Chapter 4 - The Global Environment

Question 1

The Global Business Environment: The Macro environment

Answer 1

Wider external environment – it is becoming less predictable because of the rate of globalization, the IT revolution and increasing economic and political weight of countries.

Question 2

The Global Business Environment: External influences

Answer 2

– vary between firms and industry
o Growing complexity and turbulence make it difficult to predict demand – competition becomes disorderly, decreases time to make decision, increase risk of product obsolescence.

Question 3

The Global Business Environment: Opportunities

Answer 3

o Gloablisation – different costs/quality of labour and resources, can achieve economies of scale and access to new raw materials
o Many firms have globalized production, reorganized supply chain to take advantage of low cost labour, cheap transport and less regulated environments

Question 4

The Global Business Environment: Threats

Answer 4

o Financial risk – currency, inflation, exchange rate volatility, interest rates
o Foreign exchange – translation into domestic currency
o Political – expropriation of assets by foreign governments
o Natural disasters

Question 5

The Global Business Environment: Scanning the external environment

Answer 5

o Scanning is part of strategy – determining direction of the firm
o Need to understand goals of organisation and analyze resource and capabilities of the firm

Question 6

PESTEL Framework

Answer 6

• Political / legal
  o Governments pass law and establish regulations which shape the legal environment
  o Governments in powerful countries can exercise their influence over other countries to provide protection for home based firms
  o Organisations need to consider international institutions such as WTO – trading blocks
• Economic
  o Economic growth, interest rates and inflation
  o Rate of economic growth determines demand
  o Fast growing economies – income and purchasing power increase rapidly
  o Impacted by large economic events – GFC, financial crisis, market volatility
• Socio-cultural
  o Social organisation/structure – distribution of income/wealth, structure of employment, living conditions, health, education
  o Culture – language, religion, diet, values, relationships
  o Responding to socio cultural needs incurs costs for businesses
• Technological
  o Improve production techniques, enter new market to boost revenues, cut costs and increase profits
  o Production – decrease labour and capital requirements to produce a certain level of output, reduced energy through efficiency, firms can hold fewer components in stock
• Environmental
  o Increasing concerns about interaction between human beings, economic systems and relationship to environment
  o Business – use up resources and alter ecological systems in which we depend on
  o Impacts – ozone layer, impact of global warming, rising sea levels due to greenhouse gases