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

3. 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.

4. 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)

5. (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

6. (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

7. 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
Economic
Microenvironment
Macroenvironment

8. PESTEL Analysis
Political
Economic
Socio-cultural
Technological
Environmental
Legal

9. 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

10. 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

11. 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

12. 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

13. 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

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

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

16. 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

17. Five Forces Framework (cont.)
Determinants of substitution threat
Product-for-product substitution (e.g. post mail and )
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

18. 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

19. 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

20. 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)

21. 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?

22. 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

24. 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.

25. 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.