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MGT603 - Strategic Management - Lecture Handout 09

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EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS)

Objectives:

A major responsibility of strategists is to ensure development of an effective external-audit system. This includes using information technology to devise a competitive intelligence system that works. The externalaudit approach described in this Lecture can be used effectively by any size or type of organization.
Typically, the external-audit process is more informal in small firms, but the need to understand key trends and events is no less important for these firms.

Key external Factors:

  • Racial equality
  • Average level of education
  • Government regulation
  • Attitudes toward customer service
  • Attitudes toward product quality
  • Energy conservation
  • Social responsibility
  • Value placed on leisure time
  • Recycling
  • Waste management
  • Air & water pollution
  • Ozone depletion
  • Endangered species

The leisure time has increased the leisure activities due to which recreational activities have been increased and also it has given the growth to leisure industries also.
The next topic relates to environment. Just like recycling, for example the need of stationery is increasing and these things are gong under the process of recycling. Recycling has become an important part of our economic activity and society.
Waste management includes solid waste management and other waste. See the amount of waste in our cities. The waste of vegetables and stationery and fuel has populated the city to great extent. Just like air and water has been polluted due to these wastes. The populated water and air has effects the health of the people and animals to great extent. This should be constantly monitored. Same is the case with ozone depletion, due to which the harmful effects of sunlight are touching the surface of the earth and are affecting the people life badly. Mainly the skin and eyes are effecting due to this.
There are a lot of species which have been endangered. All such factors should be monitored as key economic variables.

Political, Governmental, and Legal Forces

Government Regulation

  • Key opportunities & key threats
    • Antitrust legislation (Microsoft)
    • Tax rates
    • Lobbying efforts
    • Patent laws

There is always change in government regulations which create opportunities and threats also. For example, anti trust legislation where there is an effort to ban the monopolies. Some organizations think that monopolies should be banned. Similarly, tax rates and lobbying efforts for special, lobbying entries are those efforts which are made in order to pass special resolution laws of their own choice. Patents law and intellectual are also relates to the same stories.
Increasing Global Interdependence:

  • Impact of political variables
    • Formulation of Strategies
    • Implementation of Strategies
  • Strategists in a global economy
    • Forecast political climates
    • Legalistic skills
    • Diverse world cultures

Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. Political, governmental, and legal factors, therefore, can represent key opportunities or threats for both small and large organizations. For industries and firms that depend heavily on government contracts or subsidies, political forecasts can be the most important part of an external audit. Changes in patent laws, antitrust legislation, tax rates, and lobbying activities can affect firms significantly.
In the world of impolitic, Americans are still deeply divided over issues such as assisted suicide, genetic testing, genetic engineering, cloning, and abortion. Such political issues have great ramifications for companies in many industries ranging from pharmaceuticals to computers.
The increasing global interdependence among economies, markets, governments, and organizations makes it imperative that firms consider the possible impact of political variables on the formulation and implementation of competitive strategies.

  • Globalization of Industry:
    • Worldwide trend toward similar consumption patterns
    • Global buyers & sellers
    • E-commerce
    • Instant transmission of money & information across continents

Political forecasting can be especially critical and complex for multinational firms that depend on foreign countries for natural resources, facilities, distribution of products, special assistance, or customers. Strategists today must possess skills to deal more legalistically and politically than previous strategists, whose attention was directed more too economic and technical affairs of the firm. Strategists today are spending more time anticipating and influencing public policy actions. They spend more time meeting with government officials, attending hearings and government-sponsored conferences, giving public speeches, and meeting with trade groups, industry associations, and government agency directors. Before entering or expanding international operations, strategists need a good understanding of the political and decisionmaking processes in countries where their firm may conduct business. For example, republics that made up the former Soviet Union differ greatly in wealth, resources, language, and lifestyle.
Nearly fifty European and Latin American heads of state recently signed the sixty-nine-point Declaration of Rio, a sweeping agreement liberalizing trade between countries on both continents. Tariffs and no tariff trade barriers between the two continents are being reduced in the new era of political cooperation. The Declaration of Rio of 1999 enhanced economic development and trade between those continents as well as the United States.
Increasing global competition accents the need for accurate political, governmental, and legal forecasts. Many strategists will have to become familiar with political systems in Europe and Asia and with trading currency futures. East Asian countries already have become world leaders in labor-intensive industries. A world market has emerged from what previously was a multitude of distinct national markets, and the climate for international business today would be much more favorable than yesterday. Mass communication and high technology are creating similar patterns of consumption in diverse cultures worldwide! This means that many companies may find it difficult to survive by relying solely on domestic markets.
It is no exaggeration that in an industry that is, or is rapidly becoming, global, the riskiest possible posture is to remain a domestic competitor. The domestic competitor will watch as more aggressive companies use this growth to capture economies of scale and learning. The domestic competitor will then be faced with an attack on domestic markets using different (and possibly superior) technology, product design, manufacturing, marketing approaches, and economies of scale. A few examples suggest how extensive the phenomenon of world markets has already become. Hewlett-Packard's manufacturing chain reaches halfway around the globe, from well-paid, skilled engineers in California to low-wage assembly workers in Malaysia. General Electric has survived as a manufacturer of inexpensive audio products by centralizing its world production in Singapore.

  • Impact of political variables on government regulations:
    • Government regulation/deregulation
    • Tax law changes
    • Special tariffs
    • Political Action Committees (PACs)
    • Voter participation rates
    • Number of patents
    • Changes in patent laws

Local, state, and federal laws, regulatory agencies, and special interest groups can have a major impact on the strategies of small, large, for-profit, and nonprofit organizations. Many companies have altered or abandoned strategies in the past because of political or governmental actions. For example, many nuclear power projects have been halted and many steel plants shut down because of pressure from the Environmental Protection Agency (EPA). Other federal regulatory agencies include the Food and Drug Administration (FDA), the National Highway Traffic and Safety Administration (NHTSA), the Occupational Safety and Health Administration (OSHA), the Consumer Product Safety Commission (CPSC), the Federal Trade Commission (FTC), the Securities Exchange Commission (SEC), the Equal Employment Opportunity Commission (EEOC), the Federal Communications Commission (FCC), the Federal Maritime Commission (FMC), the Interstate Commerce Commission (ICC), the Federal Energy Regulatory Commission (FERC), the National Labor Relations Board (NLRB), and the Civil Aeronautics Board (CAB). A summary of political, governmental, and legal variables that can represent key opportunities or threats to organizations is provided in Table below.

Some Political, Governmental, and Legal Variables  
  • Government regulations or deregulations
  • Changes in tax laws
  • Special tariffs
  • Political action committees
  • Voter participation rates
  • Number, severity, and location of government protests
  • Number of patents
  • Changes in patent laws
  • Environmental protection laws
  • Level of defense expenditures
  • Legislation on equal employment
  • Level of government subsidies
  • Antitrust legislation
  • Sino-American relationships
  • Russian-American relationships
  • European-American relationships
  • African-American relationships
  • Import-export regulations
  • Government fiscal and monetary policy changes
  • Political conditions in foreign countries
  • Special local, state, and federal laws
  • Lobbying activities
  • Size of government budgets
  • World oil, currency, and labor markets
  • Location and severity of terrorist activities
  • Local, state, and national elections

World oil situation makes a difference to us. So, either the issues is related to currency, oil or labor they should be monitored as key external variables.

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