PPT FOM 7Ce Ch02 Student

Chapter 2

Environmental Constraints on Managers

Copyright © 2014 Pearson Canada Inc. 2-1

Learning Objectives

1. How much control do managers have?

2. What is the external environment for managers?

3. What challenges do managers face in a global environment?

4. How do organizations do business globally?

5. How does the environment affect managers?


How much control do managers have?

There are two positions as to the actual control that managers have in regard to the environment in which they operate

1. Omnipotent View– Managers are directly responsible for an organization’s success

or failure, regardless of the obstacles

2. Symbolic View– The success or failure of an organization is due to

factors outside of the manager’s control


The External Environment

• The external environment are forces outside the organization that may affect its performance

• There are three components: 1. The Specific

2. The General

3. The Global



The Specific Environment• Stakeholders

– Groups that have a “stake” in or are significantly influenced by what the organization does

• Shareholders– Individuals who own stock in the organization

• Customers– Organizations exist to meet the needs of customers

• Suppliers– Provide materials and equipment as well as financial and labour inputs

• Competitors– All organizations have one or more competitors to which they must be

prepared to respond


The General Environment• Political Conditions

– Federal, provincial and local governments influence what organizations can and cannot do.

– Also considers the “stability” of a market place• Economic Conditions

– Include interest rates, inflation rates, disposable income, stock market fluctuations, business cycles, among others

– The type of economy (“command” or “market”) is also important

• Socio-Cultural Conditions– Include the changing expectations of society as well as demographic

trends in a population (gender, age, education, geographic location, income and family composition)


The General Environment• Technological Conditions

– Include the rapid changes occurring in technology

• Environmental Conditions– Includes how organizations treat the environment in which they

operate as well as sustainability practices

• Legal Conditions– The type of legal regime as well as the legislation and regulations that

govern how businesses must operate


The challenges managers face in a global environment

• The global environment– More organizations are “going global”– Yet this presents challenges and changes related to managing

the enterprise in a very different marketplace

• Increased global trade and expectations of growth– Expanding regional trading alliances– Facilitated and regulated by the World Trade Organization


International Trade Relations• Regional Trading Alliances

– European Union (EU)

– North American Free Trade Agreement (NAFTA)

– Association of Southeast Asian Nations (ASEAN)

– Trans-Pacific Partnership (TPP)

• Key emerging markets– Brazil, Russia, India, China & South Africa (BRICS)

• World Trade Organization (WTO)


The PESTEL Model

• P - Political• E - Economic• S - Socio-Cultural• E – Environmental• T – Technological• L - Legal

• A useful model for summarizing and assessing the conditions of the global environment

• Assists managers with market entry decision-making



How organizations do business globally

Types of International Organizations• Multinational Corporations• Multidomestic Corporations • Global Companies • Transnational or Borderless Organizations• Born Globals



How Organizations Go Global

• Global Sourcing– Purchasing materials or labour from around the world,

wherever it is cheapest

• Exporting– Making products at home and selling them abroad

• Importing– Selling products at home that are made abroad


How Organizations Go Global (cont’d)

• Licensing and Franchising – Giving another organization the right to use its name,

technology, or product specifications

• Franchising– Franchising is used by service organizations to use

another company’s name and operating methods• Licensing– Licensing is used by manufacturing organizations that

make or sell another company’s productsCopyright © 2014 Pearson Canada Inc. 2-16

How Organizations Go Global (cont’d)

• Strategic Alliance– Partnership between companies (domestic and/or foreign) to

share resources in developing new products or building production facilities

• Joint Venture is a type of strategic alliance in which partners form another (independent) organization for a business purpose

• Foreign Subsidiary– Direct investment by an organization in a foreign country by

creating a separate and independent production facility or office– Involves the greatest amount of resources and highest risk


How the environment affects managers

• Environments differ in degrees of uncertainty• Environmental uncertainty is defined as the degree of

change and complexity in an organization’s environment

– Degree of change: how dynamic or stable is the external environment?

– Degree of complexity: the number of components in an organization’s environment and the extent of an organization’s knowledge of these components.



The Pros and Cons of Globalization• Advocates praise the economic and social benefits of

globalization

• However, “activists” focus on the potentially negative aspects of globalization:– Use of child labour to produce goods– Economic interdependence of trading countries– Spreading of US cultural values and business

practices

• The bottom line …. Organizations need to be sensitive with respect to cultural, political, and economic differences



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PPT FOM 7Ce Ch02 Student

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