Fluent Essays

2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 1/2 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7 The Macroenvironment Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7 The Macroenvironment Just as the decisions and actions of strategic managers can often change an industry’s competitive structure, so too can changing conditions or forces in the wider macroenvironment; that is, the broader economic, global, technological, demographic, social, and political context in which companies and industries are embedded (see Figure 2.6). Changes in the forces within the macroenvironment can have a direct impact on any or all of the forces in Porter’s model, thereby altering the relative strength of these forces as well as the attractiveness of an industry. Figure 2.6 The Role of the Macroenvironment Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7 The Macroenvironment Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. javascript:// 2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 2/2 © 2021 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&snapshotId=22425… 1/2 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7a Macroeconomic Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7a Macroeconomic Forces Macroeconomic forces affect the general health and well-being of a nation and the regional economy of an organization, which in turn affect companies’ and industries’ ability to earn an adequate rate of return. The four primary macroeconomic forces are the growth rate of the economy, interest rates, currency exchange rates, and inflation (or deflation) rates. Economic growth, because it leads to an expansion in customer expenditures, tends to ease competitive pressures within an industry. This gives companies the opportunity to expand their operations and earn higher profits. Because economic decline (a recession) leads to a reduction in customer expenditures, it increases competitive pressures. Economic decline frequently causes price wars in mature industries. Interest rates can determine the demand for a company’s products and thus are important whenever customers routinely borrow money to finance their purchase of these products. The most obvious example is the housing market, where mortgage rates directly affect demand. Interest rates also have an impact on the sale of autos, appliances, and capital equipment, to give just a few examples. For companies in such industries, rising interest rates are a threat and falling rates an opportunity. Interest rates are also important because they influence a company’s cost of capital, and therefore its ability to raise funds and invest in new assets. The lower the interest rate, the lower the cost of capital for companies and the more potential investment. Currency exchange rates define the comparative value of different national currencies. Movement in currency exchange rates has a direct impact on the competitiveness of a company’s products in the global marketplace. For example, when the value of the dollar is low compared to the value of other currencies, products made in the United States are relatively inexpensive, and products made overseas are relatively expensive. A low or declining dollar reduces the threat from foreign competitors while creating opportunities for increased sales overseas. The fall in the value of the dollar against several major currencies during 2004–2008 helped to make the U.S. steel industry more competitive, whereas its rise during 2012–2014 made the industry less competitive. Price inflation can destabilize the economy, producing slower economic growth, higher interest rates, and volatile currency movements. If inflation continues to increase, investment planning becomes hazardous. The key characteristic of inflati2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 1/1 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7b Global Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7b Global Forces The last half-century has seen enormous changes in the world’s economic system. We review these changes in some detail in Chapter 8, where we discuss global strategy. For now, the important points to note are that barriers to international trade and investment have tumbled, and more and more countries have enjoyed sustained economic growth. Economic growth in Brazil, China, and India has created new, large markets for companies’ goods and services and is giving companies an opportunity to grow their profits faster by entering these markets. Falling barriers to international trade and investment have made it much easier to enter foreign nations. For example, 30 years ago, it was almost impossible for a Western company to set up operations in China. Today, Western and Japanese companies are investing approximately $100 billion annually in China. By the same token, falling barriers to international trade and investment have made it easier for foreign enterprises to enter the domestic markets of many companies (by lowering barriers to entry), thereby increasing the intensity of competition and lowering profitability. Because of these changes, many formerly isolated domestic markets have now become part of a much larger, more competitive global marketplace, creating both threats and opportunities for companies. Interestingly, although barriers to cross border trade and investment have been falling for 60 years, the decision by the United Kingdom to leave the European Union (Brexit), and the protectionist instincts of the current president of the United States, Donald Trump, may indicate that for now at least, the tide may be turning. Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7b Global Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. © 2021 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. javascript://2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 1/1 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7f Political and Legal Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7f Political and Legal Forces Political and legal forces are outcomes of changes in laws and regulations, and they significantly affect managers and companies. Political processes shape a society’s laws, which constrain the operations of organizations and managers and thus create both opportunities and threats. For example, throughout much of the industrialized world there has been a strong trend toward deregulation of industries previously controlled by the state, and privatization of organizations once owned by the state. In the United States, deregulation in 1979 allowed 29 new airline companies to enter the industry between 1979 and 1993. The increase in passenger-carrying capacity after deregulation led to excess capacity on many routes, intense competition, and fare wars. To respond to this more competitive environment, airlines needed to look for ways to reduce operating costs. The development of hub-and-spoke systems, the rise of nonunion airlines, and the introduction of no-frills, discount service are all responses to increased competition in the airlines’ task environment. Despite these innovations, the airline industry still experiences intense fare wars, which have lowered profits and caused numerous airline company bankruptcies. The global telecommunications service industry is now experiencing the same kind of turmoil following the deregulation of that industry in the United States and elsewhere. Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7f Political and Legal Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen (lichiac[email protected]) © 2020 Cengage Learning, Inc. © 2021 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. javascript://2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 1/1 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7e Social Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7e Social Forces Social forces refer to the way in which changing social mores and values affect an industry. Like other macroenvironmental forces, social change creates opportunities and threats. One major social movement of recent decades has been the trend toward greater health consciousness. Its impact has been immense, and many companies that recognized the opportunities early on have reaped significant gains. Philip Morris, for example, capitalized on the growing health consciousness trend when it acquired Miller Brewing Company, and then redefined competition in the beer industry with its introduction of low-calorie beer (Miller Lite). Similarly, PepsiCo was able to gain market share from its rival, Coca-Cola, by being the first to introduce diet colas and fruit-based soft drinks. At the same time, the health trend has created a threat for many industries. The tobacco industry, for example, is in decline as a direct result of greater customer awareness of the health implications of smoking. Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7e Social Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. © 2021 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 1/1 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7c Technological Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7c Technological Forces Over the last few decades, the pace of technological change has accelerated. This has unleashed a process that has been called a “perennial gale of creative destruction.” Technological change can render established products obsolete overnight and simultaneously create a host of new product possibilities. Thus, technological change is both creative and destructive—both an opportunity and a threat. Most important, the impacts of technological change can affect the height of barriers to entry and therefore radically reshape industry structure. For example, the Internet lowered barriers to entry into the news industry. Providers of financial news must now compete for advertising dollars and customer attention with new, Internet-based media organizations that developed during the 1990s and 2000s, such as TheStreet.com, The Motley Fool, Yahoo Finance and Google News. Advertisers now have more choices due to the resulting increase in rivalry, enabling them to bargain down the prices that they must pay to media companies. Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7c Technological Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. © 2021 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. javascript:// javascript://2021/3/19 Print Preview https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594814251715055652334202788&eISBN=9781337916691&id=1086843626&nbId=2242507&sn… 1/1 Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7d Demographic Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. 2-7d Demographic Forces Demographic forces result from changes in the characteristics of a population such as age, gender, ethnic origin, race, sexual orientation, and social class. Like the other forces in the general environment, demographic forces present managers with opportunities and threats and can have major implications for organizations. Change in the age distribution of a population is an example of a demographic force that affects managers and organizations. Currently, most industrialized nations are experiencing the aging of their populations as a consequence of falling birth and death rates and the aging of the Baby-Boom generation. As the population ages, opportunities for organizations that cater to older people are increasing; the home-health-care and recreation industries, for example, are seeing an upswing in demand for their services. As the Baby-Boom generation from the late 1950s to the early 1960s has aged, it has created a host of opportunities and threats. During the 1980s, many Baby Boomers were getting married and creating an upsurge in demand for the customer appliances normally purchased by couples marrying for the first time. Companies such as Whirlpool Corporation and General Electric (GE) capitalized on the resulting upsurge in demand for washing machines, dishwashers, dryers, and the like. In the 1990s, many of these same Baby Boomers began to save for retirement, creating an inflow of money into mutual funds and creating a surge in the mutual fund industry. Today, many Baby Boomers are retiring, creating a surge in retirement communities. Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7d Demographic Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc. © 2021 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.