Global Business Environment The External Macro Environment

The Business Environment

The business environment consists of all factors inside and outside the company, which influence the firms competitive success.
The business environment can be divided into:
the external macro environment, the external industry environment the internal firm environment

External Business Environment

The external business environment of the firm can provide both opportunities and threats to firms. Opportunities refer to events or processes in the external business environment, which may help the company to achieve competitive success. Threats refer to events or processes in the external business environment, which may prevent the company from achieving competitive success.

Identifying Threats and Opportunities

The perception of the external business environment can vary between different managers and between different Firms. One Multinational firm may sometimes perceive an event as a threat ,while another firm may perceive exactly the same event as an opportunity. It has been observed that the greater the amount and the completeness of information available to firms ,the more likely they are to view external events as opportunities.

Strategic Fit
Strategy can be seen as the matching of the resources and activities of a firm to the environment in which it operates known as strategic fit.

Strategic fit is about developing strategy by identifying opportunities in the business environment and adapting resources and competences so as to take advantage of these.

PEST Analysis
PEST Analysis stands for Political, Economic, Social and Technological factors.
It is a broad framework or a checklist to help managers understand the macro environment, in which their business operates.

Key PEST Factors in Global Strategic Management

Political Factors Regional Integration Government Legislation Political Risk Corruption Social Factors Social Change Global Convergence Economic Factors Cost of Production Currency Exchange Rates Cost of Capital Technological Factors Global Technology Scanning & Technology Clusters The Knowledge-Based Economy The Spread of Internet

Porters Diamond Model

Porters Diamond Model assumes that the national home base of a firm plays a key role in shaping that firms competitive advantage in global markets. Four characteristics of the home base help to explain why certain nations are capable of consistent innovation in some industries:
1) 2) 3) 4) factor conditions demand conditions related and supporting industries firm strategy, structure and rivalry

The Diamond Model and the Japanese Video Game Industry

Demand conditions: high customer expectations in consumer electronics; popularity of role-playing games Domestic rivalry: initially low rivalry for Nintendo but then well-established electronics firms such as Matsushita; in 1994, Sony launched PlayStation; also rivalry from Sega

Factor conditions: game designers & programmers; creativity from manga tradition. 300 training programs designed for video game-related occupations. 170 programs designed for cartoonists, animators etc. Related and supporting industries: e.g. learning about liquid crystal display technology

Criticisms of the Diamond Model

The Diamond Model has come under criticism: Small Countries. Firms from small countries do not rely on a single home base for their success. Firms from small nations often depend on a large neighbouring nation to the extent that the distinction between the home base and host nation as a source of economic success becomes

Globalization. This model pays too little attention to the importance of Globalization.
Global companies can locate research centres where latest cutting-edge research is pursued such as Silicon Valley and then can obtain innovations from the foreign subsidiaries.