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UNIT 1.

5 –
EXTERNAL IB Business
Management

ENVIRONMENT
Goals for the Chapter

• Prepare a STEEPLE analysis of an


organization

• Explain the consequences of a change in


any of the STEEPLE factors for a
business’s objectives and strategy
Impact of External
Environment
• All businesses operate in an “environment”
• Environment in business refers to
conditions “external” to the business.

• External environment is complicated


• What happens in the external environment
is beyond the control of the business
STEEPLE
Current way to analyze

• Older Versions
• PEST – Political, economic, social, technological
• PESTLE - Political, economic, social,
technological, Legal and Ecological

• STEEPLE – Social, Technological,


Economic, Ecological, Political, Legal and
Ethical
Impact of Changes in
STEEPLE factors
• If something changes, will impact the
business
• A STEEPLE analysis allows the business
to consider influences of each element
on the business
• Most important influences determined
• Then a strategy can be developed to deal
with changes.
Common influences in a STEEPLE
ANALYSIS
Social Lifestyles; Social mobility; Demographics, Education, Fashions or tastes

Technological New technology; improved technology, infrastructure; Research & Development Costs

Economic Economic or business cycle, rate of economic growth, rate of inflation, rate of
unemployment, interest rates, exchange rates

Ethical Corruption, transparency, codes of behavior, fair trade

Political Political stability, trade policies, regional policies, lobbying

Legal Regulations, Health & Safety legislation, Employment laws, competition laws

Ecological Depletion of renewable resources, organic farming, global warming, carbon footprints
Example: STEEPLE analysis of
multinational companies operating in
India

 Social
 Potentialmarketofover1.2billion people (the second most populous country
in the world)
 A large and well educated English-speaking work force of around 510
million people
 Large yet increasing discrepancies In the distribution of income and wealth
 Language barriers In rural cities, with potential clash of national cultures In
a multi lingual and multi-ethnic country.

 Technological
 Growing number of technologically aware population (huge opportunities for
firms providing products such as mobile phones, personal computers and
Internet services)
 Major industries include communications technology, biotechnology, software,
automobiles, petrochemicals and pharmaceuticals
 Technologies are easily copied due to a lack of appropriate legislation.
 Economic
 Huge growth potential in financial markets
 Significant economic growth and rising disposable incomes (spending
power)
 Improved infrastructure and market opportunities in
 Relatively low costs of production(average wage rates are still very low)
 Most people are employed in the agricultural sector,
 Infrastructure and economic stability are less attractive than in other
countries such as China
 The vast majority of the Indian population is still very poor.

 Environmental
 Challenge are air pollution, water pollution, littering, waste disposal and
environmental degradation
 Indian government taking amore proactive approach to enforcing
environmental protection.

 Political
 Political reform will encourage better trade relations with other nations
 Legislation is less stringent than in other nations, thus placing fewer
constraints on business activity
 Regarded as less politically stable and relatively corrupt compared with
other countries In the region
 Poor enforcement of patents and copy rights might discourage
technology transfer to India.
 Ethical
 Corruption has increased significantly, fuelling poverty
and harming India's international competitiveness
 Slow business negotiations as the locals focus on
establishing a trusting relation ship as a prerequisite to
do business in India
 Indian culture is averse to critical disagreements, such
as saying 'no', as this is seen as being rather rude;
disagreements should be expressed in an ethical way,
using diplomatic language
 Extremely difficult for foreign companies to penetrate
the Indian economy without partnering with a local
Indian company.
Work

 Choose a company
Example:
(a)Kraft Foods announces take over of
Cadbury.
(b)Singapore Airlines plans to move call
centre into India.
(c)Disney set to open new the meparkin
Shanghai.
 Make a steeple analysis
How do businesses
react?
• Must be flexible
• Must be willing to change and adapt
• Being an Early Adaptor
• Having First Mover Advantage
• A business must always be monitoring
the external environment in order to
change when needed.