CHAPTER 3ANALYZING THE EXTERNAL STRATEGIC ENVIRONMENT

Bess Luker- Mamie Duprie- Alicia Estrada- Taylor Watts- Ryan Dupriest

What will be covered

Globalization Global Trends Risk and Uncertainty Scenario Analysis Business and Society

Globalization

World’s major economics and intensified competition

70-85 % of U.S. Economy Business Growth Flow of Information

Understanding Globalization

Focus on the trade and regard the free flow of capital

Political Globalization Economic Globalization Technological Globalization Psychological Globalization

Regionalism: A Stepping Stone on the path Toward a global Economy

Globalization a work in progress Triad EU NAFTA ASEAN EUROMED APEC Mercosur

New Powerhouses: India and China India: Investment is growing, foreign capital and

technology are coming in, Western-style competition is taking hold, and state intervention is diminishing.

China: has combined inexpensive labor with technology to create a major, global competitive advantage.

A key challenge for Western companies doing business in China is that the government still controls many aspects of the business environment.

Global Tectonics and Their Strategic Implications

The maturity of many Western markets has forced firms to expand beyond the confines of the developed world into areas with greater potential that carry a level of risk far greater than that to which they are accustomed.]

Greater participation means more growth.

Global Tectonics

Describes the process by which developing trends in technology, nature, and society slowly revolutionize the business environment, much like Earth’s tectonic plates shift the ground beneath our feet.

Environmental tectonics Technological tectonics Societal tectonics

12 Global Trends

Present the most significant challenges for companies in the next 30 years.

1. Population Trends2. Urbanization3. The spread of infectious Diseases4. Resource management5. Environmental degradation6. Economic integration7. Knowledge dissemination8. Information technology9. Biotechnology10. Nanotechnology11. Conflict12. Governance

1. Population Trends

Population is rising Highest in areas not capable Aging of population Women in the workforce

2. Urbanization

Migration from rural to urban areas( less than half of population lives in cities)

Mega cities will become common

3. The Spread of Infectious disease Greater levels of migration = greater

likelihood of epidemics. Impact on economic growth

4. Resource management

Access to fresh water is a key concern. Possibility of future conflicts over water

resources. Energy availability is a ongoing concern

Wind Farms

5. Environmental degradation Effects on ecosystems

Droughts Water pollution Deforestation Erosion Kyoto Treaty- reduce greenhouse gas and

gas emissions world wide.

6. Economic integration

Cross-boarder economic activity Airbus Consortium

Britain Germany Spain France

Multinational Corporations (MNC’s) Some industries are more regulated than

others Steal Industry Telecommunications

7. Knowledge Dissemination

Emergence of a global economy Internet economy Smart products

8. Information Technology

Internet Ex. Yamaha-Motor’s online dealer

management system Intranet Quality of people’s lives

9. Biotechnology

Greatest potential in three areas Medicine Agriculture Environment

Long run

10. Nanotechnology

One atom at a time Molecular manufacturing

11. Conflict

Berlin Wall Terrorism ex. 9/11 Companies must develop security

standards

12. Governance

Two interrelated sets of laws Rule of law Ex. 2009 Lead law banning sale of motorcycles

for children Market defines the second set of laws

Dimensions: Management structures Business culture Cross-border investment Global investors

A Global Knowledge Economy- Strategic Implications

1. Laws of abundance2. Location is diminished3. National laws, barriers, and taxes4. Knowledge-enhanced products and or

services1. ex. Yamaha’s EFI and ATV power steering

5. Higher Inherent value6. Human capital

Risk and Uncertainty

Predictability Certainty Risk Uncertainty

Scenario Analysis

One of the most widely used techniques A disciplined method Two categories

Things we believe we know something about Elements we consider uncertain or unknowable

The objective The scenario-building process

Decide Identify Construct Generate

The Global Scenario Group

Three fundamentally different social visions of the future Conventional worlds Barbarization Great transitions

Conventional Worlds

Envision the global system evolving without major surprises

World economy grows rapidly and developing countries

Scenario 1: incorporate mid-range population & development projects typical technology change assumption

Scenario 2: Adds strong, comprehensive and coordinated government action

Barbarization

Envision the grim possibility that the social, economic, and moral underpinning of civilization deteriorate

Scenario 3: Crises combine and spin out of control

Scenario 4: features and authoritarian response to threat of breakdown

Great Transitions

Explore visionary solutions to sustainability challenge

Scenario 5: Incorporates the green vision Scenario 6: Shares some of the goals of

scenario 5 but seeks to change the character

Compact Between Business and Society

“Business as usual” might no longer be and option and traditional strategies change

Size means scrutiny- the larger the company is the more exemplary performance in ethical behavior, employee practices etc

Cutting costs raises compliance risk- the more a company cuts cost the more potential for noncompliant ethical practice

Compact Between Business and Social Continue

Strategy must involve society- forward thinking companies have to think about social and environmental problems

Reducing risks means building trust- classic risk managements also expands events arising in society

Satisfying shareholders means satisfying stakeholders- Company pays attention to business- society relationships

Compact Between Business and Social Continue

Global growth requires global gains- global perspective recognizes strong communities

Productivity requires sustainability- environmental management, safety, etc.

Differentiation relies on reputation- United States 50 million people $225 billion large influence

Good governance needs good representation-corporate scandals generating strict controls