MGSC01H3 Chapter Notes - Chapter 4: North American Free Trade Agreement, Switching Barriers, Scop
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Chapter 4 Exploring the External Environment Macro and Industry Dynamics
The External Context of Strategy
•in the broadest sense, the external environment consists of a wide array of economic and socio-political factors
•in the narrowest sense, the external environment is the specific market arenas that the firm has chosen in its strategy
•macro environment refers the larger political, economic, social, technological, environmental, and legal issues that confront the firm
•PESTEL analysis tool for assessing the political, economic, socio-cultural, technological, environmental, and legal contexts in
which a firm operates; can be used to develop an understanding of the big picture of a firm’s external environment
•it provides a non-exhaustive list of potential influences of the environment on the organization
•it 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 profitability
•a PESTEL analysis involves 3 steps
1) should consider the relevance of each of the PESTEL factors to the particular context
2) identify and categorize the information that applies to these factors
3) analyze the data and draw conclusions
•How stable is the political environment?
•What are local taxation policies and how do these affect your
•Is the government involved in trading agreements such as EU,
NAFTA, ASEAN, or others?
•What are the foreign-trade regulations?
•What are the social-welfare policies?
•What are current and projected interest rates?
•What is the level of inflation, what is it projected to be, and
how does this projection reflect the growth of your market?
•What are local employment levels per capita and how are they
•What are the long-term prospects for GDP per capita and so
•What are exchange rates between critical markets and how
will they affect production and distribution of your goods?
•What are local lifestyle trends?
•What are the current demographics and how are they
•What is the level and distribution of education and income?
•What are the dominant local religions and what influence do
they have on consumer attitudes and opinions?
•What is the level of consumerism and what are popular
attitudes towards it?
•What pending legislation affects corporate social policies
(e.g., domestic-partner benefits or maternity/paternity leave)?
•What are the attitudes toward work and leisure?
•What is the level of research funding in government and
industry and are those levels changing?
•What is the government and industry’s level of interest and
focus on technology?
•How mature is the technology?
•What is the status of intellectual-property issues in the local
•Are potentially disruptive technologies in adjacent industries
creeping in at the edges of the focal industry?
•What are local environmental issues?
•Are there any pending ecological or environmental issues
relevant to your industry?
•How do the activities of international pressure groups (e.g.,
Greenpeace, Earth First, PETA) affect your business?
•Are there environmental-protection laws?
•What are the regulations regarding waste disposal and energy
•What are the regulations regarding monopolies and private
•Does intellectual property have legal protections?
•Are there relevant consumer laws?
•What is the status of employment, health-and-safety, and
•globalization evolution of distinct geographic product markets into a state of globally interdependent product markets
Pressures Favouring Industry Globalization
Markets Costs Governments Competition
•global customer needs
•large scale and scope
•learning and experience
•high R & D costs
•favourable trade policies
and marketing regulations
•when 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
Chapter 4 exploring the external environment macro and industry dynamics. Notes in the broadest sense, the external environment consists of a wide array of economic and socio-political factors in the narrowest sense, the external environment is the specific market arenas that the firm has chosen in its strategy. Macro environment: macro environment refers the larger political, economic, social, technological, environmental, and legal issues that confront the firm. 3) should consider the relevance of each of the pestel factors to the particular context identify and categorize the information that applies to these factors analyze the data and draw conclusions. Is the government involved in trading agreements such as eu, How do the activities of international pressure groups (e. g. , Are there environmental-protection laws: what are the regulations regarding waste disposal and energy. Markets homogenous customer needs global customer needs global channels transferable marketing approaches. Industry analysis globalization evolution of distinct geographic product markets into a state of globally interdependent product markets.