MG4031 Management Principles: The Global Business Environment PDF

MG4031 Management Principles The Global Business Environment Reading: Chapter 3 Modern Management, pages 81-123  Learning Objectives To understand the terms global external business environment and globalisation and their impact on an organisation To understand...

MG4031 Management Principles The Global Business Environment Reading: Chapter 3 Modern Management, pages 81-123  Learning Objectives To understand the terms global external business environment and globalisation and their impact on an organisation To understand global trade, regional trading alliances and their role in competition To appreciate the shifting balance in global economic power and the role played by the BRIC nations (Brazil, Russia, India, China & South Africa) To model that factors in the global macro environment (political/legal, economic, technological and socio-ethical contexts) To model the elements of the immediate competitive environment (Competitors, Suppliers, Customers, New Entrants and Substitutes)  Understanding the Global Business Environment Contains all contingent factors relevant to the organisation which lie outside its formal boundary Essentially uncontrollable but this cannot be used as an excuse for poor performance Organisations, through environmental scanning have to manage and anticipate developments in their environment to survive  Environmental Scanning Environmental scanning is a process that systematically surveys and interprets relevant data to identify external opportunities and threats that impact future decisions Components of external scanning include: Trends: What trends are occurring in the marketplace or industry that could affect the organization either positively or negatively? Competition: What is the competition doing that provides them an advantage? Where can the organisation exploit the competition's weaknesses? Technology: What developments in technology may impact the organisation in the future? Are there new technologies that can make the organization more efficient? Customers: How is the customer base changing? What is impacting the organisation’s ability to provide top-notch customer service? Labour Supply: What is the labour market like in the locations where the organisation operates? How can it ensure ready access to talent?  Globalisation Globalisation, arising from Movement and Change, refers to the increasing and deepening interactions and connections between individuals, groups and organisations across the world. Thomas Friedman has described the world as ‘a single globalised marketplace driven by the spread of free market capitalism to virtually every country in the world’  Globalisation The world is undergoing changes in the global economic order, which are as significant for the world economy and international relations since end of the Cold War in the mid-1980s There are huge opportunities, but these are accompanied by threats and risks for organisations, along with pressures on natural resources, climate, and on traditional industries and livelihoods Currently in an era of more polarised political discourse, with rising populism and nationalism, conflict, and debates about emerging de-globalisation  Regional Trading Alliances Global competition is shaped by regional trading alliances, which are largely driven by geographical location The main trading blocks and regional trading agreements include the enlarged European Union, North American Free Trade Agreement, Mercosur, and the Association of Southeast Asian Nations Other trading blocs in different parts of the world, including CARICOM and African Continent Free Trade Agreement in Africa  The Emerging BRIC Economies The term ‘BRIC’ refers to the four large emerging economies of Brazil, Russia, India and China, later joined by South Africa in 2010 to form the BRICS The population size of these, coupled with their economic potential, mark them out as different from other emerging economies Collectively the four BRICs are home to more than 2.8 billion people or 40% of the world’s population, cover more than a quarter of the world’s land area over three continents, and account for more than 25 per cent of global GDP  Entering the Global Business Environment: Understanding Cultural Differences Culture refers to the enduring belief system and its consequences for the creation of patters of similarity and differences between nation states. Culture defined as “ a system of values and norms that are shared among a group of people and that when taken together constitute a particular design for living” Because it effects the way things are done and how they are their legitimacy in a society, many have sought to classify differences in culture and the way it shapes management practices and approaches in different countries. Entering the Global Business Environment: Understanding Cultural Differences Entering the Global Business Environment: Location Timing and Entry Mode The analysis of country cultures and their contours demonstrates that international expansion is far more complex than simply replicating an existing indigenous or national strategy and enlarging an existing structure The decision to enter the global business environment and expand abroad will typically be either “proactive” or “reactive”  Entering the Global Business Environment: Location Timing and Entry Mode When considering whether to expand abroad, the organisation is typically faced with three major decisions rooted within an understanding of the global macroenvironment and the competitive environment Location Where Timing When Entry How to go to go Mode to go The Global Macro and The Competitive Environment  1. The Political-Legal Context Shaped by the activities of governments at national & international levels Types of government – representative democracy V totalitarian On a national level governments effect business through policies on industry / services development, tax incentives & expansion schemes Internationally – international trade policies & deregulation / liberalisation 1. The Political-Legal Context There are three main types of legal system commonly in use: Common law system: an independent judiciary is the basis of law, which relies on case precedents Civil law: relies on a legal code that is applied universally Theocratic law: based on an accepted religious code  2. The Economic Context Shaped by The general state of individual economies- boom or recession Economic policies pursued by governments impacting areas like inflation, wages & interest rates Position of economies relative to main trading partners  3. The Technological Context Effects organisations in at least 3 ways Creates new products & services Creates new Production techniques Creates new ways of communicating & managing information and knowledge flow EXAMPLE: E-business defined as the interchange of goods, services or property of any kind through an electronic medium 4. The Social-Ethical Context Concerned with demographics, and attitudes and behaviour of members of society They effect business in terms of consumers and also employees Attitudes & behaviour e.g. more supportive policies regarding parental leave, flexible working hours and childcare Other major changes have included more environmental awareness & health awareness Ethics and Corporate Social Responsibility 18 The Global Macro and The Competitive Environment  The Competitive Environment Unless operating in a monopoly situation, organisations will face competition and to remain competitive they must develop a sustainable source of competitive advantage typically through pursuing one of three major strategies: Cost Leadership Strategy: Firms attempt to create low-cost structures to be price competitive Differentiation Strategy: Firms attempt to differentiate their product or service by by offering superior quality Focus Strategy: Firms attempt to target specific niche market to develop a competitive advantage What Forces Shape the Competitive Environment  Summary An organisation must be able to manage the external environment because they exist within an open system and must deal with contingent influences on the business The system comprises: Broad Macro Global Environmental Influences (Political/Legal, Economic, Technological & Socio-Ethical characteristics) Immediate Competitive Environmental Influences comprising forces shaping competitive dynamics and the strategy pursued (Cost Leadership; Differentiation; Focus) Thank you