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2. Understanding the Environments of Business
Chapter 2
Understanding the Environments of Business

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Chapter Outline
Organizational Boundaries & Environments
Economic Environment
Technological Environment
Political-Legal Environment
Sociocultural Environment
Business Environment
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4. Organizational Boundaries & Environments
External Environment
Organizational Boundary- Separates Organization From Environment
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5. Dimensions of External Environments
Technological
Sociocultural
Economic
The Business Organization
Business
Political-Legal
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6. Copyright 2005 Prentice- Hall, Inc.
Economic Environment
Business Cycle
Aggregate Output
Standard of Living
Gross Domestic Product (GDP)
Real
Nominal
Gross National Product (GNP)
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Business Cycle
Expansion
Contraction
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8. % GDP Change From Previous Period
Source: U.S. Department of Commerce, Bureau of Economic Analysis
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U.S. GDP & Real GDP
(In $ Billons)
Source: U.S. Department of Commerce, Bureau of Economic Analysis
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GDP & GDP Per Capita
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Purchasing Power Parity (Big Mac Index Based On At Market Exchange Rate 12/13/04)
US Big Mac = $3 Average
(Average of 4 Cities)
Source: The New York Times, “Big Mac Index”, Dec. 16th,
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U.S. Productivity
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13. GDP % Change From Preceding Period*
Expansion vs. Recession vs. Depression?
*3rd Quarter 2004
Source: U.S. Dept. of Commerce- Bureau of Economic Analysis
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14. % GDP Change vs. % Labor Productivity Change
Source: U.S. Department of Commerce, Bureau of Economic Analysis U.S. Department of Labor- Bureau of Labor Statistics
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15. U.S. Balance of Trade (2003)
U.S. Sells $1.0 Trillion of Goods/Services
U.S. Balance of Trade
-$500 Billion
U.S. Buys $1.5 Trillion of Goods/Services
Source: U.S. Census Bureau- Foreign Trade Statistics (2003 Annual Highlights),
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U.S. National Debt
In $ Trillions*
Source: Bureau of the Public Debt: Historical Debt Outstanding- Annual,
*For Today’s Figure go to “U.S. National Debt Clock”,
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Economic Stability
Inflation- Widespread Price Increases In An Economic System
Unemployment- Level of Joblessness Among Those Actively Seeking Work In An Economic System
Recession vs. Depression
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18. U.S. Consumer Price Index (Dec.- All Urban Consumers)
= 100
Source: U.S. Department of Labor- Bureau of Labor Statistics
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19. U.S. Unemployment Rate (Seasonally Adjusted on 12/31)*
* 11/30/04
Source: U.S. Department of Labor- Bureau of Labor Statistics,
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20. Managing the U.S. Economy
Fiscal Policy- Determines How Government Collects/Spends Revenues
Monetary Policy- Determines Size of Nation’s Money Supply
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Monetary Policy
Interest Rates 
Spending 
Tight
Interest Rates 
Spending 
Easy
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22. U.S. Prime Interest Rate (Jan.1)
Source: Board of Governors of the Federal Reserve System
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23. Technological Environment
Product/Service Technologies
Business Process Technologies- Enterprise Resource Planning
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24. Earnings & Educational Attainment (1999 Dollars)
Full-Time Year-Round Workers
Source: U.S. Census Bureau
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25. Political-Legal Environment
Regulation- Defines Relationship Between Government & Business
Government = Pro vs Anti-Business Sentiment
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26. Foreign Direct Investment Confidence Index (Oct. 2004)
Corporate Investors’ Interest in Global Investment
Scale = 0-3
Low Confidence
High Confidence
Source: A.T. Kearney Consulting,
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27. Sociocultural Environment
Customer Preferences/Tastes- Vary
International
National
Ethical Compliance & Responsible Behavior
Enron
Arthur Andersen
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28. Copyright 2005 Prentice- Hall, Inc.
Business Environment
Redrawing Corporate Boundaries- Core Competencies
Challenges/Opportunities
Outsourcing
Vertical Integration
Viral Marketing
Business Process Management
Post-9/11
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