The global economy

Definition: an economy in which goods, services, people, skills and ideas
move freely across geographic borders

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

China’s GDP is predicted to be greater than Japan’s 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

The general environment • The general environment is composed of dimensions in the broader society that influence an industry and the firms within it. Slack resources offer some flexibility to respond to environmental changes – To be strategically flexible on a continuing basis. .– To achieve strategic flexibility. 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 firm’s production process – a capability is the capacity for set of resources to perform a task – Capabilities evolve and must be managed dynamically. a firm has to develop the capacity to learn. many firms have to develop organisational slack.

.• Six segments of environmental analysis are: – – – – – – demographic economic political/legal socio-cultural technological global.