The global economy

Definition: an economy in which goods, services, people, skills and ideas

move freely across geographic borders

Europe is now the worlds largest single market with 700 million
potential customers and a GDP of US$8 trillion

Chinas GDP is predicted to be greater than Japans by 2015

The development of emerging and transitional economies is

changing the global competitive landscape.

The march of globalisation

Globalisation is the increasing economic interdependence among

countries and their organisations.

Globalisation encourages international integration as it is reflected in the

flow of goods and services, financial capital and knowledge across country
borders.

Globalisation also affects the design, production, distribution and servicing

of goods and services.

The emergence of new growth centres and sources of competitive

advantages.

Technology and technological changes

There is an increasing rate of technological change and diffusion.

Perpetual innovation: the rapid and consistent replacement of new

information-intensive technologies.

Disruptive technologies: technologies that destroy the value of existing

technology and create new markets

The information age: the ability to effectively and efficiently access and
use information has become an important source of competitive
advantage

Increasing knowledge intensity: firms must be able to adapt quickly to

achieve strategic competitiveness and earn above-average returns. They
must have strategic flexibility.

Strategic flexibility:

strategic flexibility is a set of capabilities used to respond to various

demands and opportunities that are a part of a dynamic and uncertain
competitive environment

To achieve strategic flexibility, many firms have to develop

organisational slack. Slack resources offer some flexibility to respond to
environmental changes

To be strategically flexible on a continuing basis, a firm has to develop

the capacity to learn.

Resource-based model of above-average returns

The resource-based model assumes that:

each organisation is a collection of unique resources and capabilities

that provides the basis for its strategy and is the primary source of
returns

Differences in firms performance are due primarily to their unique

resources and capabilities rather than structural characteristics of the
industry.

The resource based model proposes that:

that resources are inputs into a firms production process

a capability is the capacity for set of resources to perform a task

Capabilities evolve and must be managed dynamically.

The general environment

The general environment is composed of dimensions in the broader

society that influence an industry and the firms within it.

Six segments of environmental analysis are:

demographic
economic
political/legal
socio-cultural
technological
global.