Chapter 4 - Nature of the Business Environment

Question 1

Options to react to environmental changes in 4 ways

Answer 1

do nothing
monitor environment
increase flexibility
plan major strategic change

Question 2

Characteristics of the environments (4)

Answer 2

• stable and unchanging
• stable with minor fluctuations
• Gradually changing
• Rapidly changing

Question 3

Environmental Analysis

Level - tool

Answer 3

Corporate: SWOT
Internal Analysis: resources audit and Porter’s value chain
Industry: Porter’s 5 Forces
External (marcro) Analysis: PEST(EL)

Question 4

PEST(EL)

Answer 4

Political
Economical
Social
Technological
Ecological
Legal

Question 5

5 forces (Porter diamond)

Answer 5

New entrant
Power of suppliers
Power of buyers
Substitutes

Used to:
decide on market entry
decide invest more or less
evaluate competitive strategy

Question 6

global vs local re globalisation

Answer 6

think global act local

a globally competing company has to consider two dimensions:

coordinate world wide to achieve economies of scale
respond locally to customer needs

Question 7

Globalization is driven by (11):

Answer 7

• search for new markets
• deregulation and privatization
• development of trading blocks
• liberalization of trade
• free trade creates new opportunities
• cost & market share advantages
• lower production costs in developing countries
• developing communication networks
• developing transportation technologies and networks
• ## global financing

Question 8

Impact of globalization

Answer 8

Industrial relocation
Emergence of growth markets
Market access and enhanced competition
Cross national business alliances and mergers
Widening economic division between countries (resource based - rich become richer - digital divide)

Question 9

Porter’s diamond on competitive national advantage (4)

Answer 9

• factor conditions (basic: raw mat, labour, capital)
• related and supporting industries (infra,training and skill, R&D)
• firm strategy, structure and rivalry (ownership, capital markets time horizon, competition, out of market competition)
• demand conditions (economies of scale, experience/info advantage, mature products for export to drive growth)

FURTHER EVENTS DRIVING FIRMS:
A. role of government (subsidies, legal, educ, etc)
B. Chance events: war, civil unrest, etc

Question 10

Difficulties of Porter’s diamond on competitive national advantage

Answer 10

• companies not countries (companies operate independently from countries)
• ignores multinational/global corporations (focused on single country presence firms)
• ignores the target country (where you sell)
• less applicable to services (local supply for local market is not affected)

Question 11

BRIC(S) future

Answer 11

Brazil, Russia, India, China, South Africa

driven by globalization and internal development
future of consumer demand, infrastructure investment due to high FX reserves

Question 12

BRIC(S) threats

Answer 12

lower foreign investment
lower consumer demand growth in developed countries
outsourcing activities reduced with recessions

Question 13

Political Risks

Answer 13

political risk in developing countries
dramatic changes

DIRECT
nationalisation of assets
raised taxes
capital transfer restrictions
terrorism
legislation changes
contract cancellations
lobby groups

INDIRECT
FX rates
interest rates

Question 14

Country Risks

Answer 14

ANALYSIS

political: stability, corruption, social tensions
financial: debt, fx, loan defaults
economical: GDP growth / per capita

RISKS
Political interference (ie currency control)
political stability
social and economic infrastructure
culture of the country
its attitude to foreign business