The Strategic Environment International Business Strategy 301REN Unit: 2 Knowledgecast: 2

Module Learning Outcomes Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process Assess current developments in the organisational environment and alternative responses related to strategy Demonstrate the ability to construct and present quantitative and qualitative data effectively by the application of IT skills and methodological techniques This Knowledgecast focuses on defining the external environment and critically examining some of the tools/methods commonly used to analyse this environment.

The External Business Environment Layers of the business environment The organisation The macro environment Industry (or sector) Competitors (or market) The micro environment Organisation greyed out as INTERNAL (See Unit 3 Knowledgecast 1)

(far, remote, mediate, general) Macroenvironment “Consists of the forces at work in the general business environment which will shape the industries and markets in which the organisation competes”... “Is the part of the environment over which the business can rarely exert any direct influence but to which it must respond ” (Stonehouse, Hamill, Campbell and Purdie, 2000: pp 73 and 104). (far, remote, mediate, general) Strategic Management

(near, immediate, competitive, operating) Microenvironment “Is the competitive environment facing a business and it consists of the industries and markets in which the organisation conducts its business” (Stonehouse, Hamill, Campbell and Purdie, 2000: 73). (near, immediate, competitive, operating) Strategic Management

The Business Environment Company Internal Substitute Technological Buyer Political New Entrants Supplier Competitors Pick an organisation to illustrate SWOT making notes on the projection. Socio-cultural Image Copyright www.librarian.net/talks/nylink/nylink Economic Microenvironment Macroenvironment

PESTEL Analysis Political Economic Socio-cultural Technological Environmental Legal

PEST Analysis - Political Government stability Taxation, employment and safety law Social welfare policies Foreign trade regulations Relations between government and the organisation Government ownership of industry and attitude to monopolies and competition policy ‘Green’ issues that affect the environment Level and type of energy consumed – renewable energy? Rubbish, waste and its disposal

PEST Analysis - Economic Total GDP and GDP per head growth rates (trends) Inflation Consumer expenditure and disposable income Interest rates Currency fluctuations and exchange rates Investment, by the state, private enterprise and foreign companies Business cycles Unemployment Energy costs, transport costs, communications costs, raw materials costs

PEST Analysis - Socio-cultural Shifts in values and culture Change in lifestyle Consumerism Attitudes to work and leisure ‘Green’ environmental issues Education and health Demographic changes Distribution of income Social mobility

PEST Analysis - Technological Government and EU investment policy on research Government and industry focus on technological effort New patents and products Speed of change and adoption of new technology Rates of obsolescence The impact of the Internet

PESTEL Analysis Environmental Legal ‘Green’ issues that affect the environment Level and type of energy consumed – renewable energy? Rubbish, waste and its disposal Biodiversity Green house gas emission Legal Taxation, employment and safety law Environmental law Emission tax

M84 Strategic Management Industry Life Cycle M84 Strategic Management Gerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002

M84 Strategic Management Five Forces Framework M84 Strategic Management Gerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002

Five Forces Framework (cont.) Threat of new entrants (entry barriers) Economies of scale Differentiation Brand loyalty Start-up capital requirements Switching costs Access to supply and distribution channels Legislation or government action Retaliation (e.g. price cuts and advertising campaigns) Entry deterring price

Five Forces Framework (cont.) Determinants of substitution threat Product-for-product substitution (e.g. post mail and e-mail) Substitution of need (more reliable transports reducing the need for cars) Generic substitution (disposable income: boats/homes/furniture/holidays, etc.) Relative price/performance of substitutes Switching costs Effectiveness in meeting specific customer needs Willingness of buyers to substitute Product differentiation Brand loyalty Strategic Management

Five Forces Framework (cont.) Determinants of supplier power Concentration (number and size of the firms) Importance of suppliers’ sales that an industry represents Importance of the buyers in the industry as customers of the suppliers Differentiation of the product/service and alternative sources Switching costs The threat of backward integration by the buyer (the company in analysis) The threat of forward integration by the supplier

Five Forces Framework (cont.) Determinants of buyer power Concentration (number and size of the firms) Importance of buyers’ purchases to the total volume sold by the company Differentiation of the product/service and alternative sources Switching costs The threat of backward integration by the buyer (the company in analysis) The threat of forward integration of buyers by the company Access to information

Five Forces Framework (cont.) Competitive rivalry determinants Market growth rates (life cycle) Overcapacity Fixed costs Number of competitors in the industry Similarity of the size and power of the competitors Differentiation of the products/services provided (switching costs for buyers) Brand loyalty among consumers Barriers to exit (fixed costs of exit, emotional attachment, government restrictions, etc)

Five Forces Framework (cont.) Key questions arising from the ‘Five Forces’ Framework What are the key forces at work in the competitive environment? What are the underlying forces in the macroenvironment that are driving competitive forces? Is it likely that the forces will change, and if so, how? How do particular competitors stand in relation to these competitive forces? What can managers do to influence the competitive forces affecting the company? Are some industries more attractive than others?

Knowledgecast Summary Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process Assess current developments in the organisational environment and alternative responses related to strategy How valuable are tools such as PESTEL or Porter’s Five Forces to businesses? Demonstrate the ability to construct and present quantitative and qualitative data effectively by the application of IT skills and methodological techniques Tools such as these can be used to analyse and present both quantitative and qualitative data. MAXIMUM THREE LEARNING OUTCOMES TO REVIEW: ONE REVIEW SUB BULLET PER LEARNING OUTCOME

Seminar Whirlpool’s Dramatic Turnaround Through Internationalisation Read the closing case on page 57 of your required textbook by Cavusgil, Knight and Reisenberger ‘International Business’ in preparation for this seminar. Remember that this is group work were participation is expected. You are to prepare powerpoint presentation and be ready to present and answer questions on you analysis. Individual contributions will be assessed during the seminar session.

Group Activity Assessment Preparation This is your first opportunity as a group to read through the major case study and the assessment brief (see Unit 5) collectively and highlight key points. Discuss as a team; 1. What are the key activities involved in this assessment 2. Who will be responsible for each activity 3. When the activities will need to be completed 4. How you can guarantee SUCCESS (what will success look/feel/sound like?) Be prepared to share your plans with your tutor.