Describe how changing contextual forces in the global business environment impact the competitive position of a firm Understand the role that globalization, including trade agreements and trade associations, has played in shaping the business landscape Define the primary dimensions of the external environment of a firm, including the components of the general and task environments Differentiate between the four components of the internal environment of a firm, including owners, boards of directors, employees, and culture © South-Western, a part of Cengage Learning

Managing in Difficult Times Business leaders Respond to changes in the global business environment and try to change it Lobby to influence the government’s role in business Identify growing market niches or target consumer segments and invest in research and development Are proactive in adapting their strategies to an ever- changing global marketplace Deal with a broader array of stakeholders including public advocacy groups, community forums, and the media © South-Western, a part of Cengage Learning

Globalization Integration and interdependence of economic, technological, socio-cultural, and political systems across diverse geographic regions Advocated by leading economists and politicians post World War II Movement led to the creation of several international trade agreements © South-Western, a part of Cengage Learning

Globalization Global Trade Agreement World Bank International Monetary Fund GATT © South-Western, a part of Cengage Learning

Table 2.5 - Selected Regional Trade Agreements © South-Western, a part of Cengage Learning

European Union Created a single market by a system of laws that apply in all member states, guaranteeing the freedom of movement of people, goods, services, and capital Introduced a common currency, the Euro Designed to build a single market © South-Western, a part of Cengage Learning

NAFTA Came into effect in 1994 U.S., Canada, and Mexico signed the treaty to eliminate tariffs Maintains trading restrictions on certain agricultural products Industries have benefitted from the opening of borders © South-Western, a part of Cengage Learning

ASEAN Established in 1967 to support three goals Accelerating economic growth Promoting social and cultural development Ensuring peace and stability Designed to create freer flow of goods and services within the ASEAN countries © South-Western, a part of Cengage Learning

MERCOSUR Established in 1991 Created to promote economic growth and integration through reduction of tariffs and free flow of goods © South-Western, a part of Cengage Learning

Comparative Advantage Countries should specialize in producing goods for which they have the lowest opportunity cost of production Specialization in a particular product, helps become a efficient producer Free trade leads to a more efficient allocation of resources Results in all countries that are involved in trade benefiting from access to cheaper goods © South-Western, a part of Cengage Learning

The Business Environment Represents all of the external forces that affect the firm's business General environment Includes the technological, economic, political/ legal, and socio-cultural dimensions that affect a firm’s external environment Task environment Includes entities that directly affect a firm on a constant basis and include competitors, suppliers, and customers © South-Western, a part of Cengage Learning

Figure 2.2 - The Firm’s Business Environment © South-Western, a part of Cengage Learning

The General Environment Technological dimension The processes, technologies, or systems that a firm can use to produce outputs Economic dimension The general economic environment in the markets where the firm performs activities Political dimension Refers to the political events and activities in a market that affect a firm Legal dimension The regulations and laws that a firm encounters in its markets Socio-cultural dimension Demographic characteristics as well as the values and customs of a society © South-Western, a part of Cengage Learning

Social Values The deeply rooted system of principles that guide individuals in their everyday choices and interactions © South-Western, a part of Cengage Learning

Table 2.7 - Universal Social Dimensions © South-Western, a part of Cengage Learning

The Task Environment Competitor Supplier Customers Any organization that creates goods or services targeted at a similar group of customers Supplier A company that provides resources or services for a firm to help in its creation of products and services Customers The people or other organizations that buy a firm’s products and services © South-Western, a part of Cengage Learning

The Internal Environment A group of parties or factors that directly impact a firm, including owners, the board of directors, employees, and culture © South-Western, a part of Cengage Learning

The Internal Environment The people or institutions that maintain legal control of an organization Owners A group of individuals elected by shareholders and charged with overseeing the general direction of the firm Board of directors The people who make the products and provide the services that allow a firm to exist Employees Pattern of basic assumptions about the way in which an organization and individuals in it should work and interact with each other Culture © South-Western, a part of Cengage Learning

KEY TERMS Board of directors Comparative advantage Competitor Customers Economic dimension Employees External environment General environment Globalization Internal environment Legal dimension Owners Political dimension Social values Sociocultural dimension Supplier Task environment Technological dimension © South-Western, a part of Cengage Learning