Class 3 Flashcards
Market Environment
Definition: An institution through which economic exchange is organized in a system of property rights governed by an unanimity rule (Baron, 1995:74)
The market environment involves the direct, commercial interactions and competitive forces in which a company operates, focusing on customer demand, competitors, and market trends.
Actors: Participants in economic exchange like Customers, competitors, suppliers
Primary Objective: Profit maximization through the creation and exchange of goods and services.
Resource commitment: Resource commitment (ex. Dollars counts)
Performance: Private benefits
Performance evaluation: Profits generated or value created
Non-Market environment
Social, political, and legal arrangement that structure interactions among companies and their public. This environment influences the organization but isn’t part of the traditional market competition. The non-market environment can significantly affect the conditions under which the company competes.
Primary Objective: Legitimacy and risk management, ensuring compliance with regulations, and aligning with social expectations to maintain a favorable operating environment.
Actors: Governments, interest groups, activists, the media, and the public
E.g. votes (ex. Numbers of count constituents count)
Performance: Public benefits
Performance evaluation: Still fuzzy, but generally broader dimensions including ethical principles and concepts of responsibility
Stockholder Theory
Stockholder Theory (Friedman):
* Focus on the shareholders: The business of business is making a profit and building shareholder value is the prime purpose.
- Primary group: Employees, suppliers and customers, shareholders
Stakeholder Theory (R. Edward Freeman):
- Identify other diverse stakeholder groups that need to be engaged — the secondary groups
- The quickest way to destroy shareholder value is to ignore these stakeholders
Primary Stakeholders and Secondary
Primary Stakeholders (Market)
* Shareholders
* Board
* Executive management
* Employees
* Customers (external)
* Suppliers (external)
* Alliance partners ( external)
Secondary Stakeholders (Non-market)
* Community
* NGOs
* Governments
* Professional Associations * Media
Non-Market Strategies
Market:
* Product positioning and pricing
For instance, expanding product offerings and adjusting pricing to increase competitiveness are typical market strategies.
Non-Market:
* Lobbying a legislator or regulator * Litigating case in court
* Making campaign contributions
* Funding research and non-profits * Government testimony
* Public relations campaigns
Non-market strategies often involve aligning with regulatory standards, advocating for industry-specific policies, or managing social responsibilities.
Lobbying
“Lobbying is an information transfer between interest groups and policy-makers. Lobbying is about investments in information accumulation, organization, and transfer by corporations and interest groups. Lobbying affects all levels of government, from civil servants in administrative agencies to the most important elected politicians.” De Figueredo
Companies can either:
* Have their own in-house lobbying staff
* Some have a special, stand-alone function within the organization that specializes in lobbying
* Hire external lobbyists
* Be part of industry association that lobbies in the name of its members
Lobbying DETAILS
COST: Mode of payment differs: flat fee, hourly fee, success fee
EXPERTISE: In-house lobbyists are often generalists. External lobbyists provide access to specialized knowledge and contacts
ACCESS: External lobbyists often have better access to specific contacts
EXPERIENCE: Unexperienced firms often hire external lobbyist, don’t know whom, when, and how.
SENSITIVE INFORMATION: If regulation revolves around sensitive internal information (IP, technology) companies choose internal lobbyists
LITIGATION: INVESTOR-STATE ARBITRATION
- Investor-state dispute settlement (ISDS)
- Based on bilateral investment agreements (BITs), free trade agreements (FTAs), or other international investment agreements (IIAs)
- Not state-state arbitration, extension of investor rights
- Alternative to domestic courts
- Settled by arbitration tribunal in neutral venue, eg: WB’s ICSID
- Approval or support from home government not needed
- Host government cannot prevent proceedings
- Binding, limited venue for appeal
How to Create a non-market strategy?
What is the Issue?
Who are the Actors?
What are the Actors Interests?
In what Arena do the actors meet?
What Information moves the issues in this arena?
What Assets to the actors need to prevail in this arena?
Market vs. Nonmarket
A market strategy targets competitive success within the market, focusing on customer needs, pricing, innovation, and positioning against competitors.
A non-market strategy focuses on influencing the social, political, and regulatory environment, like lobbying or public relations, to create favorable conditions for the business.
In short, while market strategies tackle direct competition within the industry, non-market strategies navigate broader forces like political, regulatory, and social elements to create a favorable operating environment.
