4) The Nature Of The Global Business Environment Flashcards
Another variation is LoNGPEST, which adds a second dimension to the external environment which is the levels at which influences occur.
- Lo refers to the local level in which the organization operates, eg the immediate city or region.
- N is concerned with the home country in which the org has its headquarters.
- G represents the global level, which becomes anything outside the local and national environments.
Porters five forces
Diagram on pg 119
1) new entrants
2) rivalry amongst competitors
3) substitutes
4) power of buyers
5) power of suppliers
The benefits of using PESTEL and Porters five forces for external analysis:
- they ensure that management consider a wide range of potential impacts when devising strategy
- they allow the division of the work in environmental analysis - one team deal with buyers another team deal with suppliers
- they provide a common language between managers - Porters five forces and PESTEL
- they provide insight into key strategic issues
Limitations to the use of Porters five forces and PESTEL:
- they can distort reality - real business environments do not fit into neat segments
- they present the environment as external - distribution channels as separate and external
- they may cause management to overlook networks - joint ventures and strategic alliances
- they can overload management with analysis
Globalization and the changes observed in the business environment are seen as the result of a number of developments including:
- the drive by multinational companies to seek new markets as domestic markets become saturated
- the deregulation and privatization of industries
- consolidation and development of trading blocks
- liberalization of trade
- free trade opening up new opportunities in emerging markets
- potential cost & market share advantages
- lower production costs in developed countries
- development in communications network
- development in transportation technologies and networks
- global financing
- developments in the technology of communication
The impact of globalization on firms:
- industrial relocation
- emergence of growth markets
- access to markets and enhanced competition
- cross-national business alliances and mergers
- widening economic divisions btn counties
Porter suggested that there are four main factors which determine national competitive advantage and expressed them in the form of a diamond - Porters Diamond:
Diagram on pg 129
- factor conditions
- demand conditions
- firm strategy, structure and rivalry
- related and supporting industries
Difficulties with Porters Diamond:
- companies not countries
- ignore multinational or global corporations
- ignores the target country
- less applicable to services
Name the BRIC Economies and identify the two key factors that have resulted in the growth of these economies?
Brazil, Russia, India, China, South Africa
1) globalization
2) internal developments - these include:
- large and rapid growth rates
- a move towards a free market economy
- relative political stability
- availability of labour
- low wage rates
- improvements in education
- availability of resources
Threats for the BRICS economies:
- foreign investment in BRICS economies has slowed.
- consumer demand in the developed world has slowed (two thirds of China’s exports are to the developed world).
- India’s economy depends on developed countries outsourcing services to them. A recession in the developed world will reduce the level of outsourcing.
Explain political risk?
Political risk is the possibility of an unexpected politically motivated event in a country affecting the outcome of an investment.
> political risk is greater in countries with developing economies.
> a change in gvnt can sometimes result in dramatic changes for a business.
> political risk could have a direct effect on a business. For example:
- the risk of nationalization of foreign owned assets
- the risk of government decision to raise taxation
- the risk of government decision to restrict payments to foreign shareholders
- the risk of changes in law, such as employment law
- the risk that contracts are cancelled or revised
- the risk that lobby groups within a country put pressure on the gvnt to support home based business rather than foreign business.
> political risk can also be indirect, because of the effect of gvnt policies on the economy, eg changes in interest rates and exchange rates.
Three main methods of managing political risk:
1) understanding political risk before investing
2) review risks regularly during the period of investment
3) take action after the risk has materialized
Explain country risk?
Country risk is the risk arising from operating or investing in a particular country, with risks relating to matters such as:
- political interference, eg currency controls
- political instability
- the social and economic infrastructure
- the culture of the country
- and its attitude to foreign business
Country risk is a much more general term than political risk and relates to all of the risks of operating or investing in a particular country.
Country risk can be analyses in three ways:
- Political analysis
- financial analysis
- economic analysis
External analysis of the macro environment: PEST(EL) Analysis
- political influences and events
- economic influences
- social influences
- technological influences
- environmental influences
- legal influences
