Chapter 4 Notes

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Management (MGS)
Professor Constantinou

Chapter 4 Exploring the External Environment Macro and Industry Dynamics NotesThe External Context of Strategyin the broadest sense the external environment consists of a wide array of economic and sociopolitical factorsin the narrowest sense the external environment is the specific market arenas that the firm has chosen in its strategyMacro Environmentmacro environment refers the larger political economic social technological environmental and legal issues that confront the firmPESTEL AnalysisPESTEL analysistool for assessing the political economic sociocultural technological environmental and legal contexts in which a firm operates can be used to develop an understanding of the big picture of a firms external environmentit provides a nonexhaustive list of potential influences of the environment on the organizationit helps managers gain a better understanding of the opportunities and threats they face and consequently aids them in building a better vision of the future business landscape and how the firm might compete profitabilitya PESTEL analysis involves 3 steps1should consider the relevance of each of the PESTEL factors to the particular context2identify and categorize the information that applies to these factors3analyze the data and draw conclusionsPoliticalEconomicHow stable is the political environmentWhat are current and projected interest ratesWhat are local taxation policies and how do these affect your What is the level of inflation what is it projected to be and businesshow does this projection reflect the growth of your marketIs the government involved in trading agreements such as EU What are local employment levels per capita and how are they NAFTA ASEAN or otherschangingWhat are the foreigntrade regulationsWhat are the longterm prospects for GDP per capita and so What are the socialwelfare policiesonWhat are exchange rates between critical markets and how will they affect production and distribution of your goodsSocioculturalTechnologicalWhat are local lifestyle trendsWhat is the level of research funding in government and What are the current demographics and how are they industry and are those levels changingchangingWhat is the government and industrys level of interest and What is the level and distribution of education and incomefocus on technologyWhat are the dominant local religions and what influence do How mature is the technologythey have on consumer attitudes and opinionsWhat is the status of intellectualproperty issues in the local What is the level of consumerism and what are popular environmentattitudes towards itAre potentially disruptive technologies in adjacent industries What pending legislation affects corporate social policies creeping in at the edges of the focal industryeg domesticpartner benefits or maternitypaternity leaveWhat are the attitudes toward work and leisureEnvironmentalLegalWhat are local environmental issuesWhat are the regulations regarding monopolies and private Are there any pending ecological or environmental issues propertyrelevant to your industryDoes intellectual property have legal protectionsHow do the activities of international pressure groups eg Are there relevant consumer lawsGreenpeace Earth First PETA affect your businessWhat is the status of employment healthandsafety and Are there environmentalprotection lawsproductsafety lawsWhat are the regulations regarding waste disposal and energy consumptionGlobalizationglobalizationevolution of distinct geographic product markets into a state of globally interdependent product marketsPressures Favouring Industry GlobalizationMarketsCostsGovernmentsCompetitionhomogenous customer large scale and scope favourable trade policiesinterdependent countriesneedseconomiescommon technological global competitorsglobal customer needslearning and experiencestandardsglobal channelssourcing efficienciescommon manufacturing transferable marketing favourable logisticsand marketing regulationsapproachesarbitrage opportunitieshigh RD costsIndustry Analysiswhen there is perfect competition there are numerous sellers and buyers no monopolies perfect information relatively homogenous products offered by different firms and no barriers to entry or exit
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