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Global Business Environment

Nature and scope of the business environment External Internal Organizational environmental interactions Organizational response to environment Assignment

Business Environment (1)


Collectivity of all factors, forces & conditions outside & inside the organization that influences it as an organization & its behavior All the components of environment interact & affect one another & in turn business Environment is constantly changing faster for some industries & slower for others Adaptation needed by all

Business Environment (2)


Environment is also full of opportunities as well as poses some threats-needs constant monitoring Study of prevailing environment & its futuristic trends form an integral part of business planning Business operates always in an environment not in vacuum

Business Environment (3)


Environment is a macro concept and business unit a micro Broadly environment is economic but its non economic face cannot be neglected i.e. socio-cultural face

Nature and Scope of Environment


External Macro environment Demographic Political Economic Legal Social Technological International Internal Micro Board of directors Employees Culture Values Work ethos Processes & systems

Specific task Environment Clients Customers Owners Share holders Competitors Suppliers Regulators Market forces

Organization and its environment


n ch Te l ca gi olo
Competitors Internal Environment Suppliers
i cs c onom E
So cia l-c ult ur e

Clients Board of Directors Employees Processes Culture Climate Labor Task Environment Political-Legal Business Environment International

Regulators

TECHNOLOGICAL Follow developments in silicon chips. Spend 6.9% of revenues on research.

ECONOMIC Law interest rates. Low Unemployment Low inflation. Strong dollar. Recession In Midwest and Southwest

COMPETITORS Compaq, DEC, TI, AT&T New entrants. Shift: Isolated Products to Integrated IS, Rapid expansion SUPPLIERS Subcontractors provide components for machines. Microprocessors from Taiwan. Printer from Japan Share / Bondholders

CUSTOMERS Declining growth rate Businesses, Universities Schools, Want lower prices Target computer layperson Loyal like IBM service

IBM
HUMAN RESOURCE Treat employees well No layoff policy potential Unions College graduates

LE Ste GAL / Pri ps to r POL I v Pro acy l egula TICA a t cou tectio ws. P e soft L w ntr nist o ie s leg tentia are in Ne w t islatio l anti form t a ax law n in o rust s tion uit th e s r

S0CIOCULTURAL Computer use in schools at all levels. Inexperienced computer laypeople Computer piracy and fraud New computer applications. Home and family use, computer games

NAL s Hire ine NATIO 130 countrie mach INTER ucts in s. Buy of trie od Sell pr in host coun liers 40% ls pp nationa m foreign su ales s ro parts f from foreign es revenu

Demographic Environment of a Country


Population Growth rate Life style of people Trend towards urbanization Literacy levels Unemployment levels Labor market Technical manpower Managerial manpower Occupation
Sex composition Age-wise composition

Unionization

Contingency analysis

Political Environment
Type of political system
Federal / Local

Special interest groups


Consumers Farmers Business associations

Social reformers Cultural sects Political climate


anti business / pro business

Regulatory control Trade unions act Laws for consumer protection Laws of managerial remuneration Taxation Other standards Judiciary system Administrative system

Stable climate for doing business ?

Technological Environment
Technology, business development and growth of economy closely inter related New medicines, biotech field, cosmetics, auto telecom, computers, fiber optics, xerography Effect of new technology on old business Technological gaps

Critical Elements of Economic Environment 1


Economic system public, private, capitalistic, communist or mixed Nature of economy countrys economic health Functioning of economy role of money is to give insight into role of planning, administered prices, free market pricing and central banking

Critical Elements of Economic Environment 2


Economic controls and regulations industrial policy, agricultural policy, fiscal cum budgetary policies, regulations of central bank, import-export policy, industrial development & regulations act, price control, trade control & exchange control act Economic problems & prospects inflation, unemployment and recession

Economic Environment
Economic health
GNP personal income disposable personal income personal consumption patterns & expenditures retail sales

Savings
Personal Business

Price, wages & productivity Inflation rate , consumer price index Output / hour / business sector State & local expenditure Defense expenditure Business / Investment Climate (assign grade = A+, A, B, C)

Investment
New equipment Inventory

Organizational Environment Interactions


Two linkages to be examined Environmental change, complexity & uncertainty Competitive forces
Degree of change in the environment- stable or unstable Degree of environments homogeneity Environment-simple or complex

SIMPLE COMPLEX

few elements & little segmentation more elements, high degree of segmentation

Complex

Simple

H O M O G E N E I T Y

Moderate uncertainty

Most uncertainty

Least uncertainty

Moderate uncertainty

DEGREE OF CHANGE Stable Dynamic

Factors Affecting Uncertainty & Dependence


Environment is more uncertain & less easy to understand when
it is more differentiated it is changing numerous interconnections among its various elements

Organizations more dependent in an environment where


Required resources are not widely available Resources are not evenly distributed Increasing connectedness disturbs elements of environment & the linkages among them

External (Competitive) Forces


Threat of new entrants Jockeying among contestants Threat of substitute products Market Power (buyers) Market Power (suppliers)

The Organization

Organizations Response to Environment


Boundary spanning response Forecasting Strategic responses Mergers, acquisitions and joint ventures Change of structures System integration

Boundary Spanning Response 1


Organization reaction based on mgt of info A popular mgt info technique is called boundary spanning response Roles performed by PROs, sales representatives & procurement agents/officers Close contact required to be maintained by all, outside serves 2 purposes (a) Seek & process info about changes in environment (b) Represent organization interest outside

Boundary Spanning Response 2


Boundary spanners assist in environment scanning Boundary spanners assist & process of monitoring Understand interacting forces between organization & its complex & dynamic environment

Systems Criteria for Evaluating Company Performance (1)


Ordinate system Shareholders Evaluation criteria Price appreciation of securities Dividend payout Wage levels Opportunity Employment stability Value given

Labor force

Consumers

Systems Criteria for Evaluating Company Performance (2)


Competitors Suppliers Creditors Community Nation Rate of growth Innovation Rapidity of payment Adherence to contract terms Contribution to community development Public responsibility

Summary
Business environment means surroundings, conditions, situations & trends General environment is created by political, economic, social & technological factors Business has internal as well as external environment Business environment is complex phenomenon,organizations should adapt to it Business environment is the foundation of corporate planning Environment-objectives-strategies-structure-system

The Firm as a System


competitors community

The Firm
creditors suppliers finance Production Marketing

Facilitating services labor nation

consumers

shareholders

Assignment
In what ways are the major dimensions in the external environment changing in todays world? Illustrate. How can you face these challenges? Create an organizational-environmental chart for your favorite company. Prepare a country report for any country of your choice including the different environments.