The Strategic
Environment
International Business
Strategy
301LON
Unit: 2 Knowledgecast: 2
Module Learning Outcomes
• Communicate an in-depth understanding of the
complexity of the environment and its applications
on decision-making process
• Assess current developments in the organisational
environment and alternative responses related to
strategy
• Demonstrate the ability to construct and present
quantitative and qualitative data effectively by the
application of IT skills and methodological
techniques
The External Business Environment
Layers of the business environment
•The organisation
•The macro environment
•Industry (or sector)
•Competitors (or market)
The micro
environment
Macroenvironment
“Consists of the forces at work in the
general business environment which will
shape the industries and markets in
which the organisation competes”... “Is
the part of the environment over which
the business can rarely exert any direct
influence but to which it must respond ”
(Stonehouse, Hamill, Campbell and Purdie,
2000: pp 73 and 104).
(far, remote, mediate, general)
Strategic Management
Microenvironment
“Is the competitive environment
facing a business and it consists of
the industries and markets in which
the organisation conducts its
business” (Stonehouse, Hamill,
Campbell and Purdie, 2000: 73).
(near, immediate, competitive, operating)
Strategic Management
The Business Environment
The
Company
Buyer
Substitut
e
Technological
Internal
Political
New
Entrants
Supplier
Economi
c
Competitor
s
Microenvironment
SocioImage Copyright
www.librarian.net/talks/nyl
cultural
ink/nylink
PESTEL Analysis
• Political
• Economic
• Socio-cultural
• Technological
• Environmental
• Legal
PEST Analysis - Political
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Government stability
Taxation, employment and safety law
Social welfare policies
Foreign trade regulations
Relations between government and the
organisation
Government ownership of industry and
attitude to monopolies and competition
policy
‘Green’ issues that affect the environment
Level and type of energy consumed –
renewable energy?
Rubbish, waste and its disposal
PEST Analysis - Economic
• Total GDP and GDP per head growth rates
(trends)
• Inflation
• Consumer expenditure and disposable
income
• Interest rates
• Currency fluctuations and exchange rates
• Investment, by the state, private enterprise
and foreign companies
• Business cycles
• Unemployment
• Energy costs, transport costs,
communications costs, raw materials costs
PEST Analysis - Socio-cultural
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Shifts in values and culture
Change in lifestyle
Consumerism
Attitudes to work and leisure
‘Green’ environmental issues
Education and health
Demographic changes
Distribution of income
Social mobility
PEST Analysis - Technological
• Government and EU investment policy on
research
• Government and industry focus on
technological effort
• New patents and products
• Speed of change and adoption of new
technology
• Rates of obsolescence
• The impact of the Internet
PESTEL Analysis
Environmental
• ‘Green’ issues that affect the environment
• Level and type of energy consumed –
renewable energy?
• Rubbish, waste and its disposal
• Biodiversity
• Green house gas emission
Legal
• Taxation, employment and safety law
• Environmental law
• Emission tax
Industry Life Cycle
M84 Strategic Management
Gerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002
Five Forces Framework
M84 Strategic Management
Gerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002
Five Forces Framework
(cont.)
Threat of new entrants (entry barriers)
Economies of scale
Differentiation
Brand loyalty
Start-up capital requirements
Switching costs
Access to supply and distribution channels
Legislation or government action
Retaliation (e.g. price cuts and advertising
campaigns)
• Entry deterring price
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Five Forces Framework
(cont.)
Determinants of substitution threat
1. Product-for-product substitution (e.g. post mail
and e-mail)
2. Substitution of need (more reliable transports
reducing the need for cars)
3. Generic substitution (disposable income:
boats/homes/furniture/holidays, etc.)
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Relative price/performance of substitutes
Switching costs
Effectiveness in meeting specific customer needs
Willingness of buyers to substitute
Product differentiation
Brand loyalty
Strategic Management
Five Forces Framework
(cont.)
Determinants of supplier power
• Concentration (number and size of the firms)
• Importance of suppliers’ sales that an
industry represents
• Importance of the buyers in the industry as
customers of the suppliers
• Differentiation of the product/service and
alternative sources
• Switching costs
• The threat of backward integration by the
buyer (the company in analysis)
• The threat of forward integration by the
supplier
Five Forces Framework
(cont.)
Determinants of buyer power
• Concentration (number and size of the firms)
• Importance of buyers’ purchases to the total
volume sold by the company
• Differentiation of the product/service and
alternative sources
• Switching costs
• The threat of backward integration by the
buyer (the company in analysis)
• The threat of forward integration of buyers
by the company
• Access to information
Five Forces Framework
(cont.)
Competitive rivalry determinants
Market growth rates (life cycle)
Overcapacity
Fixed costs
Number of competitors in the industry
Similarity of the size and power of the competitors
Differentiation of the products/services provided
(switching costs for buyers)
• Brand loyalty among consumers
• Barriers to exit (fixed costs of exit, emotional
attachment, government restrictions, etc)
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Five Forces Framework
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(cont.)
Key questions arising from the ‘Five Forces’
Framework
What are the key forces at work in the competitive
environment?
What are the underlying forces in the
macroenvironment that are driving competitive
forces?
Is it likely that the forces will change, and if so,
how?
How do particular competitors stand in relation to
these competitive forces?
What can managers do to influence the competitive
forces affecting the company?
Are some industries more attractive than others?
Knowledgecast Summary
• Communicate an in-depth understanding of the complexity
of the environment and its applications on decision-making
process
• Assess current developments in the organisational
environment and alternative responses related to strategy
 How valuable are tools such as PESTEL or Porter’s Five Forces to
businesses?
• Demonstrate the ability to construct and present
quantitative and qualitative data effectively by the
application of IT skills and methodological techniques
 Tools such as these can be used to analyse and present both quantitative
and qualitative data.
Seminar
Whirlpool’s Dramatic Turnaround Through Internationalisation
Read the closing case on page 57 of your required textbook by
Cavusgil, Knight and Reisenberger ‘International Business’ in
preparation for this seminar.
Remember that this is group work were participation is expected.
You are to prepare powerpoint presentation and be ready to present
and answer questions on you analysis.
Individual contributions will be assessed during the seminar session.
Group Activity
Assessment Preparation
This is your first opportunity as a group to read through the major
case
study and the assessment brief (see Unit 5) collectively and highlight
key points.
Discuss as a team;
1. What are the key activities involved in this assessment
2. Who will be responsible for each activity
3. When the activities will need to be completed
4. How you can guarantee SUCCESS (what will success
look/feel/sound like?)
Be prepared to share your plans with your tutor.