International Business Strategy301REN

The Strategic Environment

Unit: 2 Knowledgecast: 2

• 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

Module Learning Outcomes

The External Business Environment

Layers of the business environment• The organisation

• The macro environment

• Industry (or sector)

• Competitors (or market)

The micro environment

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

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

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Macroenvironment

Microenvironment

Political

Economic

Socio-cultural

TechnologicalBuyer

Substitute

New Entrants

SupplierCompetitor

s

The Company

Internal

The Business Environment

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

Legal• Taxation, employment and safety law

• Environmental law

• Emission tax

PESTEL Analysis Environmental• ‘Green’ issues that affect the environment• Level and type of energy consumed –

renewable energy?• Rubbish, waste and its disposal• Biodiversity• Green house gas emission

Industry Life Cycle

M84 Strategic ManagementGerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002

Five Forces Framework

M84 Strategic ManagementGerry 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.)

Strategic Management

• Relative price/performance of substitutes• Switching costs• Effectiveness in meeting specific customer needs• Willingness of buyers to substitute• Product differentiation• Brand loyalty

Determinants of substitution threat1. Product-for-product substitution (e.g. post

mail and e-mail)2. Substitution of need (more reliable transports

reducing the need for cars) 3. Generic substitution (disposable income:

boats/homes/furniture/holidays, etc.)

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?

• 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.

Knowledgecast Summary

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.

Seminar

Assessment PreparationThis is your first opportunity as a group to read through the major

casestudy and the assessment brief (see Unit 5) collectively and highlightkey points.

Discuss as a team;1. What are the key activities involved in this assessment2. Who will be responsible for each activity3. When the activities will need to be completed4. How you can guarantee SUCCESS (what will success

look/feel/sound like?)

Be prepared to share your plans with your tutor.

Group Activity