Global Business Environment - Arkansas State University

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
cultural
face”

Nature and Scope of Environment
External
Macro
environment
Demographic
Political
Economic
Legal
Social
Technological
International
Specific task
Environment
Clients
Customers
Owners
Share holders
Competitors
Suppliers
Regulators
Market forces
Internal
Micro
Board of
directors
Employees
Culture
Values
Work ethos
Processes &
systems

Organization and its environment
Technological
Competitors
Social-culture
Economics
Suppliers
Internal Environment
Board of Directors
Employees
Processes
Culture
Climate
Clients
International
Regulators
Labor
Task Environment
Political-Legal
Business Environment

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
IBM
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
HUMAN RESOURCE
Treat employees well
No layoff policy potential
Unions College
graduates
S0CIO-
CULTURAL
Computer use in
schools at all
levels.
Inexperienced
computer
laypeople
Computer piracy
and fraud New
computer
applications.
Home and family
use, computer
games
LEGAL/POLITICAL
Steps to regulate software information
Privacy laws. Potential antitrust suit
Protectionist legislation in other
countries New tax laws
INTERNATIONAL
Sell products in 130 countries Hire
nationals in host countries. Buy machine
parts from foreign suppliers 40% of
revenues from foreign sales

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 – country’s s 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
Investment
– New equipment
– Inventory
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)

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 environment’s s 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
Least
uncertainty
Most
uncertainty
DEGREE OF CHANGE
Moderate
uncertainty
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)
The
Organization
Market Power (suppliers)

Organization’s s Response to Environment
Boundary spanning response
Forecasting
Strategic responses
Mergers, acquisitions and joint ventures
Change of structures
System integration

Boundary Spanning Response 1
(a)
(b)
Organization reaction based on mgt of info
A popular mgt info technique is called boundary
spanning response
Roles performed by PRO’s, , sales representatives &
procurement agents/officers
Close contact required to be maintained by all, outside
serves 2 purposes
Seek & process info about changes in environment
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
Labor force
Consumers
Evaluation criteria
Price appreciation of
securities
Dividend payout
Wage levels
Opportunity
Employment stability
Value given

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
objectives-strategies-structure-systemsystem

The Firm as a System
competitors
community
suppliers
finance
The Firm
Production
Marketing
creditors
labor
Facilitating services
nation
consumers
shareholders

Assignment
In what ways are the major dimensions in the
external environment changing in today’s 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”.
☺