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SWOT stands for S.W.O.T which is Strengths, Weaknesses, Opportunities, and Threats. A company at all times needs to know its Strengths, Weaknesses, Opportunities and its Threats. An analysis of the above things reveals what are the factors or the forces which are working for and against the company in the market. These can be either internal factors or external factors or both.
Here, one must keep in mind that in SWOT, Strengths, and Weaknesses can be controlled internally, but Opportunities and Threats are very much external to the company and in most of cases are out of the company’s control.
Strengths: A company’s strengths are its resources and capabilities that can be utilized in the process of making strong products. The strengths are Patents, brand image, the technology used in production, lower cost of production, exclusive access to the best quality resources, a favorable distribution network, a better workforce, etc.
Weaknesses: The weaknesses of a company are quite opposite to that of the strengths. They are lack of patents, a loose brand image, outdated technology used in production, higher cost of production, lack of availability of quality resources, lack of availability of proper distribution channels.
The externalities in SWOT are Opportunities and Threats.
Opportunities: Opportunities are nothing but new avenues to increase profit and growth. These include an unsatisfied customer, the discovery of a new market with an enormous sales potential, loosening of Government regulations and international trade barriers, the discovery of new methods in production, improvement in the technology, etc.
Threats: Threats are those forces or factors which affect the profitability of a company. Every company faces Threats in the form of competition, both from the homogeneous industry as well as heterogeneous industry. Threats that a company face may be from industry and outside of the industry. Changing tastes and preferences of customers is one of the biggest threats, so the companies regularly try to improve their products and want to serve their customers better for survival. Other threats can be from the Government like an increase in the taxes, restrictions being imposed, etc.
A thorough analysis from time to time will let the company know what it needs to do in certain situations. It can plan and prepare ahead for the future.
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