External environment and geopolitics

MGMT2341

External environment

consists of what, reflects what and made up of which two environments

Consists of everything outside organisations that can affect, either directly or indirectly, their performance and outcome

Reflects an open system view of organisations includes all elements existing outside the boundary of an organisation

Made up of general and task environments

General environment

Definition and what it includes (PEESTIL)

Refers to the outer layer of the environment

Has an indirect (not day-to-day) impact on organisations

Includes: Political, Economic, Technological, Socio-cultural, Legal, Natural environment and international (PESTIL)

Enacted environment

Managerial perceptions and representation of the environment

Part of the external environment

Politico-legal dimension (2)

Includes government regulations, political activities and legislation to control organisational behavior

Includes the influence of pressure groups working within the legal-political framework:

• consumer advocacy group and business lobby group

Economic dimension (3)

Refers to the overall economic health of the country or region in which the organisation operates

Includes consumer spending power, unemployment rate, interest rate etc

There is a lot of complexity and uncertainty for managers due to globalisation

Political/economic considerations

top 4 risks-GFCP

Sustainability

Top 4 risks- gov regulation, country financial risks, currency risks, political and social disturbances

• Regions view risks differently eg cyber security is top risk in North America and other places would have other views of this

  Ethnicity and or religious disputes can be driving forces behind political instability

Common law and civil law

Common law: details must be written in the contract to be enforced

Civil law: assumes promises will be enforced without specifying details

Islamic/theocratic law

Largely based on religious doctrines/practices

Mainly in the Middle East

Socio-cultural dimension

definition, key demographic trends

Refers to the demographic characteristics, norms, customs and values of the population within which the organisation operates

Key demographic trends include multiculturalism, ageing population, gen y and gen z as employees have different needs in employment

Organizations need to respond to changes bought about by diversity

Technological dimension

Includes advances in technology and scientific knowledge

Influences various industries eg medical, internet

Technological considerations (4)

The appropriability of technology

Appropriateness of technology for the local environment

Inappropriate use of technology by JVs, franchisees, licensees and employees

The international convention for the protection of industrial property

4 major intellectual properties

PLTD

Patents

Law of copyright

Trademark protection eg logos

Design protection (3 dimensional designs)

E-business

E-commerce

B2B

B2C

E-business: integration of systems, processes, organizations, value chains and entire markets using internet-based and related technologies and concepts

E-commerce: marketing and sales process via the internet

B2B: business to business eg alibaba

B2C: Business to Customer eg amazon

Natural environment (2)

Includes what, pressure to do what

Includes all elements that occur naturally on earth including plants, animals, rocks and natural resources such as air, water and climate

There is more pressure for organisations to operate with sensitivity to the natural environment and more regulations too to promote sustainable operations

International dimension

Refers to events originating in foreign countries and opportunities for local organisations in other countries

Task environment (2)

Definition and examples of what it includes

Layer of external environment that directly influences the organization’s operations and performance

Includes customers, competitors, suppliers, labour market

Customers

Refers to individuals and groups who consumer goods or services produced by organizations

Competitors

Consists of other organisations in the same industry or type of business that provide goods and services to the same set of customers

Suppliers

Individuals or groups who provide goods or services to the organisations

Supply chain

Link between various groups in the production of a good or service is termed a supply chain which is a vital part of organization sucess

Labour market

Definition and the 3 labor market forces

The people available for hire by the organisation

Labour market forces:

• The growing need for computer literate workers

• Continuous investment in human resources

• The effects of international trading blocs, automation and shifting facility locations

Why should we scan the environment around us? (4)

CGII

External environment is constantly changing

Good businesses must adapt to, or try to influence, their environments

To identify opportunities and gain first-mover advantage

To identify impending threats and mitigate against them

Publicity vs advertising

Publicity: uncontrolled and not paid for

Advertising: extremely controlled and paid for

Political risk

Any governmental action or politically motivated event that could adversely affect the long term profitability or value of a firm

Typical political risks (7)

ENTDBID

Expropriation and confiscation (gov seizes assets)

Nationalization (gov nationalizes a specific industry where they take assets and forcing sale to local organisations)

Terrorism

Discriminatory treatment

Barriers to repatriation of funds

Interference in managerial decision making

Dishonesty by government officials

Political risk assessment

Helps companies do what, what are the 2 forms

Helps companies manage exposure to risk and minimize financial loss

2 forms:

• consultation with experts

• development of internal staff capabilities (increasingly common)

Managing political risk (adaptation) (4) EPLD

Equity sharing, joint venture

Participative management (HCNs)

Localization of the operation

Development assistance

Managing political risk (dependency and hedging) (6)

ITEDPL

Input control

Technology control

Expatriate position control

Distribution control

Political risk insurance

Local debt financing

Economic risk

Determined by a country’s ability or intention to meet its financial obligations

Categories of economic risk (3)

LLR

Loss of profitability due to abrupt changes in monetary and fiscal policies

Loss of profitability due to changes in foreign investment policies eg repatriation of profits

Risk of currency exchange rate volatility results in currency translation exposure

Geopolitics

Impact of geography on politics

View that all international relationships are based on the interaction between geography and power