Analysis of the General External Environment

Michael Alao

MGMT 600

September 19, 2009

Introduction

The purpose of this paper is to explore the general external environment in

terms of the six segments presented in the textbook: demographic; economic;

political and legal; sociocultural; technological; and global. The environment will be

added as an additional, seventh segment. Each of the segments will be addressed

in terms of the results of scanning and monitoring popular media such as

magazines (The Economist, Wired, and Parents) and radio (NPR). For each segment

the current state and short-term (e.g. one year forward) emerging trends will be

considered. At the conclusion of the paper, the long-term trends identified through

consideration of all seven segments and the current and short-term emerging

trends will be addressed.

Demographic

The developed, industrialized half of the world is aging, while the developing

world is becoming younger. In the US the topic of the baby boomers’ retirement is

a frequent topic addressed throughout various media. Currently there is concern

that the aging workforce will result in shortages of qualified management talent,

and that social welfare programs such as social security and Medicare will be

unsustainable without incurring massive deficit spending. The debates surrounding

healthcare and social security are pitting the young against the old, with many of

those opposed to healthcare reforms being among the older population who at the

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same time staunchly defend the Medicare programs whose costs will be borne by

the current workforce.

The debates over healthcare in general, Medicare, and Social Security will still

be ongoing a year from now. If anything, the debates will continue to intensify.

Meanwhile, what may be the inevitable solution for maintaining entitlement benefits

for an aging workforce – immigration of young workers, will not result in significant

immigration reform during this period.

Economic

Separating the healthcare debate from the economic environment is

impossible, because much of the concern and resistance to reform is the fear of

government deficit spending and the adverse effect it will have on future economic

growth. Amid the arguments it is difficult to find an independent and unbiased

source that can provide voters with an honest estimate of the proposed costs of

healthcare reform. There may also be the inherent lack of honesty with regard to

balancing the federal budget without increasing taxes. How do you spend more and

at the same time balance the budget without increasing taxes? The public is

concerned that the government has already spent too much to tame the recession.

The recession is a topic on just about everyone’s mind and almost impossible

to escape when perusing popular media. The public has changed its behavior and

the personal savings rate in the US has actually increased. Bargain hunting and

financial literacy are the current fashion, with a plethora of articles and stories on

cost saving tips offered to people of all age groups and interests. Even big

businesses are bargain shopping with mergers and acquisitions seeing a recent

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uptick – possibly a sign of an end to the recession and economic growth during the

next year.

Political and Legal

Regulation is on the rise. The health care debate is essentially a debate

about the extent of government regulation. The ongoing financial institution

bailouts are also government regulation, or will be in the very near future as Wall

Street will not be allowed to return to business as usual after such a massive

government investment. The same can be said for any of the other industries that

resulted in government bailouts – they should expect continued and more

government regulation in the next year.

From an international relations standpoint, the major global players realize

that much of their security is dependent on financial growth. Expect to see greater

international collaboration to restrain potential threats to global commerce. Threats

such as those posed by Afghanistan, Iran, and North Korea – all of which are

currently in the news and will continue to be over the next year.

Sociocultural

The general public displays greater awareness and interest in issues related

to healthcare, the effect of lifestyle and diet on health, the environment, and

financial responsibility. The current economic crisis has been remarkable in tying

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all of these things together. The crisis seems to have gotten peoples’ attention,

they are afraid and reexamining their priorities. Fear can be a great motivator for

change, and the recent rise in the personal savings rate is a great example. Over

the next year we should expect to see people continue to change their personal

habits (e.g. smoking, diet, shopping, saving, etc.).

Another significant change is that many older workers have realized that they

cannot afford to retire. At the same time there is also greater acceptance and

desire to have older Americans in the workforce. Expect this trend to continue as

the economy begins to grow over the next year.

Technological

Communication technology is making significant differences in peoples’ lives

with such things as social media and near-constant access to a wealth of

information. Although the change as a result of communication technology in

developed countries is remarkable, it pales in comparison to the effect that

technology such as low-priced cell phones have had in developing countries. Over

the next year expect to continue seeing massive growth in cell phone penetration

throughout the developing world. With that growth expect to continue seeing news

events from countries with repressive regimes whose censorship methods will be

unable to keep up with the technological advances in communication.

Global

The effects of the financial crisis were felt globally, and Americans are not the

only ones anxious to see the US economy recover. Concern for the global economy

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will continue throughout the year. Expect to continue seeing interest in events

throughout the world as instability anywhere is more likely to be seen as a threat to

economic growth. As the economy in the US and throughout the world begins to

recover, expect to see more companies involved in cross-border acquisitions and

mergers.

Environmental

The health care bill is not the only significant bill working its way through the

US congress. There is also the cap and trade bill, which in some form is likely to

become law during the next year. The risks posed by global warming will continue

to be topic of conversation during the next year. Expect to see more disasters such

as drought, storms, and wildfires throughout the next year – and those disasters

being connected by popular media to global warning.

The Long-Term

Developed nations will realize that the only way to maintain a workforce

sufficient to pay for the retirement and care of its aging citizens will be through

immigration. The underdeveloped world is full of young people in stagnant

economies that will not be able to create sufficient jobs to sustain their young

population. Business must advocate strongly for immigration reform, because the

public is unlikely to do so as a result of xenophobia. Business must also advocate

for increased spending on higher education in order to develop the workforce that

will be required to replace the aging Baby Boomers. Expect the government to

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increase spending on higher education in order to attract and retain talent

internationally. Competition among developed and newly-developed nations for the

best and the brightest will be fierce.

Taxes will increase. Supply-side economics, never accepted by economists,

has been disproven in the real world. Further, people want security and a social

safety net, which costs money. If the majority is not convinced today that higher

taxes are warranted, they will be over the next five to ten years.

Government regulation will increase across all sectors of the economy.

Governments throughout the world, including the US, will select slower, but stable

growth. Regulation will provide the stability that will prevent the near-economic

collapse experienced during 2008. The voting public has a short memory, however,

and de-regulation will begin anew in six to eight years. Environmental regulations,

however, will continue to be strengthened significantly over the next decade,

despite the fact that they will be too late to make a difference, but frightened

citizens will demand that their governments appear to be doing something.

The planet is warming, and it is irreversible. Weather patterns will become

less predictable and natural disasters more frequent. Regional conflicts will

increase as water becomes scarce. Organizations will have to develop ways to

remain flexible and to deal with unforeseen circumstances.

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Sources

Wired, September 2009

The Economist, September 12th – 18th 2009

Parents Magazine, September 2009

91.7 WVXU Cincinnati, Various radio programs during the week of September 14,

2009

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