4. The macro environment Flashcards
To be viable, an organisation must achieve an appropriate ‘fit’ with its environment. This includes:
- Results that meet the expectations of its owners (shareholders, government, members etc.)
- Products and services that meet its clients’ expectations at least as well as rivals’
- Ability to remain within the legal and ethical codes of the societies it works in
- Attractive as a place to work for its staff
- Satisfying the needs of other powerful or influential stakeholders
What are various approaches to analysing the business enviroment?
- Rational planning approach: Environmental appraisal is a one-off assessment which establishes the forces acting on the business at present and forecasts how these may develop during the years of the plan.
- Strategic management approach: The need for environmental scanning. This is a continuous awareness by management of environmental issues enabling them to be routinely considered in decision making.
What should an effective information system do?
- Gathers environmental information.
- Validates and corroborates the information.
- Disseminates the information so that people who need it can find it.
Give examples of sources of environmental information.
- Employees
- Internal records system
- Formal information resources
- Trade media
- Published accounts of rivals
- Online resources
- Market reports
What are some issues to consider when validating environmental information?
- Integrity of the source
- Forecasting and predictive record of the past
- Degree of substantiation
- Age of information
- Motivation of provider
What may assist dissemination of environmental information?
- A well designed intranet with clear files and a search facility.
- Periodic briefing reports with a digest of the most significant information.
- Periodic seminars to brief management.
- Annual management development sessions at an internal or external business school to introduce and discuss new environmental issues.
Define scenario planning.
Concerns the development of pictures of potential futures for the purposes of
managerial learning and the development of strategic responses.
What are the three steps in scenario planning?
- Identify key forces which might affect an industry or market, using techniques such as PESTEL.
- Understand the historic trend in respect of the key forces.
- Build future scenarios, eg, optimistic, pessimistic and most likely.
What does PESTEL stand for?
PESTEL is a handy checklist for identifying environmental factors:
- Political
- Economic
- Social/cultural
- Technological
- Ecological/environmental
- Legal
Depending on the industry, some factors will be more significant.
What are the risks associated with political factors?
- Ownership risk
- Operating risk: Indigenisation/domestication.
- Transfer risk
- Political risk
What steps can be used to mitigate political risk?
- Detailed risks assessments prior to investing in the country.
- Partnering with a local business to increase acceptance of the project and to lobby for political support.
- Avoid total reliance on one country
What economic factors should be considered when assessing the external environment?
- Long-term exchange rates’ behaviour.
- Interest rates (long-term and short-term).
- The economic infrastructure.
What do social/cultural factors include?
Social factors:
- Make-up of population
- Family structure
- Attitudes to diversity
- Extent of social mobility
Cultural factors:
- The market for products
- Promotional strategies
- Methods of conducting business
- Methods of managing staff
- Expectations of business conduct
What do technological factors include?
- Technological base, and therefore customer and staff familiarity with it, varies across countries.
- Technological change challenges existing industry structure and competitive advantages
- Technological change can render existing products obsolete but can also provide opportunities
- Technological change creates uncertainty
- Advances in technology may also provide new channels to get products and services to market.
What do environmental issues include?
- Climate change and pollution
- Energy gap
- Waste recycling
- Bio-diversity
- Introduction of genetically modified organisms
What are main government policies regarding environmental issues?
- Reduce carbon emissions
- Penalisation of carbon creating industries
- Investment in non-carbon creating technologies
- Making foreign aid dependent on acceptance of environmental policies by recipient countries.
- Regulations covering hazardous waste.
What are the implications of government environmental policies on business strategy?
- Need to accept ‘polluter pays’ costs
- Increased emphasis on businesses acceptance of corporate responsibility
- Potential for economic gain from cleaning-up operations and selling surplus ‘permits to pollute’
4/ Potential competitive advantage from development of products that are eco-friendly
- Need to monitor ecology-related geo-political and legislative developments closely.
How may legal factors be assessed?
- Systemic factors
- Cultural factors
- Context and regulatory factors
How does global competition affect firms?
- It provides the opportunities of new markets to exploit.
- It presents the threat of new sources of competition in the home economy from foreign firms.
- It offers an opportunity of relocating parts of business activity (or supply chain) to countries able to perform them better or more cheaply.
- It may drive cross border acquisitions and alliances.
What are Ohame’s five Cs factors that encourage the development of global business?
- The customer
- The company itself
- Competition
- Currency volatility
- Country
What are the component’s of Porter’s Diamond: The Competitive Advantage of Nations?
- Factor conditions
- Demand conditions
- Related and supporting industries
- Firm strategy, structure, rivalry
The factors in the ‘Diamond’ are interrelated.
What are the roles of factor conditions?
- Human resources skills
- Physical resources
- Knowledge
- Capital
- Infrastructure
Basic factors include natural resources, climate, semi-skilled and unskilled labour. Basic factors are inherited, or at best their creation involves little investment.
Advanced factors include modern digital communications, highly educated personnel, research laboratories and so forth.
What are the role of demand conditions?
The home market determines how firms perceive, interpret and respond to buyer needs. This information puts pressure on firms to innovate and provides a launch pad for global ambitions.
What are the role of related and supporting industries?
Competitive success in one industry is often linked to success in related industries.
What are the role of strategy, structure and rivalry?
- National cultural factors create certain tendencies to orientate business people to certain industries.
- Industries in different countries have different time horizons, funding needs and so forth.
- When an industry faces difficult times, it can either innovate within the industry, to sustain competitive position or shift resources from one industry to another (eg, diversification).
- With little domestic rivalry, firms are happy to rely on the home market. Tough domestic rivals teach a firm about competitive success.
According to Porter, what are the two sources from which firms gain competitive advantage?
- Lower costs of supply to customers which result in higher profitability (cost leadership).
- Differentiated service or reputation resulting in higher prices and sales revenues (differentiation).
What are Porter’s prescriptions to gain a competitive advantage?
- If the home diamond factors give a comparative cost advantage over those of foreign rivals then management should adopt strategies based on overall cost leadership.
- If the home diamond factors give a differentiation advantage over foreign rivals management should adopt strategies based on differentiation.
- If the diamond does not confer advantage over rivals then management must focus on subsections of the industry which large players may have overlooked or not be able to exploit commercially.
Give examples of protectionism in international trade.
- Tariffs or customs duties
- Nontariff barriers
- Minimum local content rules
- Minimum prices and anti-dumping action
- Embargoes
- Subsidies for domestic producers
- Exchange controls and exchange rate policy
- Unofficial non-tariff barriers
