Costco Wholesale Corporation - External and Internal Environmental Analysis

External and Internal Environmental Analysis

Costco Wholesale Corporation (Costco) operates a membership-only warehouse that sells quality products and services at an affordable price. This paper identifies and analyzes external environmental factors in the remote, industry, and external operating environments. The identification and analysis of internal strengths and weaknesses of Costco includes an assessment of Costco’s resources. A review of Costco’s competitive position and possibilities includes an analysis of the organizational structure and the effects of Costco’s performance.

External Environmental Factors

According to Pearson and Robinson (2013), external environmental factors include “factors beyond the control of the firm that influence its choice of direction and action, organizational structure, and internal processes” (p. 87). For example, changes in the law or regulation include factors that remain beyond Costco’s control. Examples of a remote environment include economic, social, political, technological, and ecological factors (Pearson & Robinson, 2013). The Affordable Care Act is an external factor affecting large organization includes the Affordable Care Act. Competition from Sam’s Club and BJ's Wholesale Club threatens Costco’s market share and profits.

According to Pearson and Robinson (2013), industry environment include “general conditions for competition that influence all businesses that provide similar products and services” (p. 97). The economic downturn affects the entire wholesale discounters. According to Business News (2012), “Costco was the only discount chain that attracted more ultra-affluent -- consumers with more than $250,000 income a year -- than lower-income shoppers, with income ranging from $100,000 to $249,900 a year” (para 2). Although the poor economy affects the industry, the wealthy clients help during poor economic times.

Operating Environment

According to Pearson and Robinson (2013), operating environment or competitive environment includes “factors in the immediate competitive situation that affect a firm’s success in acquiring needed resources” (p. 111). According to MarketLine (2013), Costco’s primary competitors include Sam’s Club and BJ's Wholesale Club. To avoid any decrease in the market share, Costco must remain price competitive and continue to provide quality goods and services at an affordable price.

Strengths and Weaknesses

According to MarketLine (2013), Costco strengths include: customer loyalty related to price positioning, a low cost operating model, and high sales. According to Yahoo Finance (2013), Costco’s current profit margin remains less than 3%. Costco can increase prices if needed but the low prices and quality products created customer loyalty. According