Introduction to the Business Environments PDF

Introduction to the Business Environments  Introduction to the Business Environments Content Part A: Navigating Diverse Environments (using PESTEL) 1.1 Economic Environment 1.1.1 Absolute Advantage: The Superstar of...

Introduction to the Business Environments  Introduction to the Business Environments Content Part A: Navigating Diverse Environments (using PESTEL) 1.1 Economic Environment 1.1.1 Absolute Advantage: The Superstar of Production 1.1.2 Comparative Advantage: The Power of Specialisation 1.1.3 Factor Endowment Theory: Beyond Labour 1.1.4 New Trade Theory: Economies of Scale and Imperfect Competition 1.1.5 Attaining and Maintaining Competitive Advantage in International Trade: The Strategic Imperative 1.1.6 Porter's Diamond Model: 1.1.7 Porter's Diamond of National Competitive Advantage: Unlocking a Nation's Winning Formula 1.1.7.1 Factor Conditions: The Building Blocks of Competitiveness 1.1.7.2 Demand Conditions: The Fuel for Innovation 1.1.7.3. Related and Supporting Industries: The Cluster Effect 1.1.7.4. Firm Strategy, Structure, and Rivalry: The Crucible of Competition 1.1.7.5 External Variables: Government and Uncertainty Types of Economic Systems 1.1.8.1 Capitalist or Market Economies: The Invisible Hand at Work: 1.1.8.2 Mixed Economies: Balancing Market Forces and Government Intervention: 1.1.8.3 Traditional Economies: The Persistence of Cultural and Religious Norms 1.1.9 Population Dynamics: The Shifting Sands of Economic Potential 1.9.1 Key Implications for Businesses 1.2 Political and Legal Environment: Insights from Nigeria 1.2.1 The Political Landscape 1.2.2 Political Parties and Ideologies: © Copyright 2024 MIVA Open University All Rights Reserved  Introduction to the Business Environments 1.2.3 Stability and Risk: 1.2.4 Navigating the Political Landscape 1.2.4.1 Political Stability and Governance 1.2.4.2 Regulatory and Policy Frameworks 1.3 Social Environment 1.3.1 Demographics and Consumer Behaviour 1.3.2 Changing Family Structures and Gender Roles 1.3.3 Social Media and Digital Influence 1.3.4 Corporate Social Responsibility and Sustainability 1.3.4.1 Key Takeaways for Businesses 1.4 Technological Environment 1.4.1 Innovation within the environment 1.4.1.2 Factors Influencing Diffusion The Rise of Mobile Money in Africa 1.4.2 The Disruptive Impact of Technology: Creative Destruction at Play 1.4.3 The Importance of Technological Adaptability 1.4.4 Digital Transformation and Industry 4.0 1.4.4.1 E-commerce and Online Marketplaces 1.4.4.2 Mobile Technology and App Development 1.4.4.3 Cloud Computing and Data Analytics 1.4.4.4 Cybersecurity and Data Privacy 1.5 Environmental Environment 1.5.1 Climate Change and Carbon Footprint 1.5.2 Resource Scarcity and Waste Management 1.5.3 Biodiversity and Ecosystem Services 1.5.4 Environmental Regulations and Compliance 1.6 Revisiting the PESTEL Framework: A Comprehensive Lens 1.6.1 Critique of PESTLE Model © Copyright 2024 MIVA Open University All Rights Reserved  Introduction to the Business Environments Part B: Dynamic Landscape 2.1 Unique Host Country Challenges:  2.1.1 Infrastructure Limitations 2.1.2. Ease of Doing Business Table 3: Ease of doing Business Ranking: 2.1.3 Access to Capital 2.1.4 Navigating Bureaucracy 2.1.5 Security Concerns 2.2 Emerging Opportunities: Market size, youthful population, sectors with growth potential (agriculture, technology), and government initiatives to support entrepreneurship. 2.2.1 Market Size 2.2.2 Youthful Population 2.2.3 Sectors with Growth Potential 2.2.4 Government Initiatives to Support Entrepreneurship 2.3 Strategic Responses: Examples of Nigerian companies adapting to the environment, leveraging opportunities, and mitigating risks. 2.3.1 Local Product Development and Adaptation 2.3.2 Localised Marketing and Distribution 2.3.3 Strategic Partnerships and Collaborations 2.3.4 Inclusive Business Models and Social Impact 2.3.5 Risk Management and Resilience Building 2.3.5.1 Key Implications for Nigerian Businesses © Copyright 2024 MIVA Open University All Rights Reserved  Introduction to the Business Environments Part C : Institutions and Business 3.1 Institutions: Define formal institutions (laws, regulations, government agencies) and informal institutions (norms, cultural values, social networks). 3.2 Why Institutions Matter for Businesses 3.3 Formal Institutions: 3.3.1 Regulatory Bodies: The Gatekeepers of Business’s License to produce 3.3.2 Legal System: The Rule of Law 3.4 Informal Institutions: The Role of Social Networks and Trust 3.4.1 The Importance of Relationships and Trust 3.5 Ethical Considerations: Doing Well by Doing Good 3.6 Integrative Social Contracts Theory (ISCT) 3.6.1 Applying ISCT to Global Business Challenges 3.6.2 Stakeholder Theory: A Moral Compass for Business 3.6.3 Key Stakeholders for EMNCs: 3.6.4 Ethical Considerations through a Stakeholder Lens: 3.6.5 Benefits of Adopting a Stakeholder Approach Summary References © Copyright 2024 MIVA Open University All Rights Reserved  PART A Navigating Diverse Environments (using PESTEL) © Copyright 2024 MIVA Open University All Rights Reserved  Introduction to the Business Environments Part A Navigating Diverse Environments (using PESTEL) Globalisation: The World is Flat (ish) Figure A-1 : Nigerian AgriBusiness CEO Imagine you are the CEO of a Nigerian agribusiness that exports cocoa beans to Europe. To succeed, you must navigate a complex web of factors, including global commodity prices (economic), government export policies (political), changing consumer preferences for fair trade and organic products (social), new technologies for crop management (technological), climate change impacts on cocoa production (environmental), and international trade regulations (legal). Understanding how these elements interact and influence your business is critical for making informed strategic decisions and ensuring long-term success. Figure A-2 : © Copyright 2024 MIVA Open University All Rights Reserved 07  Introduction to the Business Environments Study Sessions Focus This session will provide an overview of the key elements of the business environment and begin to explore their practical implications for businesses. We will also introduce the crucial role of institutions—both formal and informal – in shaping permissible or accepted business conduct in the Nigerian context. Using the PESTLE model, which categorises types of environmental influence political, economic, socio-cultural, technological, Legal and ethical. 1.1 Economic Environment The economic environment comprises all factors influencing the production, distribution, and consumption of goods and services within an economy. Understanding this environment and the inherent factors that contribute towards business survival is crucial for both businesses and their leaders to be well versed in, as it directly affects their costs, profitability, and overall decision-making. Impact of the business upon Economy the economy Structural changes Finance Activities of business International competition make up GDP Price of materials and labour Impact of the Business economy upon business Figure 1.1-1 :Business and the Economy Understanding the economic landscape requires a grasp of the different systems that shape the way resources are allocated, goods and services are produced, and wealth is distributed. While pure economic systems, as described in post-World War II literature, have largely given way to more nuanced and convergent approaches, the core principles of these systems still influence the economic thinking of regions and the business practices that emerge. One fundamental concept within economics that helps explain global trade patterns are trade theories of advantage. These inform our understanding of how countries are able to benefit from domestic advantages © Copyright 2024 MIVA Open University All Rights Reserved 08  Introduction to the Business Environments 1.1.1 Absolute Advantage: The Superstar of Production Think of absolute advantage as being the star athlete on the field. You can run faster, jump higher, and throw farther than anyone else.  Figure 1.1.1-2: Superstar of Production In economic terms, a country has an absolute advantage in producing a good or service if it can produce more of it using the same amount of resources, or the same amount using fewer resources, compared to another country Adam Smith, the father of modern economics, introduced the concept of absolute advantage in his seminal work, "The Wealth of Nations" (1776). A country has an absolute advantage in producing a good or service if it can produce more of it using the same amount of resources, or the same amount using fewer resources, compared to another country. Consider the production of crude oil. Saudi Arabia, with its vast oil reserves and advanced extraction technologies, can produce significantly more oil with the same amount of labour and capital as a country like Nigeria. This means Saudi Arabia has an absolute advantage in oil production. Companies based in countries with an absolute advantage in a particular industry may find it easier to compete globally due to their lower production costs. However, this doesn't mean that countries without absolute advantages cannot participate in international trade. © Copyright 2024 MIVA Open University All Rights Reserved 09  Introduction to the Business Environments 1.1.2 Comparative Advantage: The Power of Specialisation David Ricardo, another influential economist, expanded on Smith's theory by introducing the concept of comparative advantage. A country has a comparative advantage in producing a good if it can produce it at a lower opportunity cost than another country. Opportunity Cost: The Trade-Offs We Make The opportunity cost of producing a good is the value of the next best alternative that must be forgone to produce that good. For instance, if Nigeria allocates resources to oil production, the opportunity cost is the potential output of other goods or services, such as agricultural products or manufactured goods, that could have been produced with those same resources. While Saudi Arabia may have an absolute advantage in producing both oil and textiles, it might be more efficient for them to focus on oil production, where their advantage is even greater, and import textiles from a country like Bangladesh, which has a comparative advantage in textile production due to lower labour costs. Understanding comparative advantage is crucial for businesses to identify their core competencies and focus on areas where they have a relative advantage. This can lead to specialisation, increased efficiency, and mutually beneficial trade relationships. 1.1.3 Factor Endowment Theory: Beyond Labour The Heckscher-Ohlin model, developed by Eli Heckscher and Bertil Ohlin, further refines the concept of comparative advantage by considering the role of factor endowments. This theory posits that...... a country will export goods that intensively use its abundant factors of production and import goods that intensively use its scarce factors. For example, In a country like China, with a large labour force, may have a comparative advantage in producing labour-intensive goods like textiles and footwear. Conversely, a country like Germany, with abundant capital and advanced technology, might specialise in producing capital-intensive goods like machinery and automobiles. Understanding factor endowments can help businesses identify potential export markets and optimise their production processes by leveraging their country's abundant resources. © Copyright 2024 MIVA Open University All Rights Reserved 10  Introduction to the Business Environments 1.1.4 New Trade Theory: Economies of Scale and Imperfect Competition New trade theory, pioneered by economists like Paul Krugman, challenges some assumptions of traditional trade models. It emphasises the role of economies of scale (reduced costs with increased production), product differentiation, and imperfect competition in international trade. Examples Economies of Scale: The aircraft manufacturing industry is characterised by high fixed costs and significant economies of scale. This explains why only a few major players, like Boeing and Airbus, dominate the global market Product Differentiation: The automobile industry is a prime example of product differentiation. Different countries specialise in different types of cars (e.g., German luxury cars, Japanese fuel- efficient cars), catering to diverse consumer preferences. In industries with economies of scale or product differentiation, companies can gain a competitive advantage by focusing on niche markets, building strong brands, and investing in innovation. 1.1.5 Attaining and Maintaining Competitive Advantage in International Trade: The Strategic Imperative To thrive in the global marketplace, countries and firms must not only understand the theoretical underpinnings of trade but also develop strategies to achieve and sustain a competitive advantage. Michael Porter's Diamond Model provides a valuable framework for analysing the determinants of national competitive advantage. 1.1.6 Porter's Diamond Model 01 02 03 04 Factor Conditions: Demand Conditions: Related and Firm Strategy, Supporting Industries: Structure, and Rivalry: The nation's The nature of domestic resources, including demand, including The presence of strong The conditions natural resources, customer sophistication supplier industries and governing how skilled labour, and expectations. related industries that companies are created, infrastructure, and can provide inputs and organised, and knowledge base. foster innovation. managed, as well as the nature of domestic rivalry. Figure 1.1.6-1: Porter's Diamond Model © Copyright 2024 MIVA Open University All Rights Reserved 11  Introduction to the Business Environments By analysing these four factors, companies can identify their strengths and weaknesses and develop strategies to leverage their competitive advantage in the global market. For example, a Nigerian company with strong technological capabilities and a growing domestic market might focus on developing innovative products for export.1.1.7 Porter's Diamond of National Competitive Advantage: Unlocking a Nation's Winning Formula Imagine a diamond—a precious gem, multifaceted, and radiating brilliance. This is how Michael Porter, a renowned Harvard Business School professor, envisioned the factors that contribute to a nation's competitive advantage in a particular industry. Like the facets of a diamond, these factors are interconnected and mutually reinforcing, creating a unique environment where businesses can thrive and compete on the global stage. Porter's Diamond is not just a theoretical model; it's a practical framework that can help businesses understand why certain industries in specific countries are globally competitive. It emphasises the importance of the national environment in shaping the competitive capabilities of firms. By analysing the four determinants of the diamond, businesses can gain insights into the factors that drive innovation, productivity, and ultimately, competitive advantage. Porter Diamond Porter Diamond is an economic model that discusses the factors giving a business an edge over its competitors in a particular region. Firm Strategy, Structure, and Rivalry Factor Competitive Demand Conditions Conditions Advantage Related and Supporting Industries Figure 1.1.6-1: Porter's Diamond © Copyright 2024 MIVA Open University All Rights Reserved 12  Introduction to the Business Environments Factor conditions refer to the nation's position in factors of production, which are the resources necessary to compete in a given industry. These can be categorised into Basic Factors: These are naturally occurring resources, such as land, climate, location, and basic labour. While important, they are often less critical for sustained competitive advantage as they can be easily replicated by other countries Advanced Factors: These are created or developed over time and are more specialised. They include: 1.1.7.1 Factor Conditions: The Building Blocks of Competitiveness Factor conditions refer to the nation's position in factors of production, such as: Human Resources: The quantity, skills, and cost of labour Physical Resources: The availability and cost of land, water, minerals, and other natural resources Knowledge Resources: The nation's scientific and technological knowledge base, including universities, research institutions, and patents Capital Resources: The availability and cost of financial capital Infrastructure: The quality of roads, ports, airports, telecommunications, and other essential infrastructure Singapore: This island nation lacks natural resources but has invested heavily in education and infrastructure, creating a highly skilled workforce and a world-class business environment. As a result, Singapore has become a global hub for finance, logistics, and technology. © Copyright 2024 MIVA Open University All Rights Reserved 13  Introduction to the Business Environments Figure 1.1.7.1-2: Syngapore Finland: Known for its strong education system and commitment to research and development, Finland has produced world-leading companies in sectors like telecommunications (Nokia) and gaming (Rovio, the creator of Angry Birds). Figure 1.1.7.1-3: Angry Bird Businesses should carefully assess the factors in their home country and identify areas where they can leverage their existing strengths or invest in developing new capabilities. This could involve partnering with universities and research institutions, investing in employee training programs, or advocating for government policies that support infrastructure development. © Copyright 2024 MIVA Open University All Rights Reserved 14  Introduction to the Business Environments 1.1.7.2 Demand Conditions: The Fuel for Innovation Demand conditions refer to the nature of home-market demand for an industry's products or services. Demanding and sophisticated customers can push companies to innovate and improve quality, creating a competitive advantage Sophistication: Consumers with high expectations for quality, design, and functionality can drive companies to strive for excellence Market Size: A large and growing domestic market can provide economies of scale and a testing ground for new products and services Early Adoption: Early adopters in the domestic market can provide valuable feedback and help companies refine their products before launching them internationally. Japanese consumers are known for their high expectations for quality and innovation in electronics. This demanding domestic market has driven Japanese companies like Sony and Panasonic to constantly develop cutting-edge products, giving them a global competitive edge. Businesses should actively engage with their domestic customers, gather feedback, and use that information to drive product development and marketing strategies. By understanding the needs and preferences of their home market, companies can gain valuable insights that can be applied in international markets. 1.1.7.3. Related and Supporting Industries: The Cluster Effect The presence of strong, internationally competitive supplier industries and related industries can create a cluster effect, fostering innovation and efficiency. Close proximity and collaboration between firms in a cluster can lead to knowledge spillovers, shared resources, and a deeper understanding of customer needs. Italy's fashion industry is renowned for its world-class designers, but it's also supported by a network of textile manufacturers, leather producers, and accessory makers. This cluster of related industries creates a fertile environment for innovation and collaboration, contributing to Italy's global dominance in fashion. Silicon Valley: The concentration of tech companies, research institutions, venture capital firms, and universities in Silicon Valley has created a powerful cluster that drives innovation and entrepreneurship in the technology sector. © Copyright 2024 MIVA Open University All Rights Reserved 15  Introduction to the Business Environments Businesses can benefit from locating in or near clusters of related and supporting industries. This can facilitate access to suppliers, talent, and knowledge, while also fostering a culture of innovation and competition. 1.1.7.4. Firm Strategy, Structure, and Rivalry: The Crucible of Competition The conditions governing how companies are created, organised, and managed, as well as the nature of domestic rivalry, play a crucial role in shaping their competitiveness. Intense domestic rivalry can push firms to innovate, improve efficiency, and seek out new markets. Firm Strategy: Structure: Rivalry: The way a company The organisational The intensity of positions itself in the structure of a company, competition in the market, differentiates its including its hierarchy, domestic market, which products, and creates value decision-making can drive innovation, for its customers. processes, and efficiency, and the pursuit communication channels. of new markets. Figure 1.1.7.4-1: New Market The U.S. Tech Industry The fierce competition between tech giants like Apple, Google, and Microsoft has driven innovation and pushed the boundaries of what's possible. This competitive environment has also forced companies to be more customer-centric and to constantly strive for excellence. Companies should thus embrace competition as a catalyst for growth and innovation. By learning from their rivals, adapting to changing market conditions, and investing in their unique strengths, businesses can thrive in a competitive environment. © Copyright 2024 MIVA Open University All Rights Reserved 16  Introduction to the Business Environments 1.1.7.5 External Variables: Government and Uncertainty While the four determinants of the diamond are internal to a nation, two external factors also play a role: Government: Government policies can significantly impact the business environment, either fostering or hindering competitiveness. Supportive policies in areas like education, infrastructure, research and development, and intellectual property protection can create fertile ground for businesses to thrive. Uncertainty: Unforeseen events, such as technological breakthroughs, natural disasters, or political upheavals, can disrupt industries and create new opportunities or threats. Companies need to be agile and adaptable to respond to these unexpected challenges. The Rise of Silicon Valley The emergence of Silicon Valley as a global tech hub can be attributed to a combination of factors, including a supportive government, a culture of innovation, and a critical mass of talented entrepreneurs. However, chance events, such as the development of the microprocessor and the rise of the personal computer, also played a significant role in its success. Porter's Diamond Model provides a comprehensive framework for understanding the complex interplay of factors that contribute to a nation's competitive advantage in a particular industry. By analysing these factors, businesses can gain valuable insights into how to leverage their strengths, mitigate their weaknesses, and adapt to the ever-changing global business landscape. Figure 1.1.7.5-1: Economic systems Economic systems serve as blueprints for a nation's growth path and prosperity ambitions © Copyright 2024 MIVA Open University All Rights Reserved 17  Introduction to the Business Environments They determine who owns and controls resources, how goods and services are produced and distributed, and ultimately, how wealth is generated and shared within a society. While the world has moved away from the rigid ideological models of pure capitalism or communism that dominated the post-World War II era, the underlying principles of these systems continue to shape economic policies and business practices around the globe.1.1.7.5 A below provides a comprehensive overview of the major economic systems, highlighting their key features, strengths, weaknesses, and real-world examples. As you explore this table, consider the following questions What are the trade-offs inherent in each system How do different economic systems impact business opportunities and challenges What role does government play in each system, and how does this affect the business environment How do cultural values and social norms influence economic decision-making in different societies? Figure 1.1.7.5-2: © Copyright 2024 MIVA Open University All Rights Reserved 18  Introduction to the Business Environments Economic Relevance to System Key Features Strengths Weaknesses Examples Business Leaders Market Private Innovation, Income inequality, United States, Understanding Economy ownership of efficiency, potential for Hong Kong, market forces, (Capitalism) resources; consumer choice, market failures Singapore competition, prices economic growth (monopolies, consumer determined by externalities), behaviour, and supply and economic the importance demand; minimal instability of innovation government (recessions, and efficiency. intervention booms) Command State ownership Reduced Lack of incentives North Korea, Understanding Economy of resources; inequality, for innovation and Cuba, the risks and (Communis central planning potential for rapid efficiency, limited (historically) limitations of m Soialism) / by the mobilisation of consumer choice, Soviet Union government government; resources for potential for control, the prices set by the large-scale shortages and importance of state projects surpluses incentives, and the potential for political instability. Mixed Combination of Balances market Potential for Most countries Understanding Economy market and efficiency with inefficiency and today (e.g., the role of command social welfare; bureaucracy; Nigeria, China, government policy elements; addresses market difficulty in finding Germany, Brazil) in shaping the government failures; provides the right balance business intervention in public goods between market environment, key areas (e.g., and government navigating healthcare, intervention regulations, and education, identifying infrastructure) opportunities for public-private partnerships. Traditional Economic Social stability, Limited economic Many Understanding Economy decisions based sustainability, growth, resistance indigenous the importance of on customs, emphasis on to change, communities in cultural context traditions, and community and vulnerability to Africa and South and social values beliefs; often family external shocks America in business, found in rural or identifying less developed opportunities in communities niche markets, and respecting traditional practices in community engagement. Table 11..7- 1 Global Economic Systems © Copyright 2024 MIVA Open University All Rights Reserved 19  Introduction to the Business Environments 1.1.8.1 Capitalist or Market Economies: The Invisible Hand at Work At the opposite end of the compass, command economies place the state at the helm of all economic activity. The means of production and distribution are owned by the government, which also has a central organisation in charge of general economic planning. Under such systems, the state sets the rules for what is produced, how, and when, frequently putting big projects or military strength ahead of the needs and preferences of the populace on a day-to-day basis. Pre-1991 USSR, with its state-controlled industry and centralised planning, was a model of a command economy. These days, only a few countries—like North Korea and Cuba—achieve this goal of a "pure" command economy, acting as cautionary tales about the drawbacks and difficulties of such a system. 1.1.8.2 Mixed Economies: Balancing Market Forces and Government Intervention: In reality, the majority of economies around the globe have developed to incorporate components from both extremes, resulting in hybrid economic systems that aim to maximise the influence of market forces while acknowledging the necessity of government involvement in certain crucial domains.
 The main forces behind economic development, innovation, and market responsiveness in these mixed economies are individual firm owners and entrepreneurs motivated by profit and self-interest. They take advantage of possibilities in a world that is becoming more interconnected by being quicker, more flexible, and more risk-tolerant than their government counterparts. In addition, governments are essential in providing these essential public goods and regulating market excesses in sectors like infrastructure, healthcare, education, defence, and security. The government's engagement has, however, frequently swung too far, which has fueled a growing tendency towards the privatisation of state-owned businesses and a rebalancing of the public-private dynamic. For example, Scandinavian countries like Sweden have a strong social safety net and extensive government involvement in healthcare and education, while countries like the United States have a more market-oriented approach. Understanding these nuances is crucial for businesses operating in different countries. 1.1.8.3 Traditional Economies: The Persistence of Cultural and Religious Norms Traditional economic models continue to be prevalent in many parts of the world, especially in emerging regions such as Africa, Central and South America, and Southeast Asia. © Copyright 2024 MIVA Open University All Rights Reserved 20  Introduction to the Business Environments Figure 1.1.8.3-1: Cultural and Religious Norms These nations tend to have a more fatalistic view of economic reality, with religion and cultural values frequently contributing to economic standards and goals. These economies could seem impoverished by Western standards, caught in a cycle of production and distribution for sustenance. But it's also critical to acknowledge the deeply ingrained social and cultural elements that influence these economic systems and to approach development initiatives with tact and respect for regional customs. 1.1.9 Population Dynamics:  The Shifting Sands of Economic Potential Population characteristics are important factors to consider when evaluating a region's economic potential and market dynamics, even outside of the broader economic systems. Customer preferences and the trajectory of economic growth are influenced by several factors, including the distribution of ages, educational attainment, and urbanisation trends. For instance, Nigeria's youthful population and quick growth offer both potential and difficulties. On the one hand, it indicates a significant untapped market for products and services targeted at young people, ranging from entertainment to technology to education. However, it puts a great deal of strain on social stability, healthcare, and job development. © Copyright 2024 MIVA Open University All Rights Reserved 21  Introduction to the Business Environments Furthermore, megacities like Lagos and Cairo are becoming centres of innovation and economic activity as a result of the worldwide trend towards urbanisation, which is also changing economic landscapes. Businesses must modify their tactics to meet the demands and ambitions of urban consumers as more people move to cities in pursuit of work, education, and a better quality of life. Figure 1.1.9-1: Shifting Sands of Economic Potential Furthermore, megacities like Lagos and Cairo are becoming centres of innovation and economic activity as a result of the worldwide trend towards urbanisation, which is also changing economic landscapes. Businesses must modify their tactics to meet the demands and ambitions of urban consumers as more people move to cities in pursuit of work, education, and a better quality of life. © Copyright 2024 MIVA Open University All Rights Reserved 22  Introduction to the Business Environments United States China (State Sweden (Social Indicator (Market Economy) Capitalism) Market Economy) GDP (nominal, 2023) $26.9 trillion $19.5 trillion $0.62 trillion GDP per capita $80,035 $13,032 $60,119 (nominal, 2023) Gini Coefficient 41.5 (2020) 38.5 (2016) 27.0 (2020) Human Development 0.926 (Rank 21) 0.768 (Rank 79) 0.945 (Rank 7) Index (HDI, 2021) Unemployment Rate 3.7% 5.1% 7.3% (2023) Poverty Rate 11.4% (2020) 0.6% (2019, 17.1% (relative at- national poverty risk-of-poverty line) rate, 2021) Government Debt to 124% 66% 38% GDP (2023) Inflation Rate (2023) 3.6% 2.3% 7.7% Ease of Doing Business 6 31 10 Rank (2020) Table 1.1.9-1: Examples of different economists comparing key economic variables © Copyright 2024 MIVA Open University All Rights Reserved 23  Introduction to the Business Environments 1.1.10 Key Implications for Businesse Cost Management Strategies: In the face of rising input costs driven by inflation and currency fluctuations, businesses must actively explore strategies to mitigate these challenges. This could involve sourcing local materials, implementing hedging mechanisms to manage currency risks, or streamlining operational efficiencies to reduce overhead expenses Pricing Decisions (Walking the Tightrope): Striking the right balance between maintaining profitable margins and ensuring affordability for price-sensitive Nigerian consumers is a delicate act that businesses must navigate. Pricing strategies must be carefully calibrated to account for both economic realities and consumer purchasing power, potentially requiring segmentation and targeted marketing approaches Investment and Expansion Considerations: Fluctuations in economic growth, elevated interest rates, and policy uncertainties can influence businesses' willingness to invest in capacity expansions or launch new ventures. Companies must carefully weigh the potential risks and rewards, adopting a strategic approach to capital allocation and growth initiatives, potentially seeking out government incentives or alternative financing options Access to Finance: Fueling Growth Ambitions: High-interest rates may pose barriers to accessing credit, particularly for small and medium-sized enterprises (SMEs) that form a significant portion of the Nigerian economy. Businesses must explore alternative financing options, such as equity investments, government support programs, or innovative fintech solutions, to fuel their growth aspirations Navigating Informality and Regulatory Challenges: Like many developing economies, Nigeria's business landscape is characterised by a significant informal sector and regulatory complexities. Businesses must develop strategies to navigate these challenges, potentially leveraging technology, fostering partnerships, and advocating for policy reforms that create a more enabling environment for formal economic activities. 1.2 Political and Legal Environment: Insights from Nigeria The political and legal environment sets the rules of the game for businesses. Understanding the framework of laws, regulations, and political dynamics within which businesses operate is essential for Nigerian managers and leaders. Imagine the business environment as a football field. The political and legal systems lay down the most important rules – what you can and can't do as a company. Understanding these boundaries and the players involved is crucial for staying onside. We use Nigeria here because? © Copyright 2024 MIVA Open University All Rights Reserved 24  Introduction to the Business Environments 1.2.1 The Political Landscap The Structure of Government: Nigeria operates a federal system with three tiers: federal, state, and local governments. Understanding the division of power is key. For instance, a Nigerian mining company might need approval for exploration from the federal government, environmental impact assessments from the state government, and community engagement initiatives with the local government Federal Government state local Government Government Figure 1.2.1-1: The Structure of Government Federal Republic (South Africa): South Africa, a fellow African nation, employs a similar federal structure. However, their devolved powers grant states more autonomy in economic development initiatives, potentially creating regional variations in business opportunities Figure 1.2.1-2: Federal Republic (South Africa) Parliamentary System (United Kingdom): Globally, the UK's parliamentary system offers a different structure. The ruling party's ideology directly influences policies, potentially impacting businesses in certain sectors. For instance, a focus on environmental sustainability may lead to stricter regulations for industries with high carbon footprints. © Copyright 2024 MIVA Open University All Rights Reserved 25  Geopolitical Dynamics and Regional Integration in Global Environments 1.2.2 Political Parties and Ideologies: Political party ideologies are often not as clearly defined (why) as in some other countries. However, some general trends we have observed include (offer a reference). Using Nigeria as an example, Nigeria's two dominant political parties, the All Progressives Congress (APC) and the People's Democratic Party (PDP), have historically focused on centre-right and centre-left economic policies, respectively. However, specific policies can change with leadership. For instance, the APC's focus on diversification away from oil during a period of low prices created opportunities for renewable energy businesses in Nigeria The rise of populist governments in some developed countries has led to protectionist trade policies, which can make it more difficult for Nigerian businesses to export their goods. © Copyright 2024 MIVA Open University All Rights Reserved 08  Introduction to the Business Environments 1.2.2 Political Parties and Ideologies: Political party ideologies are often not as clearly defined (why) as in some other countries. However, some general trends we have observed include (offer a reference). Using Nigeria as an example, Nigeria's two dominant political parties, the All Progressives Congress (APC) and the People's Democratic Party (PDP), have historically focused on centre-right and centre-left economic policies, respectively. However, specific policies can change with leadership. For instance, the APC's focus on diversification away from oil during a period of low prices created opportunities for renewable energy businesses in Nigeria The rise of populist governments in some developed countries has led to protectionist trade policies, which can make it more difficult for Nigerian businesses to export their goods. 1.2.3 Political Parties and Ideologies: The ongoing conflict in the Niger Delta has disrupted oil production and transportation, impacting not only oil companies but also businesses that rely on oil exports or suffer from infrastructure damage. In other parts of Africa, other such threats to business environment has emerged such as The recent military coup in Burkina Faso is a stark reminder of the political risks some businesses face in Africa. Such instability can lead to investor hesitancy and disrupt supply chains. Political instability and ongoing conflict in the DRC create a high-risk environment for businesses, making long-term planning challenging. The ongoing trade war between the United States and China has created uncertainty for businesses around the world, including those in Nigeria that import goods from either country. Singapore's stable political environment and consistent policies have fostered a business- friendly climate, attracting significant foreign direct investment. 1.2.4 Navigating the Political Landscape The political environment is a critical consideration for any business operating in Nigeria or any other country. The policies, regulations, and actions of the government can have a profound impact on the ability of companies to enter markets, compete fairly, and generate profits. Using the PESTEL framework, let's examine some of the key political factors that Nigerian businesses must navigate: © Copyright 2024 MIVA Open University All Rights Reserved 26  Introduction to the Business Environments Figure 1.2.4-1: PESTEL framework 1.2.4.1 Political Stability and Governance Nigeria has made significant strides in recent years towards strengthening its democratic institutions and processes. The peaceful transfer of power following the 2015 and 2019 general elections was a milestone in the country's political development. However, challenges remain in terms of political stability and governance. Regional tensions, such as the Boko Haram insurgency in the North-East and the agitation for self-determination in the South-East, continue to pose risks to businesses operating in affected areas. Moreover, issues of corruption, transparency, and accountability in government remain a concern for many businesses. The perception of corruption and the lack of a level playing field can deter investment and hinder the growth of small and medium-sized enterprises (SMEs). To mitigate these risks, businesses must develop strategies to engage constructively with government stakeholders at all levels. This may involve Participating in public-private dialogue forums to advocate for business-friendly policies and reforms Ensuring strict compliance with anti-corruption laws and regulations, such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act Leveraging technology and data analytics to enhance transparency and accountability in business operation Building relationships with key government decision-makers and influencers to gain insight into policy directions and regulatory changes © Copyright 2024 MIVA Open University All Rights Reserved 27  Introduction to the Business Environments By taking a proactive and principled approach to engaging with the political environment, Nigerian businesses can position themselves for success while contributing to the broader goals of good governance and sustainable development. 1.2.4.2 Regulatory and Policy Frameworks Another key aspect of the political environment is the regulatory and policy frameworks that govern business activities. In Nigeria, businesses must navigate a complex web of laws, regulations, and policies at the federal, state, and local levels. Some of the key regulatory and policy issues that businesses must consider include Business registration and incorporation requirements, as governed by the Companies and Allied Matters Act (CAMA Tax policies and administration, including the new Finance Act 2020 which introduced changes to VAT, income tax, and other fiscal measure Sector-specific regulations, such as the Nigerian Oil and Gas Industry Content Development (Local Content) Act for the energy sector or the Nigerian Communications Commission (NCC) guidelines for the telecommunications industr Intellectual property protection and enforcement, as governed by the Patents and Designs Act and the Trademarks Ac Labor laws and regulations, including the National Minimum Wage Act and the Pension Reform Ac Environmental and social impact assessment requirements, as mandated by the Environmental Impact Assessment (EIA) Act To effectively navigate this complex regulatory landscape, businesses must develop a deep understanding of the rules and requirements that apply to their specific industry and operations. This may involve: © Copyright 2024 MIVA Open University All Rights Reserved 28  Introduction to the Business Environments 01 02 03 04 Engaging the Participating in Investing in training Developing robust services of legal and industry and capacity risk management compliance associations and building for and internal control professionals to forums to stay employees to frameworks to ensure full abreast of ensure a culture of identify and mitigate adherence to all regulatory changes compliance and regulatory risks relevant laws and and best practices ethical conduct regulations By taking a proactive and comprehensive approach to regulatory compliance, Nigerian businesses can avoid costly penalties and reputational damage while building trust with the government, customers, and other stakeholders. Key Takeaway: Politics is not an abstract concept for business leaders; It has real, bottom-line impacts. Companies that stay informed, build relationships with relevant stakeholders, and strategically manage legal risks will gain a competitive edge in the Nigerian business landscape. Let's Discuss Can you think of a recent case where a global political event significantly affected a Nigerian business Does your company (or one you know) have a strategy for dealing with political and legal factors? 1.3 Social Environment The social environment encompasses the demographic characteristics, norms, customs, and values of the society within which a business operates. It plays a crucial role in shaping consumer behaviour, market demand, and business practices. Understanding the social landscape is essential for organisations to effectively navigate and adapt to the ever-changing societal dynamics. © Copyright 2024 MIVA Open University All Rights Reserved 29  Introduction to the Business Environments 1.3.1 Demographics and Consumer Behaviour One of the key aspects of the social environment is demographics, which includes factors such as population size, age distribution, income levels, education, and cultural background. These demographic variables significantly influence consumer behaviour and market trends. Cultural Background Population Income levels Age Distribution Education SIZE Figure 1.3.1-1: Demographics and Consumer Behaviour For example, Nigeria's large and growing youth population presents unique opportunities and challenges for businesses. With over 60% of the population under the age of 25, companies must tailor their products, services, and marketing strategies to appeal to this demographic. The youth market is characterised by distinct preferences, such as a strong affinity for technology, social media, and trendy brands. Furthermore, the rising middle class in Nigeria is driving changes in consumer behaviour. As disposable incomes increase, there is a growing demand for high-quality products, luxury goods, and premium services. Businesses that can cater to the aspirations and preferences of this emerging consumer segment can tap into a lucrative market. © Copyright 2024 MIVA Open University All Rights Reserved 30  Introduction to the Business Environments Nigeria China India Our rapidly growing and An ageing population India's booming middle youthful population is a presents challenges. class is like rocket fuel for double-edged sword. It's a Businesses might see businesses that cater to huge potential market for declining demand for their aspirations – think youth-focused products certain goods and branded clothing, luxury and services (think services, but also new goods, and travel. It's not education, tech, markets emerging for just about selling but also entertainment), but things like specialised about understanding this businesses also need to healthcare and rising consumer class's factor in how to create retirement products. values. enough jobs and whether the healthcare system can handle the future needs of this expanding population. 1.3.2: Changing Family Structures and Gender Roles Another significant aspect of the social environment is the evolving family structures and gender roles. In Nigeria, traditional family units are gradually giving way to more diverse household arrangements, such as single-parent families and dual-income households. This shift has implications for businesses in terms of product development, marketing, and customer service. Moreover, the increasing participation of women in the workforce and their growing economic influence are reshaping the business landscape. Companies that recognise and cater to the unique needs and preferences of female consumers can gain a competitive edge. This may involve developing gender-specific products, creating inclusive marketing campaigns, and fostering a gender-sensitive workplace culture. Societies are not static; shared values and attitudes evolve. Shifts in areas like gender equality, environmental concerns, and human rights influence consumer choices and expectations of corporate behaviour. © Copyright 2024 MIVA Open University All Rights Reserved 31  Introduction to the Business Environments Examples: Nigeria United Kingdom Growing awareness of women's Companies that don't prioritise empowerment is creating opportunities. sustainability could face backlash from their Businesses with female-friendly policies or consumers or investors. This trend those led by women can benefit from influences things like sourcing, reducing changing social perceptions. Think of energy use, and giving back to the banks specifically catering to women community. entrepreneurs. Japan Saudi Arabia Their culture emphasises formality and Businesses operating in Saudi Arabia need consensus-building. This means to be mindful of Islamic laws and traditions. international businesses need to adjust This might mean adjusting operating hours their negotiation and decision-making during Ramadan, providing Halal products, styles when setting up partnerships with or implementing gender-segregated Japanese companies. workspaces Canada Legislation on same-sex marriage and laws protecting diverse workers are realities businesses need to understand. These laws not only ensure compliance but can also impact the kind of talent you attract. © Copyright 2024 MIVA Open University All Rights Reserved 32  Introduction to the Business Environments Additionally, the influence of religion on Nigerian society is significant. With a large Muslim population in the north and a predominantly Christian population in the south, businesses must be sensitive to religious beliefs and practices. This may involve adapting product offerings, marketing messages, and business hours to respect religious observances and traditions. 1.3.3 Social Media and Digital Influence The proliferation of social media and digital technologies has revolutionised the way businesses interact with customers and shape public opinion. In Nigeria, the growing access to smartphones and internet connectivity has created a vibrant digital landscape. Figure 1.3.3-1: People using social media Social media platforms like Facebook, Twitter, and Instagram have become powerful tools for businesses to engage with customers, build brand awareness, and gather valuable insights into consumer preferences and behaviours. Companies that effectively leverage social media can create viral campaigns, foster customer loyalty, and drive sales. However, the digital environment also poses challenges, such as the spread of misinformation, online reputation management, and data privacy concerns. Businesses must develop robust social media strategies and guidelines to navigate these challenges and protect their brand image. © Copyright 2024 MIVA Open University All Rights Reserved 33  Introduction to the Business Environments 1.3.4 Corporate Social Responsibility and Sustainability In recent years, there has been a growing expectation for businesses to demonstrate social and environmental responsibility. Nigerian consumers are increasingly conscious of the impact of business practices on society and the planet, and they are demanding more sustainable and ethical products and services. Companies that embrace corporate social responsibility (CSR) and integrate sustainability into their operations can enhance their reputation, build customer trust, and differentiate themselves from competitors.  This may involve initiatives such as supporting local communities, promoting education and skills development, reducing the environmental footprint, and ensuring fair labour practices. Moreover, businesses that align their CSR efforts with the United Nations Sustainable Development Goals (SDGs) can contribute to broader societal and environmental objectives while creating long-term value for their stakeholders. In the next part of this session, we will look into the technological environment and explore how advancements in technology are reshaping the business landscape in Nigeria. 1.3.4.1 Key Takeaways for Businesses Understanding the social environment is GEOGRAPHIC not merely a feel-good exercise. It can translate into tangible advantages DEMOGRAPHIC BEHAVIOURAL Market Segmentation: Are you focusing on the growing middle class in urban centers? Or tailoring products for specific ethnic or religious groups? Understanding the social fabric lets you customise your offerings. PSYCHOGRAPHIC Figure 1.3.4-1: Market Segmentation © Copyright 2024 MIVA Open University All Rights Reserved 34  Introduction to the Business Environments Workplace Culture: Businesses seen as discriminatory or 'old-school' in their thinking might struggle to attract younger workers who value inclusivity and flexible work arrangements Corporate Social Responsibility: Is your company just paying lip service or making a real difference in its community? Customers increasingly support businesses that support society – whether it's through scholarships, environmental initiatives, etc Adapting to Change: Don't get stuck in your ways. Just like fashion, consumer preferences and social attitudes evolve. Businesses that stay 'tuned in' to their social environment are more likely to spot trends and adjust their strategies. Let's Discuss Can you name a business that successfully adapted to changes in consumer preferences or social values How does your company (or one you know) take into account the social environment when making strategic decisions? 1.4 Technological Environment The technological environment refers to the development and application of tools, techniques, and knowledge that shape how businesses operate, produce goods, and deliver services. The rate at which new technologies are adopted and spread across populations and markets can vary widely. Factors such as cost, accessibility, and perceived benefits play a role. Consider the S-shaped diffusion of innovation curve – it illustrates the process from early adopters to mass adoption of new technologies. Figure 1.4-1: Mass adoption of new technologies © Copyright 2024 MIVA Open University All Rights Reserved 35  Introduction to the Business Environments 1.4.1 Innovation within the environment This environment is characterised by the rapid pace of innovation and the disruptive impact of new technologies on businesses and industries. In today's digital age, technology has become a critical driver of competitiveness, efficiency, and growth. Companies that can effectively leverage emerging technologies and adapt to the changing technological landscape can gain a significant advantage in the marketplace. EARLY LATE MAJORITY MAJORITY EARLY ADOPTERS 34% 34% LAGGARDS INNOVATORS 2.5% 13.5% 16% Figure 1.4.1-1: Diffusion of Innovation Model The S-shaped curve illustrates the typical pattern of technology adoption, starting with a few innovative pioneers, gradually gaining momentum as more people embrace it, and eventually reaching a saturation point where most of the potential market has adopted the technology. Innovators: Early Adopters: Early Majority: These are the risk-takers, the This group is more cautious This larger group adopts new first to embrace new than innovators, but they are technologies once they have technologies. They are often still eager to adopt new been proven to be effective and tech-savvy, adventurous, and technologies that offer a clear reliable. They are more risk- willing to experiment with new advantage. They are often averse than early adopters and ideas. opinion leaders and influencers need more evidence before in their communities. making a decision. Late Majority: Laggards: This group is skeptical of new This group is resistant to technologies and adopts them change and may never adopt only when they become the new technologies. norm or when they are forced to by external pressures. Figure 1.4.1-2: Diffusion of Innovation Model Explained © Copyright 2024 MIVA Open University All Rights Reserved 36  Introduction to the Business Environments 1.4.1.2 Factors Influencing Diffusion The rate at which a technology diffuses depends on several factors, including: Relative Advantage: How much better is the new technology compared to existing alternatives Compatibility: How well does the new technology fit with existing values, beliefs, and practices Complexity: How easy is the new technology to understand and use Trialability: Can the new technology be tested or experimented with before making a full commitment Observability: How visible are the benefits of the new technology to others? Figure 1.4.2-1: 1.4.2 The Rise of Mobile Money in Africa The adoption of mobile money in Africa is a prime example of the diffusion of innovation. In the early 2000s, mobile money services like M-Pesa in Kenya were introduced, offering a convenient and secure way to transfer money using mobile phones. Initially, adoption was slow, as people were skeptical of the technology and lacked trust in its security. However, as more people began to use mobile money and its benefits became apparent, adoption accelerated rapidly. Today, mobile money is widely used across Africa, transforming the financial landscape and providing financial services to millions of previously Figure 1.4.1-1: Bank App unbanked people. 1.4.3 The Disruptive Impact of Technology: Creative Destruction at Play The technological environment is characterised by constant change and disruption. New technologies emerge, old ones become obsolete, and entire industries are transformed. This process of creative destruction, as described by economist Joseph Schumpeter, is the engine of economic growth and progress. © Copyright 2024 MIVA Open University All Rights Reserved 37  Introduction to the Business Environments Examples: 01 02 03 The Rise of E-commerce: The Sharing Economy: Artificial Intelligence (AI) and Automation: Online retail giants like Platforms like Uber and Amazon and Alibaba have Airbnb have revolutionised AI is transforming industries disrupted traditional brick- the transportation and like healthcare, finance, and and-mortar stores, forcing hospitality industries, manufacturing, automating them to adapt or perish. creating new business tasks, improving efficiency, models and challenging and creating new existing regulations. opportunities. Figure 1.4.2-1: 1.4.4 The Importance of Technological Adaptability In this fast-paced environment, businesses that can adapt to technological change are the ones that thrive. This means being willing to experiment with new technologies, invest in research and development, and embrace a culture of innovation. Companies that cling to outdated technologies and business models risk being left behind. 1.4.5 Digital Transformation and Industry 4.0 One of the most significant technological trends shaping the business environment is digital transformation. The integration of digital technologies into all aspects of business operations is revolutionising industries and creating new opportunities for innovation and growth. In Nigeria, the adoption of digital technologies is gaining momentum across sectors such as banking, telecommunications, e-commerce, and agriculture. For example, the rise of mobile banking and fintech solutions is transforming the financial services industry, providing access to financial products and services for previously underserved populations. Moreover, the emergence of Industry 4.0, which encompasses technologies such as the Internet of Things (IoT), artificial intelligence (AI), robotics, and big data analytics, is enabling businesses to optimise their operations, improve efficiency, and create new revenue streams. © Copyright 2024 MIVA Open University All Rights Reserved 38  Introduction to the Business Environments Figure 1.4.2-1: Cloud Computing and AI 1.4.5.1 E-commerce and Online Marketplaces The growth of e-commerce and online marketplaces is another significant technological trend in Nigeria. With the increasing penetration of internet connectivity and mobile devices, more consumers are turning to online channels for their shopping needs. Platforms like Jumia, Konga, and Jiji are leading the e-commerce revolution in Nigeria, providing a convenient and accessible way for businesses to reach customers and sell their products. These platforms are also enabling small and medium-sized enterprises (SMEs) to overcome traditional barriers to market entry and compete with larger players. However, the e-commerce landscape in Nigeria also presents challenges, such as logistical infrastructure limitations, payment system constraints, and trust issues. Businesses must develop robust e-commerce strategies that address these challenges and provide a seamless and secure online shopping experience for customers. 1.4.5.2 Mobile Technology and App Development The widespread adoption of mobile devices in Nigeria has created a massive opportunity for businesses to engage with customers through mobile channels. With over 150 million mobile subscribers and a growing smartphone market, Nigeria is well-positioned to leverage mobile technology for business growth. © Copyright 2024 MIVA Open University All Rights Reserved 39  Introduction to the Business Environments Mobile apps have become a critical tool for businesses to provide value-added services, enhance customer engagement, and gather valuable data insights. From mobile banking and e-commerce apps to health and education platforms, businesses across sectors are investing in app development to stay competitive and meet evolving customer needs. Moreover, the rise of mobile advertising and location-based marketing is enabling businesses to deliver targeted and personalised marketing messages to customers on the go. Companies that can effectively leverage mobile technology and create compelling app experiences can differentiate themselves in the market and build lasting customer relationships. 1.4.5.3 Cloud Computing and Data Analytics 1.4.5.3-1: Cloud Computing and Data Analytics Cloud computing is transforming the way businesses store, process, and analyse data. By leveraging cloud- based solutions, companies can reduce IT infrastructure costs, improve scalability, and access advanced analytics capabilities. In Nigeria, the adoption of cloud computing is gaining traction, particularly among SMEs and startups. Cloud platforms like Microsoft Azure, Amazon Web Services (AWS), and Google Cloud are providing businesses with affordable and flexible computing resources to power their operations and drive innovation. Furthermore, the explosion of data generated by digital technologies is creating new opportunities for businesses to gain insights into customer behaviour, market trends, and operational performance. Data analytics tools and techniques, such as machine learning and predictive modeling, are enabling companies to make data-driven decisions and optimise their strategies. © Copyright 2024 MIVA Open University All Rights Reserved 40  Introduction to the Business Environments 1.4.5.4 Cybersecurity and Data Privacy As businesses increasingly rely on digital technologies and data, cybersecurity and data privacy have become critical concerns. With the growing frequency and sophistication of cyber threats, companies must implement robust security measures to protect their systems, data, and customer information. In Nigeria, the adoption of cybersecurity best practices is still evolving, and many businesses remain vulnerable to cyber attacks. The Nigerian government has taken steps to strengthen the country's cybersecurity framework, such as the establishment of the National Cybersecurity Policy and Strategy. Moreover, the enactment of the Nigeria Data Protection Regulation (NDPR) in 2019 has introduced new obligations for businesses that collect and process personal data. Companies must ensure compliance with the NDPR and implement appropriate data protection measures to avoid penalties and reputational damage. In the next part, we will explore the environmental aspect of the business environment and discuss how sustainability and climate change are shaping business practices in Nigeria. Example Nigeria: Mobile phones weren't common here 20 years ago, but they've spread at breakneck speed! This led to the growth of industries like telecoms and fintech, bypassing the need for extensive landline infrastructure Rwanda: Their ambitious "Smart Rwanda" project aims to make them a regional tech hub. They're investing in high-speed internet, incubators for startups, and e-government services Japan: Japan's ageing population and need for efficient manufacturing put them at the cutting-edge of robotics. Their innovations are being used globally in factories, hospitals, etc. Key Implications for Nigerian Businesses 01 02 03 0 4 Technology Adoption Da a t Analytics U pskilling Workforce C ybersecurity: Don't watch from the All those customer Technology isn't Think of all the valuable sidelines! Businesses, interactions, all that replacing everyone, data your company whether small or big, sales data – it's treasure! but it is changing the gathers on customers need to embrace new Businesses that learn to skills needed. and suppliers. As we technologies. This use analytics tools can Investing in your become more tech- could be as simple as spot trends, personalise employees' digital reliant, safeguarding using cloud-based marketing, and predict skills isn't just nice; it's that data against accounting software or future needs. future-proofing your hackers or theft is not building an online business. just smart; it's presence. essential. © Copyright 2024 MIVA Open University All Rights Reserved 41  Introduction to the Business Environments Let's Discuss (section reflection) Can you think of a traditional Nigerian industry that's being disrupted by tech? (e.g., transportation with cab-hailing apps How is your company (or one you know) investing in upskilling its workforce to stay ahead of the tech curve? 1.5 Environmental Environment The natural environment has gained significant attention in recent years as businesses are increasingly recognising the importance of sustainability and their impact on the planet. The natural environment is not merely a backdrop for business operations; it's a critical stakeholder with immense influence on a company's long-term viability. As global citizens and future business leaders, you must understand the intricate relationship between business and the environment. In this section, we'll discover the pressing environmental challenges facing businesses worldwide, explore the theoretical frameworks that guide environmental decision-making, and examine how companies are adapting their strategies to thrive in an era of increasing ecological awareness. 1.5.1 Climate Change and Carbon Footprint Climate change is one of the most significant environmental threats facing the world today. 1.4.5.4-1: Climate Related Instability © Copyright 2024 MIVA Open University All Rights Reserved 42  Introduction to the Business Environments The increasing concentration of greenhouse gases in the atmosphere, primarily due to human activities such as burning fossil fuels and deforestation, is causing global temperatures to rise, leading to more frequent and severe weather events, sea-level rise, and ecosystem disruption. In many countries, the impacts of climate change are already being felt, particularly in the agriculture and energy sectors. Changing rainfall patterns, droughts, and floods are affecting crop yields and food security, while rising temperatures and extreme weather events are disrupting energy infrastructure and increasing energy demand. Businesses have a crucial role to play in addressing climate change by reducing their carbon footprint and adopting sustainable practices. This may involve investing in renewable energy sources, improving energy efficiency, optimising supply chains, and developing low-carbon products and services. Moreover, companies that proactively manage their climate risks and align their strategies with the Paris Agreement on climate change can position themselves for long-term resilience and competitiveness in a low-carbon economy. 1.5.2 optimising Scarcity and Waste Management The growing global population and economic development are putting increasing pressure on natural resources such as water, land, and raw materials. Resource scarcity poses significant risks to businesses, including supply chain disruptions, price volatility, and reputational damage. In Nigeria, rapid urbanisation and industrialisation are exacerbating resource challenges, particularly in terms of water stress and waste management. Many cities in Nigeria lack adequate waste collection and disposal systems, leading to widespread pollution and public health risks. The Lagos State Government has launched a "Waste-to-Wealth" initiative, aiming to reduce waste generation and promote recycling and resource recovery. Businesses can play a vital role in promoting resource efficiency and plug in to such opportunities, as seen by the firm "WeCyclers”, that rewards good recycling practices within the state. Other methods for companies may involve adopting water conservation measures, implementing waste reduction and recycling programs, and designing products for reuse and recycling. Furthermore, companies that develop innovative solutions for resource management, such as waste-to- energy technologies or water purification systems, can tap into new market opportunities and contribute to sustainable development goals. © Copyright 2024 MIVA Open University All Rights Reserved 43  Introduction to the Business Environments 1.5.3 Biodiversity and Ecosystem Services Biodiversity, the variety of life on Earth, is not just a matter of protecting endangered species. It's about preserving the complex web of life that provides essential services to humanity, such as clean air, water, and food. Biodiversity loss is another critical environmental challenge facing the world today. The rapid extinction of species and degradation of ecosystems are not only a threat to the planet's natural heritage but also to the services that nature provides to human societies, such as food, water, climate regulation, and cultural value. Businesses that depend on natural resources or operate in areas of high biodiversity have a responsibility to minimise their impact and support conservation efforts. This may involve conducting environmental impact assessments, implementing biodiversity management plans, and investing in ecosystem restoration projects. Moreover, companies that integrate biodiversity considerations into their decision-making processes and value chains can enhance their reputation, mitigate risks, and create new business opportunities, such as ecotourism or sustainable agriculture. 1.5.4 Environmental Regulations and Compliance Governments around the world are enacting stricter environmental regulations to address pressing challenges like climate change and pollution. Businesses need to understand and comply with these regulations to avoid penalties, legal liabilities, and reputational damage. Examples The European Union's REACH regulation requires companies to register, evaluate, and authorise chemicals to ensure their safe use The U.S. Clean Air Act sets national air quality standards and regulates emissions of hazardous air pollutants. Non-compliance with environmental regulations can result in significant penalties, legal liabilities, and reputational damage. Companies must develop robust environmental management systems, conduct regular audits and assessments, and engage with stakeholders to ensure transparency and accountability. Furthermore, businesses that go beyond compliance and adopt proactive environmental strategies can gain a competitive advantage by reducing costs, improving efficiency, and enhancing their brand image among environmentally conscious consumers. © Copyright 2024 MIVA Open University All Rights Reserved 44  Introduction to the Business Environments In the final part, we will revisit the PESTEL framework and expand on its relevance in supporting businesses' responses to their operating environments. 1.6 Revisiting the PESTEL Framework: A Comprehensive Lens To fully understand the complex and multifaceted nature of the business environment, we revisit the earlier mentioned PESTEL framework to employ a structured analytical framework. Figure 1.6-1: PESTEL Framework One of the most widely used models is the PESTEL framework, which focuses on understanding the key macro-environmental factors that shape the context in which businesses operate. By systematically analysing each of these factors, businesses can gain a comprehensive understanding of the forces shaping their environment and develop strategies to adapt and thrive. The impact of government agricultural policies and subsidies on their competitiveness and market access (Political). In Nigeria, the government's decision to remove fuel subsidies in 2024 had a ripple effect on businesses, leading to increased transportation costs, higher prices for goods and services, and social unrest The effect of currency fluctuations and interest rates on their input costs and export potential (Economic). The global financial crisis of 2008 triggered a recession in many countries, leading to a sharp decline in consumer spending and investment. Businesses had to adapt by cutting costs, diversifying their markets, and exploring new revenue streams. © Copyright 2024 MIVA Open University All Rights Reserved 45  Introduction to the Business Environments The changing preferences of Nigerian consumers for healthy and organic food products (Social). The rising trend of health consciousness among consumers has led to a surge in demand for organic food, fitness products, and wellness services The opportunities to use precision farming technologies and data analytics to improve yields and efficiency (Technological). The rise of e-commerce and mobile technology has transformed the retail landscape, forcing traditional brick-and-mortar stores to adapt or face obsolescence Environmental Factors: This encompasses the growing concern about climate change, pollution, resource scarcity, and sustainability, which are reshaping business practices and consumer expectations. The increasing demand for renewable energy and sustainable products has led many companies to invest in green technologies and adopt eco-friendly practices Legal Factors: This refers to the laws, regulations, and legal frameworks that govern business operations, including labor laws, environmental regulations, intellectual property rights, and consumer protection laws. The implementation of the General Data Protection Regulation (GDPR) in the European Union has forced businesses worldwide to rethink their data privacy practices and comply with stricter regulations. By taking a holistic view of the business environment through the PESTEL lens, companies can develop robust and resilient strategies that account for the full range of factors influencing their success. 1.6.1 Critique of PESTLE Model Lack of Static Nature: Broad and General: Interconnectedness: PESTLE treats each factor in PESTLE analysis often While PESTLE provides a isolation, which may lead to provides a snapshot of an broad overview of potential a misunderstanding of how environment at a particular influences, it can be overly these elements interact and time. It lacks dynamism and general and not sufficiently influence each other. The does not account for rapid actionable. The analysis may framework does not account changes in the external not delve deeply enough into for the complexity and environment, making it less specific issues that are interdependence of these useful in industries that are critical to particular factors, potentially fast-paced or subject to industries or markets oversimplifying the strategic frequent disruptive changes. (Johnson, Scholes, & landscape Whittington, 2008). © Copyright 2024 MIVA Open University All Rights Reserved 46  Introduction to the Business Environments Reflection Can you think of an emerging market product with export potential? What challenges might it face entering global markets Has your company (or one you know) been impacted by changes in exchange rates? How did they manage this risk? Key implications for busines Compliance Management: Businesses must keep themselves updated on changing laws and regulations. Industry associations or professional service provid