The Global Context

Lecture 3

The Global Business Environment

Lecture Objective

• Explain the nature of the global environment

• Undertake an external environmental audit

• Analyse the impact on business of changes in the external environment

• Assess the attractiveness of countries as places to do business

ORGANISATION

beliefs

demographic trends

technology

ethics

laws

pressure groups

Political events

inflation

interest rates

credit availability

treaties

Europe

ecology

social problemsmedia

values

taxes

banks

neighbours

ideas

The External Environment

The External Environment

Complex

Confusing

Dynamic

Change is accelerating

Turbulent

Opportunities

New markets

Reductions in cost

Economies of scale

Access to raw materials

Threats

Increased financial risks

Increased political risks

Increased exposure to natural disasters

Why Scan the Environment?

For the most probable opportunities and threats

Their potential impact on the organisation

Ability of organisation to deal with them

Impact Analysis

High priority

High priority

Medium

priority

High priority

Medium

priority

Low priority

Medium

priority

Low priority

Low priority

Probability ofOccurrence

Probable Impact on Organisation

high

medium

mediumhigh

low

low

External Environmental Analysis(PESTLE)

SOCIO-CULTURALSOCIO-CULTURAL

LEGALLEGAL

TECHNOLOGICALTECHNOLOGICALECOLOGICALECOLOGICALPOLITICALPOLITICAL

ECONOMIC AND FINANCIAL

ECONOMIC AND FINANCIAL

ORGANISATIONORGANISATION

SCREENING AND EVALUATING FOREIGN MARKETS

Basic Screening

• Market indicators

– Trade Statistics

– GDP

– GDP per capita

– Growth in GDP

– Ownership of cars, TVs, telephones etc.

Sources of Information

• United Nations• World Bank• International Monetary Fund (IMF)• International Labour Office (ILO)• Organisation for Economic Co-operation and

Development (OECD)• CIA Factbook

• All available on Internet

Secondary Screening

• Ease of operation

• Risks of doing business

Political and Legal Environment

• Government regulation– Economic policy– Taxes/Incentives– Employment law– Health and safety law– Environmental policy– Competition policy

Political Risk

• Regime change• Civil unrest• Wars• Terrorism• Corruption• Weak leadership• Crime• Piracy

Economic and Financial Environment

• Inflation• Interest rates• Exchange rates• Credit availability• Financial stability• Rates of Return

Market Potential

– Market Size• Population• GDP per head• Disposable income• Distribution of Income

Market Potential

- Market growth- Population growth- Growth in GDP

- Quality of demand- Socio-economic profile

Socio-cultural Environment

• Language• Religion• Culture/Customs • Demographic trends• Health/Education• Urbanisation• Labour force availability and skills• Wage levels/Working hours• Unionisation

Technological Environment

• Science and technology infrastructure• Patent protection• Road network/Public transport• Telephony/Internet capacity• Air transport• Ports• Power supply and reliability

Ecological Environment

• Resource depletion• Global warming/climate change• Pollution• Water supply• Natural disasters• Sustainable development

Competitive Forces

• The size of the market• Growth rate of the market• No. and size of competitors• Marketing strategies• Production capacity• Cost structure• Entry• Substitutes• Power of buyers and sellers