Chapter 4 The macro environment

Question 1

1.1 The business environment

Answer 1

The macro environment consists of external factors that affect the overall environment that the business operates in.
The industry environment consists of external factors affecting the competitiveness of the industry that the business operates in.
The internal environment (internal capabilities) consists of the organisations own internal resources and capabilities.

Question 2

2.1 Environmental analysis

Answer 2

PESTLE analysis can be used to analyse the macro environment as part of strategic planning to identify potential opportunities and threats facing the industry.
- Political: potential issues include tax, government spending and foreign trade regulations
- Economic: potential issues include economic growth, exchange / interest rates and inflation
- Social: potential issues of attitudes, tastes and fashions, population demographics and income distribution
- Technological: potential issues include new products, improved production methods and rate of obsolescence
- Ecological: potential issues include sustainability, pollution and climate change, natural capital impact and green finance issues
- Legal: potential issues include industry regulation, competition legislation and employment law

Question 3

2.2 Scenario planning

Answer 3

Once key factors are identified, scenario planning can be used to consider future responses to a range of potential outcomes. Scenario planning concerns the development of pictures of potential futures for the purpose of managerial learning and the development of strategic responses.

Question 4

3.1 Porter’s diamond

Answer 4

Can be used to explain why some nations have a competitive advantage in certain industries. The four key determinants include:
- demand conditions: demanding local consumers force firms to become more innovative, trend setting local consumers help local producers to anticipate future global trends
- related and supporting industry: proximity of related and supporting industries leads to easy access to components, with reduced lead times and carriage costs and it encourages knowledge sharing which increases innovation
- factor conditions: availability of the factors of production (resources needed to operate). These include human resources, physical resources, knowledge, capital and infrastructure.
- strategy, structure and rivalry: two advantages include strong domestic rivalry forces local firms to become more efficient to survive and the strategies have become prevalent in a particular nation may give advantages in particular industries.