The Global Context Lecture 3 The Global Business Environment

Lecture Objective Explain the nature of the global environment Undertake an external environmental audit Analyse the impact on business of changes in the external environment Assess the attractiveness of countries as places to do business

ORGANISATION beliefs demographic trends technology ethics laws pressure groups Political events inflation interest rates credit availability treaties Europe ecology social problems media values taxes banks neighbours ideas The External Environment

Complex Confusing Dynamic Change is accelerating Turbulent

Opportunities New markets Reductions in cost Economies of scale Access to raw materials

Threats Increased financial risks Increased political risks Increased exposure to natural disasters

Why Scan the Environment? For the most probable opportunities and threats Their potential impact on the organisation Ability of organisation to deal with them

Impact Analysis High priority Medium priority High priority Medium priority Low priority Medium priority Low priority Probability of Occurrence Probable Impact on Organisation high medium high low

External Environmental Analysis(PESTLE) ORGANISATION SOCIO-CULTURALLEGALTECHNOLOGICALECOLOGICALPOLITICAL ECONOMIC AND FINANCIAL

SCREENING AND EVALUATING FOREIGN MARKETS

Basic Screening Market indicators – Trade Statistics – GDP – GDP per capita – Growth in GDP – Ownership of cars, TVs, telephones etc.

Sources of Information United Nations World Bank International Monetary Fund (IMF) International Labour Office (ILO) Organisation for Economic Co-operation and Development (OECD) CIA Factbook All available on Internet

Secondary Screening Ease of operation Risks of doing business

Political and Legal Environment Government regulation – Economic policy – Taxes/Incentives – Employment law – Health and safety law – Environmental policy – Competition policy

Political Risk Regime change Civil unrest Wars Terrorism Corruption Weak leadership Crime Piracy

Economic and Financial Environment Inflation Interest rates Exchange rates Credit availability Financial stability Rates of Return

Market Potential – Market Size Population GDP per head Disposable income Distribution of Income

Market Potential -Market growth -Population growth -Growth in GDP -Quality of demand -Socio-economic profile

Socio-cultural Environment Language Religion Culture/Customs Demographic trends Health/Education Urbanisation Labour force availability and skills Wage levels/Working hours Unionisation

Technological Environment Science and technology infrastructure Patent protection Road network/Public transport Telephony/Internet capacity Air transport Ports Power supply and reliability

Ecological Environment Resource depletion Global warming/climate change Pollution Water supply Natural disasters Sustainable development

Competitive Forces The size of the market Growth rate of the market No. and size of competitors Marketing strategies Production capacity Cost structure Entry Substitutes Power of buyers and sellers