Managing in the Global Environment chapter six lecture 1 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives Explain why the ability to perceive, interpret, and respond appropriately to the global environment is crucial for managerial success Differentiate between the global task and global general environments Identify the main forces in both the global task and general environments, and describe the challenges that each force presents to managers

Learning Objectives (cont.) Explain why the global environment is becoming more open and competitive and identify the forces behind the process of globalization that increases the opportunities, complexities, challenges, and threats that managers face Discuss why national cultures differ and why it is important that managers be sensitive to the effects of falling trade barriers and regional trade associations on the political and social systems of nations around the world

Global Organizations Global Organizations Organizations that operate and compete not only domestically, but also globally Uncertain and unpredictable

What Is the Global Environment? Set of forces and conditions in the world outside the organization’s boundaries that affect the way it operates and shape its behavior Changes over time Presents managers with opportunities and threats

Forces in the Global Environment To identify opportunities or threats caused by forces in the environment, it helpful for managers to distinguish between the task environment and the more encompassing general environment. Figure 6.1 Page 212

What Is the Global Environment? Task Environment Set of forces and conditions that originate with suppliers, distributors, customers, and competitors Affects an organization’s ability to obtain inputs and dispose of its outputs Most immediate and direct effect on managers

What Is the Global Environment? General environment The wide-ranging global, economic, technological, sociocultural, demographic, political, and legal forces that affect an organization and its task environment.

The Task Environment Suppliers Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services Raw materials, component parts, labor (employees) Relationships with suppliers can be difficult due to materials shortages, unions, and lack of substitutes. Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices. Managers can reduce these supplier effects by increasing the number of suppliers of an input. Changes in the nature, number or type of suppliers may result in opportunities and threats to which managers must respond. Depending upon these factors, a supplier’s bargaining position may be either strong or weak. A supplier’s bargaining position is strong when:The supplier is the sole source of an input. The input is vital to the organization.  At a global level, managers have the opportunity to buy products from foreign suppliers or to become their own supplier and manufacture their own products abroad. It is important that managers recognize the opportunities and threats associated with managing a global supply chain.  Although the purchasing activities of global companies have become increasing complicated as a result of the development of skills and competencies in different countries around the world, the Internet often eases the process of coordinating complicated international transactions. 9

Global Outsourcing Global Outsourcing The purchase or production of inputs or final products from overseas suppliers to lower costs and improve product quality or design.

The Task Environment Distributors Organizations that help other organizations sell their goods or services to customers Powerful distributors can limit access to markets through its control of customers in those markets. Managers can counter the effects of distributors by seeking alternative distribution channels. Changes among distributors and distribution methods can create opportunities or threats for managers.  The changing nature of distributors and distribution methods can also bring opportunities and threats to managers. The power of a distributor may be strengthened or weakened depending upon its size and the number of distribution options available.  The structure of a country’s distribution system may serve as an opportunity or threat for a manager

The Task Environment Customers Individuals and groups that buy goods and services that an organization produces Identifying an organization’s main customers and producing the goods and services they want is crucial to organizational and managerial success. An organization’s success depends on its ability to respond to the needs of its customers. Changes in the number and types of customers or in customers’ tastes and needs can result in opportunities or threats for managers.  The most obvious opportunity associated with expanding into the global environment is the prospect of selling goods and services to new customers.  Today, once distinct national markets are merging into one huge marketplace where the same basic product can be sold to customers worldwide. However, differences in national cultures may require managers to customize product in order to suit local preferences.

The Task Environment Competitors Organizations that produce goods and services that are similar to a particular organization’s goods and services Rivalry between competitors is potentially the most threatening force that managers deal with Potential Competitors Organizations that presently are not in the task environment but could enter if they so choose Strong competitive rivalry results in price competition, and falling prices reduce access to resources and lower profits The probability of new competitors entering an industry is a function of that industry’s barriers to entry. Barriers to entry are factors that make it difficult and costly for an organization to enter a particular task environment. The greater the barriers to entry, the smaller the number of competitors. 13

The Task Environment Barriers to Entry Factors that make it difficult and costly for the organization to enter a particular task environment or industry 14

Barriers to Entry Economies of scale Brand loyalty Cost advantages associated with large operations Brand loyalty Customers’ preference for the products of organizations currently existing in the task environment. Government regulations that impede entry Barriers to entry result from three sources: economies of scale, brand loyalty, and government regulations. Economies of scale may result from manufacturing products in large quantities, buying inputs in bulk, or by fully utilizing the skills and knowledge of employees. Brand loyalty - If established organizations enjoy significant brand loyalty, a new entrant will find it difficult and costly to obtain market share. At the national and global level, government regulations sometimes function as administrative roadblocks that create barriers to entry and limit the imports of goods from foreign nations.

Barriers to Entry and Competition Figure 6.2 Page 219