Chapter 4 - Macro environment Flashcards
(20 cards)
why must a firm understand and best fit the environment in which it is operating?
It is critical for effective strategic planning (RATIONAL APPROACH) and strategic management (RESOURCE-BASED APPROACH).
what is the macro environment
consists of external factors that affect the overall environment that the business operates in – chapter 4.
what is the industry environment
consists of external factors affecting the
competitiveness of the industry that the business operates in – chapter 5.
What is the internal environment (internal capabilities)
consists of the organisation’s
own internal resources and capabilities – chapter 6.
What analysis can be used for Macro environment?
PESTEL analysis, used to identify potential threats and opportunities.
What is PESTEL
Political
Economic
Social & demographic
Technological
Ecological (Environmental)
Legal
Political
Taxation policy
Government spending
Foreign trade regulations
Economic
Economic growth
Exchange/interest rates
Inflation
Social and demographic
Economic growth
Exchange/interest rates
Inflation
Technological
New products
Improved production methods
Rate of obsolescence
Ecological
Sustainability
Pollution and climate change
Natural capital impact
‘Green finance’ issues
Legal
Industry regulation
Competition legislation
Employment law
What is the next step after PESTEL has been used?
Scenario planning can be used, once the key factors affecting the industry have been identified, to consider future responses to a range of potential outcomes.
What model is used for the competitive advantage of nations?
Porter’s diamond
What can PD be used to explain?
Why some nations have a competitive advantage in certain industries
What are the four key determinants of the competitive advantage of nations?
Demand conditions
Related and supporting industry
Factor conditions
Strategy, structure and rivalry
Factor Conditions
Factor conditions (Supply side)
The availability of the factors of production (the resources needed to operate).
These include human resources, physical resources, knowledge, capital and infrastructure.
e.g. French wine industry benefits from being able to grow good quality grapes
Demand Conditions
Demanding local consumers force firms to become more innovative.
Trend setting local consumers help local producers to anticipate future global trends.
e.g. German drivers demand powerful cars from German car manufacturers
Related and supporting industries
Proximity of related and supporting industries leads to:
Easy access to components, with reduced lead times and carriage costs.
Encourages knowledge sharing which increases innovation.
e.g. The finance sector in the UK is aided by large accountancy and legal firms
Strategy, structure and rivalry
Two key possible advantages:
Strong domestic rivalry forces local firms to become more efficient to survive.
The strategies or structures that have become prevalent in a particular nation may give advantages in particular industries.
e.g. flat, decentralised organisation structures are popular in Japan and are
believed to encourage innovation
