The aggregrate of all conditions, events and influences that surround and affect business(David Keith)
International Business Environment
-Economic
-Political
-Legal
-Financial
-Technological
-Socio-Cultural
-Demographic
-Natural
Prospects of a business depend not only on the resources but also on the environment.Hence an analysis of the environment is required for policy formulation and strategy formulation.
Every business enterprise consists of a set of internal factors and ios confronted with a set of external factors.The internal factors are generally regarded as controllable,while the external factors are by and large beyond the control of the business.As environmental/external factors are beyond the control of a firm,its success depends to a large extent on the adaptability to the environment.( i.e its ability to design and adjust the internal controllable variables to take advantage of the opportunities and combat the threats in the environment.)
Thus the business environment comprises of both a micro and a macro environment.The former consists of actors in the immediate environment that affect the performance of the firm, such as suppliers,competitors, marketing intermediaries,customers etc. The macro environment consists of larger societal forces that affect the actors in the company's micro environment, such as demographic, economic, natural, legal, technical, political and cultural forces.
(for detailed understanding look up Francis Cherunilam/Aswathappa- International Business Environment)
Environmental analysis is defined as "the process by which strategists monitor the economic, governmental, legal, market,competitive, supplier, technological,geographical and social settings to determine opportunities and threats to the firm."
TOOLS:
PEST
PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT;inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK.The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.
Political Factors.
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government’s position on marketing ethics?
4. What is the government’s policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
Economic Factors.
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.
Sociocultural Factors.
The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
Technological Factors.
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?
SWOT
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.
The SWOT analysis provides information that is helpful in matching the firm’s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.
The SWOT Matrix
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm’s strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:
SWOT Analysis Framework
Environmental Scan
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Internal Analysis External Analysis
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Strengths Weaknesses Opportunities Threats
SWOT Matrix
Strengths:
A firm’s strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:
patents,strong brand names ,good reputation among customers ,cost advantages from proprietary know-how ,exclusive access to high grade natural resources,favorable access to distribution networks.
Weaknesses:
The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:lack of patent protection ,
a weak brand name ,poor reputation among customers ,high cost structure ,
lack of access to the best natural resources ,lack of access to key distribution channels .
In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.
Opportunities:
The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:an unfulfilled customer need ,arrival of new technologies ,loosening of regulations ,removal of international trade barriers
Threats:
Changes in the external environmental also may present threats to the firm. Some examples of such threats include:shifts in consumer tastes away from the firm’s products ,emergence of substitute products ,new regulations ,increased trade barriers
SWOT / TOWS Matrix
Strengths Weaknesses
Opportunities S-O strategies W-O strategies
Threats S-T strategies W-T strategies
S-O strategies pursue opportunities that are a good fit to the company’s strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
W-T strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats.
1.Why couldn't Chevy sell the Nova in Spanish countries ?
2.Analyze the current business environment of India.
Ref: Francis Cherunilam, Aswathappa
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