1.5 External Environment 6 hrs

1.5 External Environment 6 hrs
Unit 1: Business organization and environment – At the end of a Unit: create a STEEPLE analysis of a real business you choose. Consider how the concept of CHANGE applies across the content discussed on the STEEPLE analysis, and how it can create both opportunities and threats. Present your findings to a classmate.

1.5 External Environment Prepare a Steeple analysis of a given organization Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy

KWALAQ What do you already Know?
What do you want do learn or find out? How will you go about finding this information What did you learn from the experience? What further clarification would you like? What questions have arisen? KWALAQ

Calendar of Activities
Nov 23: Review quiz 1.4 & Portfolio Nov 24: 1.5 Steeple analysis: Review content pages 61-64 Nov 25: Prepare a Steeple analysis of your organization. Nov 27: Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy Dic.1: Consider how the concept of Change apply across the content discussed on the STEEPLE analysis, and it can create both opportunities and threats for your organization. December 2: Review for Test.

SETTING THE SCENE Nokia sets good example – but BP is fined Nokia, the world’s leading mobile phone maker, has announced the closure of its Bochum factory in Germany with the loss of 2300 jobs. The company reached an agreement with the workers’ trade union leaders. Nokia will pay US$314 million in redundancy pay and will set up a social plan for employees to help them look for other jobs. This sum is much greater than that demanded by German employment law. Nokia is trying to set a good example and is attempting to limit the bad publicity in Germany from the factory closure. Sales of mobile phones in some countries were badly hit by the 2009–10 global economic downturn and Apple’s technologically advanced iPhone has taken sales away from Nokia. BP, the giant oil company, has been fi ned US$373 million by the US Department of Justice for environment crimes and committing fraud. These huge fines include a penalty for the 2005 Texas refinery fi re in which 15 people were killed. The accident also led to environmental damage and resulted from infringements of health and safety laws. BP has denied claims that it gave cost reductions at the refinery a higher priority than safety. The fraud committed by four of BP’s employees was an attempt to fi x high prices in the gas propane market illegally. This was against consumer protection laws. Source: and (adapted)

Points to think about: ● What external factors have influenced Nokia’s sales in recent years? ● In what ways did government laws have an impact on both of these companies? ● Do you think companies such as BP and Nokia might increase their profits if they meet all legal requirements in the countries they operate in?

Prepare a Steeple analysis of a given organization 3 hr
Define environment – in Business Management. What is the difference between PEST, PESTLE and STEEPLE analysis? Name 2 opportunities & 2 threats for each of the STEEPLE conditions. – caso apple Case study: China- Oxford - Loykie Lominé and others, page 64 How have changes in technology forced and permitted business X to keep innovating? To what extent does a STEEPLE analysis affect a business?

Social Question 15.1 & Case Study page 57 Paul Hoang TOK: How do words we use in different societies to describe “equal opportunities” affect our understanding of the concept. Are there other meanings and does it matter which interpretation we use? Question 15.2 page 58 Paul Hoang Technological Case study page 59 Paul Hoang List and describe the effects of 2 opportunities and threats of internet technologies. Question page 60 Paul Hoang

Economic - Inflation Question 15.4 page 60 Paul Hoang - Unemployment State and explain the causes of 2 types of unemployment. TOK: To what extent should governments be morally obliged to provide free education and health care? Investigate the causes and consequences of china´s rising wages: Case study Spain's Unemployment page 61 Paul Hoang

…Economic -Economic Growth Draw, label and explain the business cycle Describe 2 ways of coping with recession and their effects. TOK: Is economic growth always desirable? What does desirable actually mean? To whom? -International Trade Balance Case study Question JKL Jeans page 64 Paul Hoang What are some opportunities and threats of higher exchange rates? Name and explain 2 types of protectionist measures. TOK: Is it possible to know what is the most important government objective?

-Environmental/Ecological TOK: Can anything good come from major natural disasters? Political Give 3 examples of taxes (define them). Do they exist in Colombia? What is the name in Spanish? How do different stakeholders determine what a fair tax is? How should we determine what is a fair tax rate for businesses to pay? What are 2 effects of higher interest rates?

Legal: Case study question Amoy food. Paul Hoang page 67. Case study: Coca- Cola, Restriction to Alcohol; legalization of Marijuana in Colorado Paul Hoang page 68. Theory of knowledge: Is it possible to know whether what the government says is actually true? Knowledgeable and a thinker: Can businesses genuinely promote gender equality in the workplace? Justify your reasoning ( Case study question Walmart. Paul Hoang page 68. Ethical: Choose a country, go to (what is its level of corruption? Investigate how rich/poor and competitive/uncompetitive it is. Do you find correlation? Justify your response. Case Study: horse meat scandal – Paul Hoang page 69.

Prepare a Steeple analysis of a given organization
Business Environment – refers to various conditions external to the business, that have an impact on it. Tools for planning and making contingency plans for changes in the external environment (opportunities & threats)/ Framework for analyzing the external environmental factors affecting business objectives and strategies. PEST: POLITICAL ECONOMIC, SOCIAL TECHNOLOGICAL PESTLE POLITICAL ECONOMIC, SOCIAL TECHNOLOGICAL LEGAL ECOLOGICAL STEEPLE: SOCIAL, TECHNOLOGICAL, ECONOMIC, ETHICAL, POLITICAL, LEGAL, ECOLOGICAL/ENVIRONMENTAL

SOCIAL, cultural and demographic factors. Demographic changes (such as population size and structure, age groups and education levels: aging population in developed countries (reduced birth rates and longer life expectancy); age of retirement; rise of divorce Improved education facilities. Values and attitudes towards a range of issues: Lifestyle growing support for environmental protection, attitude towards the role of women, woman opting to have children at a later age, opting to seek employment and roles of responsibility migration and multiculturalism (language/values), social pressures for businesses to act more ethically, Need to analyze how this affects: Patterns of demand, change in structure of workforce. Firms can adjust to changes to their benefit while accepting some of the cost implications. TiP: the most successful firms are those who adapt more quikly and attempt to turn changes in competitive advantage.

TECHNOLOGICAL : Technology: the use of tools, machines and science in industry. Information Technology: use of electronic technology to gather, store,process and communicate information. TIP: it is wrong to assume the business must always use the latest technology in all circumstances. Advances – improve productivity and efficiency, however high costs of staying up to date – problems. Some businesses thrive in using old-fashioned methods ie. Couture: the design and manufacture of fashionable clothes to a client's specific requirements and measurements.

TECHNOLOGICAL : Opportunities: Internet: Human resource (recruiting; new working practices – from home), marketing (e-commerce), finance (annual reports published on line), operation management (access to benchmarking data); CAM Technology: Computer-aided manufacturing (the use of computers and computer-controlled machinery to speed up the production process and make it more flexible. Robots and machines: faster, more accurate (zero defects), may work longer hours. CAD Technology – computer aided design. Quicker product development time. New products and new markets: wireless broadband services, smartphones, HD TV, Hydrogen powered cars. Competitive advantage Job- creation (maintenance and technical support staff) Improve stakeholder communication. ERP: Enterprise Resource Planning systems – finance, HR & procurement.Developing new and better processes. Cost benefits (initial purchase and implementation costs can be substantial but usually ether will be long-term cost savings to justify the investment) Outsourcing (HR & Callcenters) and offshoring (IT development).

TECHNOLOGICAL Threats: Technology is not always reliable or secure – Hackers Shorter product life cycles: Equipment & Software become obsolete quicker and need upgrading. Costs: Need to devote more resources to no product development. Job losses: Automation has led to unemployment in the primary and secondary sectors. Impact on labour relations: explained & justified. Some managers fear chang e. IT can improve productivity and efficiency but excess information (obstacle to decision making or can lead to excess centralization) Considerations when adopting technology: Costs: Purchase, installation, maintenance, depreciation, replacement and insurance. Benefits: expected gains in efficiency (productivity, flexibility, communications) and profits. Human relations: resistance to change, impact on moral, flexible working patterns and workforce planning. Recruitment and Training: Costs & time of training.

ECONOMIC Influences Change in economic environment Changes in economic policies: Monetary: interest rate & exchange rate Fiscal policies: Changes in government spending level. The state of the economy is determined by the governments ability to achieve 4 key economic objectives: Control Inflation: Inflation is the rate of changein the general level of prices in an economy. Cost-push inflation: caused by rising costs forcing businesses to increase prices. Inflation affects prices and wages. Demand-pull inflation: caused by excess demand in an economy Uncontrolled inflation is a threat: Due to higher costs and uncertainties. Affects international competitiveness of a country (usually less price-competitive)

ECONOMIC: Economic objectives: 2. Reduce Unemployment: Unemployment rate measures the proportion of a countries workforce not in official employment. Threat to business: Social costs of Unemployment: stress, depression, low self-esteem. Increase in poverty & crime levels. Increase in welfare benefits of unemployed. Countries competitiveness deteriorates. Types of unemployment: Frictional: When people change jobs (time lag). Seasonal: Periodic & recurrent changes of demand for a product/service. Technological: Introduction of labour-saving (capital intensive technologies) Regional: Different unemployment rates in different areas (rural vs. urban districts) Structural: When the demand for products produced in a particular industry continually falls. Cyclical (demand deficient): Caused by lack of demand in the economy. (Affects all industries)

ECONOMIC: Governments ability to achieve 4 key economic objectives 3. Economic Growth: The increase in a country´s economic activity over time. It is measured by the change in the value of the economy´s total output (gross domestic product (GDP) per year. The pattern of fluctuations in economic growth is known as business cycle: Boom/Expansion: the level of economic activity rises with consumer expenditure, investment and export earnings also increasing. Peak: Economic activity is at its highest level. Recession: When there is a fall in GDP for 2 consecutive quarters. (ways of coping with recession – box 1.5 b page 62 Paul Hoang. Trough (slump): Refers to the bottom of a recession and the last stage of decline in the business cycle. Recovery: When the level of GDP starts to rise again after the economy has experienced a slump. .

ECONOMIC: Governments ability to achieve 4 key economic objectives 3. Economic Growth/ Business cycle/ Ways of coping with recession – Cost Reduction to improve cash flow e.g. energy bills, alternative suppliers, cheaper premises, making some staff redundant. Price reductions to sustain or increase sales. Non-pricing strategies (repackaging, special offers, special after-sales care) to sustain or revitalize volume of sales. Branding to maintain sales (building loyalty). Outsourcing: production overseas where costs are lower to gain a competitive price advantage, reducing the impact of a recession in the domestic economy. (box 1.5 b page 62 Paul Hoang).

ECONOMIC: Governments ability to achieve 4 key economic objectives: 4. Have a healthy trade balance: International trade balance records the value of a country´s export earnings and its import expenditure. Exchange Rate: Measures the value of the domestic currency in terms of foreign currencies. Protectionist Measures: Any government policy used to safeguard domestic businesses from foreign competitors. (box 1.5 c. page 63 Paul Hoang). Tariffs (customs duties): Taxes on imported products. Quotas: Quantitative limits on the volume or value of imports. Subsidies: Payments made by a government to a domestic business in the form of financial aid to reduce their cost of production. Embargos: Physical bans on international trade with a certain country. Technological and Safety Standards: Strict administration and compliance costs in meeting industrial, health and safety regulations imposed on imported products, thereby rising production costs of foreign producers.

ENVIRONMENTAL/ECOLOGICAL: Concern of impact on the natural environment. Environmental controls on business activities: wase disposal, use of sustainable energy, reducing packaging. Threats from natural events: Weather and Seasonal Changes present opportunities and threats (floods, snow, typhoons). Natural Disasters (Tsunamis, Earthquakes, Hurricanes, etc). Health scares and epidemics (SARS, bird flu, mad cow, swine flu). Infrastructure Natural resources External costs of a business activity: costs incurred by society rather than by the buyer or seller. I.e. Passive smoking, air and noise pollution, packaging waste and global warming. Changes in social attitudes towards the environment implies reviewing practices or face ruining reputation and profitability but imply compliance costs.

POLITICAL: Government stability, Political structure (democracy) and government policies (towards business, trade policies and private ownership of assets) provide both opportunities & threats. Free market approach: Laissez-faire government– rarely intervenes in business affairs. Advantage: Stimulates healthy competition and efficiency & Attracts foreign direct investment. Interventionist approach: using legislation and policies to oversee business behavior and to influence the level of business activity. Government Policies: A. Fiscal Policy: The use of taxation and government expenditure policies to influence business activity. Deflationary Fiscal Policy: When a government experiences high rates of economic growth and inflation. (higher taxes and reduced government expenditure policies) Expansionary fiscal policy: Used to boost business activity: tax cuts and increased public sector spending.

POLITICAL: A. Fiscal Policy/ Common examples of taxes: (box 1.5 d Paul Hoang page 65). Income tax: A levy on personal income from wages, salaries, rent, interest and dividends. (Key source of revenue for most governments) Corporate tax: A levy on profits. Sales Tax: Taxes on an individuals expenditures. Capital gains tax: Tax on the surplus (capital gains) made from investments such as shares and property. Inheritance tax: Tax on the value of assets passed on to a 3rd party following the death of the owner of the assets. Excise duties: levies on demerit goods such as alcohol, tobacco, petrol and gambling. Customs duties: taxes on foreign imports which help to raise government revenues and give domestic businesses a relative price advantage. Stamp duty: A tax paid when commercial or residential property is bought.

POLITICAL:. B. Monetary Policy: Is the use of interest rate policy to affect the money supply and exchange rates in order to influence business activity. Interest Rate: The price of money, both in terms of borrowing money and the return for saving money in a bank account. Raising/ Increasing Interest Rate: Makes borrowing less attractive. Increases costs for those with existing debt. Reduces people´s disposable income (reduces over all spending – consumption and investment). Is a threat to businesses. Advantages: It helps to control inflation. It stimulates demand for its currency – better returns on savings (foreign investors are attracted). This increases the exchange rate (price of the currency).This causes price of exports to be relatively higher – reducing demand.

LEGAL The government imposes rules, regulations and laws to ensure the general public is protected from adverse business activity. It can also protect the interests of businesses. Employment Laws: health and safety at work, redundancy pay, protection from discrimination, minimum pay, maternity pay. Consumer protection laws: advertising inaccurately or inappropriately, selling faulty goods or described incorrectly, high-pressure selling tactics, not allowing consumers to change their minds after signing credit agreements. Business competition laws: Restrict unfair competition, restrictive prices, monopoly exploitation of consumers, mergers and takeovers that could lead to a monopoly. Major Policy changes: nationalization or resulting from new governments (policies towards foreign investment by multinationals.) Deregulation: Is the removal of government rules and regulations which constrain business activity within a particular industry. Advantages: It enhances efficiency and encourages more competition within the industry.

LEGAL - Common Legislation affecting businesses: Consumer Protection laws: Prohibit false or misleading advertising; define quality standards; make businesses liable for any damage or injury caused by defective products. Employee protection legislation: Protect the interest and safety of workers. Antidiscrimination: Race, gender, religion, disability, marital status or age. Equal pay: For work or jobs of equal value. Health and Safety at work acts: Provision of secure and Hygienic working environment. Statutory Benefits: legal benefits such as maternity leave, sick pay, holiday pay, retirement pension scheme. National Minimum Wage Legislation: Requires all businesses to may a legal minimum rate of pay for their workers. Competition Legislation: Prohibit anti-competitive practices: price fixing, monopoly. Protect customers and small businesses. Copy right, trademark and patent laws. Advantage: Stimulates innovation. Social and environmental Protection Legislation: Prevent or reduce the consumption of demerit goods: tobacco, alcohol, gambling, petrol, illegal drugs. Aim to counter act the “social cost” (passive smoking, pollution, crime). Exam Tip: You will not be asked to give details on laws in any specific country, but you may be asked how a business is affected by laws in general.

Prepare a Steeple analysis of a given organization 3hr
ETHICAL Business Ethics are the moral principles that are, or shoud be, considered in business decision-making. (What is judged to be right or wrong). Ethical firms act in a socially responsible way towards their stakeholders. Benefits: Attract and retain good quality workers. Attract new customers and retain existing ones. Good publicity and public relations Social audit reports (refer to both external matters (social involvement, pollution) and internal issues (waste management, safe working environment). Compliance Cost: Choosing ethical suppliers even if they charge more. Corruption: can be a major ongoing threat for business. Transparency international: There is a strong correlation between corruption, poverty and international competitiveness.

2. Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy 1 hr – AO3 State 2 common influences in each of the STEEPLE factors. (Examine how it could pose advantages or disadvantages to a business. Case study: Practice Question page 64 BM –Oxford. Inquirer: Investigate China´s Demographic changes and effects. Paul Hoang page 70 Consider how the concepts of CUEGIS apply across the content discussed on the STEEPLE analysis, and how it can create both opportunities and threats.

2. Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy 1 hr – AO3 Changes in any of the STEEPLE factors present both threats and opportunities & impact the objectives and strategy of the business in varying degrees. Internal factors that influence the ability to adapt: Size of business Ability of management Degree of brand loyalty. Diversity of a firm´s operations. Level of a firm´s gearing (extent to which a business relies on external borrowing)

2. Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy 1 hr – AO3 Planning based on STEEPLE allows business to be flexible, and adapt to changes: Early adaptor and first mover advantages. Common influences in the STEEPLE analysis SOCIAL: (social, cultural and demographic factors can directly affect the activities of a business). Lifestyles, demographics, education, social mobility, fashion or taste. TECHNOLOGICAL: Tech improvements, new tech transfer, infrastructure, ICT, research and development costs.

2. Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy 1 hr – AO3 Common influences in the STEEPLE analysis ECONOMICAL: economic or business cycle, rate of economic growth - inflation – unemployment –exchange – interest. ECOLOGICAL: depletion of renewable resources, global warming, organic farming, carbon footprints.

2. Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy 1 hr – AO3 Planning based on STEEPLE allows business to be flexible, and adapt to changes: Early adaptor and first mover advantages. Common influences in the STEEPLE analisis POLITICAL: political stability, trade & regional policies, lobbying or electioneering. LEGAL: regulations, employment & competition laws, health & safety legislation. ETHICAL: Corruption, transparency, codes of business behavior, fair trade.

3. Examine the consequences of change in any of the steeple factors for a business´s objectives and strategy 2 hr – AO3 Create a steeple analysis of a real business you choose: present your findings to the rest of the class. a. Consider particular influences of each element on the business. b. Analyse which has the most important influence (how relevant to its current strategy and objectives). c. Develop a strategy to consider them.

1.5 External Environment 6 hrs

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