Strategy Chapter 3 Analyzing the External Strategic Environment

1. StrategyChapter 3Analyzing the External Strategic Environment Team 2 Ashley Burnett Shawn Buck Whitney Horton Kelly Riester Jennifer Shotts Sam Snelling Mickea Smith

2. Introduction • We will analyze the process of globalization in general and specific trends. • How to develop new global strategies • We will introduce scenario analysis. • Is there a new compact between business and society?

3. Globalization • Is a strong political, economic, social, and technological force. • Geographic boundaries are meaningful in political terms, but have diminished as far as global competition goes. • People are more aware of different cultures, and some fear losing their own identities. • We live in a global society. • Study abroad • Customer service

4. Understanding Globalization 1. Political Globalization • Fall of communism in 1989. • Many countries opted for democracy& market driven economies • Made former state run businesses private • Deregulated industries 2. Economic Globalization • Trade Increase • Cross Country investment increase • Free enterprise

5. Understanding Globalization 3. Technological Globalization • Helped economic globalization • Internet • Cell Phones 4. PsychologicalGlobalization • Gradual convergence of human expectations on a global scale.

6. Regionalism: A Stepping Stone on the Path Toward a Global Economy? • Triad is made up of the U.S., EU, and Japan. • The Triad headquarters 4/5 of the world’s 500 largest publicly traded companies. • Regional trading blocks accounts for 60% of world trade. • NAFTA • EU • ASEAN • EUROMED • APEC • Mercosur

7. Regionalism: A Stepping Stone on the Path Toward a Global Economy? • Some say regionalism causes “like” countries to forge economic and political structures that will be difficult to change later. • If this is true free trade globally will not occur any time soon.

8. New Powerhouses: India and china • Japan rose to economic prominence in the last half of the twentieth century. • China and India today are seeing a similar breakthrough. • Russia is also an emerging powerhouse that wasn’t talked about. They are growing at annual rate of 7%.

9. India and China • India • Their country’s GDP grew more than 5% annually in the last 5 years. • They have become the premiere location for software development and other technology services. • Example: when you call a tech support hotline, you will most likely be connected to someone in India. • China • China has become the preferred location for manufacturing because of the low cost of labor. • They created a global competitive advantage by combining inexpensive labor with technology.

10. Challenges faced in China • China still controls many aspects of the business environment • There are few wholly owned American companies; most are joint ventures. • China requires multi-national business’ to hire Chinese

11. Global Tectonics • The book says “global tectonics” is the process by which developing trends in Technology, nature and society slowly revolutionize the business environment, much like earth’s tectonic plates. • There are 3 different types of global tectonics; environmental, technological, and societal

12. Global tectonics Cont. • Environmental: is the interactions between people and the environment • Technological: means advances in all technology. • Societal: represents shifts in international governance, political and cultural values.

13. 12 Global Trends • Trends that are likely to present the most significant challenges for companies in the next 30 years. • Developments in areas such as demography, infectious diseases, resource degradation, economic integration, nanotechnology, international conflict and governance all will have major consequences for corporate strategy. • They might shake up individual companies or entire industries.

14. 1. Population Trends • The world pop. Is rising fast from 6.4 billion today to an expected 7.8 billion by 2025 & 9 billion by 2050. • Growth is highest in those areas of the world least capable of supporting such growth. • New migration and immigration patterns will emerge. • Developed nations • Older people spend a higher proportions of their consumption is services and intangible where as younger people prefer to buy more tangible products • Women, now outnumber men in American higher education, increasingly look for flexible work opportunities in the knowledge technologies

15. 2. Urbaniztion • Today less than half of the world’s pop. Lives in cities, by 2030 this number is expected to increase to nearly 60%. • Local and federal gov. will be hard pressed to provide the necessary infrastructure and social services. • These trends offer large opportunities for business. To make mega cities livable requires innovation, investment, and economic growth.

16. 3. Spread of infectious disease • As levels of migration & cross border flow of labor & goods increase, the likelihood of epidemics & spread of infectious disease becomes greater. • Many of the solutions to these problems will have to be provided by the private sector 4. Resource Management • Depends on the availability of such critical resources as water, food, and energy. • Access to plentiful fresh water is a key concern in many areas and is a major determinate of local growth and investment. • Prudent forecasts suggest hat future conflict over water resources is increasingly likely. • The availability of food is impacted by & affects population growth, technology, & governance.

17. 5. Environmental Degradation • “Global Warming” • Many species of plants and animals will adapt or move to deal with the shift in climate, but many might become extinct. • Water pollution, deforestation, desertification, & erosion also pose significant threats to the environment. • Solutions to these problems will require a partnership b/w the private sector & regulatory authorities on a global scale. • More fuel efficient cars & non-fossil-fuel energy sources, such as hydroelectric power, solar power, hydrogen engines, and fuels cells, all promise big cuts in green house gases.

18. 6. Economic Integration • Higher levels of cross-border economic activity have increased interdependence among the world’s economies and created a fully integrated economic sys. On a global scale. • Air-Bus consortium is a good example. • Wings are manufactured in Britain, fuselage and tail in Germany and Spanish companies produce the doors and cockpit with final assembly taking place in France.

19. 7. Knowledge Dissemination & 8.Information Technology • Knowledge-based Internet Economy allows for information and ideas to spread across the world almost instantly. • Ex.)Google- made information readily available to almost everyone in every possible category you can think of • Smart Products- interactive product that becomes smarter the more they are used • The iPhone has a feature that locates you exactly where you are, then gives your directions from where you are located. • These products have allowed us to access information that at once was either not possible or extremely hard to come by

20. 9. Biotechnology Most likely to have the greatest potential in 3 areas: • Medicine • Agriculture • The environment ex.) Many car companies are introducing hybrids to their lines.

21. 10. Nanotechnology • With stronger and lighter technology we are able to create cost affective products that will reduce transportation cost and and reduce pollution. 11. Conflict • Terrorism has become a major threat not only to the government and civilians but businesses as well.

22. 12. Governance Societies and corporations are connected by 2 sets of laws: • The rule of law, set by local, national and international legislation. • These legal structures vary greatly throughout the world • Most have roots that were developed centuries and centuries ago

23. 12. Governance Continued 2. Created by the market- which is becoming the dominant force in the evolution of corporate governance • Corporations have created their management structures to compete in the global markets • Business Culture is starting to change. Corporations have to balance local identities, allegiances, and conflicts Ex.) Diamonds from Africa that may be considered “Conflict diamonds” can create a conflict in the world market. Many Companies like James Avery and Baily Banks and Biddle now come with guarantees that they only carry non-conflict diamonds. • Another trend putting pressure on the product market is the increase in cross-border investments • World wide cross border merger and acquisition now top $500 Billion

24. Implications of a Global Economy • The new economy is not governed by laws of scarcity, but rather information which grows as it’s shared. • The effect of location is diminished. We now have round-the-clock operation and unlimited capabilities. • Products are now manufactured in places with the fewest barriers and the highest demand. • The same knowledge can have different implications based on the individual user. • Knowledge has higher value when it’s in systems, rather than when it can “walk out the door” in people’s heads. • Human capital is the basis for any knowledge based company.

25. IPhone http://www.youtube.com/watch?v=PZoPdBh8KUs

26. Risk and Scenario Analysis • Risk lies along a continuum; companies must assess risk accordingly to achieve accurate forecast. • Scenario Analysis: A way of examining possible futures. • Things we know about (Ex- knowing new technologies will come) • Elements considered uncertain (Ex- future int. rates, oil prices) • Scenario building occurs when we encourage diversity and sharpen our perception. 1. Identify changes and trends 2. Focus on developments that shape your future 3. Utilize combinations 4. Forecast Certainty Uncertainty

27. Global Futures:The Global Scenario Group • The Global Scenario Group (GSG) • Assembled by the Stockholm Environment Institute in 1995 by Paul Raskin (president) • Purpose: To examine the prospects for world development in the twenty-first century based on three different social visions for the future • Conventional Worlds • Barbarization • Great Transitions • Goal: To answer the question, "What global futures could emerge from the turbulent changes shaping our world?”

28. Conventional Worlds Envision the global system of the twenty-first century evolving without major surprises, sharp discontinuities, or fundamental transformations in the basis for human civilization. • Characteristics: • Dominant values and institutions currently driving globalization will continue to shape the future. • Incremental market and policy adjustments are able to cope with social, economic, and environmental problems as they arise. • This division is distinguished by essential continuity.

29. Conventional Worlds: Scenarios • Scenario 1: Market Forces • Competitive, open and integrated global markets drive world development. • Social and environmental concerns are secondary. • Scenario 2: Policy Reform • Assumes that comprehensive and coordinated government action is initiated for poverty reduction and environmental sustainability.

30. Barbarization Foresees the possibilities that problems are not managed. Instead, the problems cascade into self-amplifying crises that overwhelm the coping capacity of conventional institutions. Civilization descends into anarchy or tyranny.

31. Barbarization: Scenarios • Scenario 3: Breakdown • Conflict and crises spiral out of control. • Leads to unbridled conflict, institutional disintegration, and economic collapse. • Scenario 4: Fortress World • Features an authoritarian response to the threat of breakdown • The world divides into a kind of global apartheid with the elite in interconnected, protected enclaves and an impoverished majority outside. • There is repression, environmental destruction, and misery.

32. Great Transitions Envision profound historical transformations in the fundamental values and organizing principles of society. • Characteristics: • New values and development paradigms ascend that emphasize: • The quality of life and material sufficiency • Human solidarity and global equity • Affinity with nature and environmental sustainability

33. Great Transitions: Scenarios • Scenario 5: Eco-Communalism • A green vision of bio-regionalism, localism, face-to-face democracy, small technology, and economic autarky. • Scenario 6: New Sustainability Paradigm • Goal: To build a more humane and equitable global civilization rather than retreat into localism. • Seeks to change the character of the urban, industrial situation, rather than to replace it.

34. A New Compact Between Business and Society? • Society forces companies to rethink approach • Dealing more effectively with full-range of stakeholders • Limited attention paid to stakeholders • Public relations and lawyers normally deal with major societal concerns • Take societal considerations into account when approaching core strategy and business model design

35. 9 “Laws” that Play Key Roles • Size means scrutiny • Cutting costs raises compliance risk • Strategy must involve society. • Reducing risks means building trust • Satisfying shareholders means satisfying stakeholders

36. 9 “Laws” Continued • Global growths requires global gains • Productivity requires sustainability • Differentiation relies on reputation • Good governance needs good representation

37. 5 Takeaways • Globalization is our future • 12 Global Trends • Strategic Implications of Global Economy • Scenario Analysis • Decide • Identify • Construct • Generate

38. 5 Takeaways Continued • Business and Society • Globalization means dealing with full-range of shareholders • Use societal problems to an organizations advantage • Use 9 “laws” to play key role in strategy formulation in the future