes because of decreased distribution costs.

Competitive factors vary from business to business, industry to industry. It is important to do a regular competitive analysis of factors that may affect you in the near-term and long-term, according to CEOpedia. As time and technology changes, it'll be even more important to stay on top of these changes and the types of competitive environments that may infringe upon your business.