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Chapter 2:

the management environment and

PEST Analysis:
A measurement tool which is used to assess markets for a particular product or a business at a given time frame.
PEST stands for Political, Economic, Social, and Technological factors. Once these factors are analysed organisations
can take better business decisions.
The organization's marketing environment is made
up from:

1.The internal environment

2.The micro-environment
3.The macro-environment e.g. Political (and legal)
forces, Economic forces, Sociocultural forces, and
Technological forces. These are known as PEST
The political arena has a huge influence upon the
regulation of businesses, and the spending power of
consumers and other businesses
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially
true when planning for international marketing
The social and cultural influences on business vary from country to country. It is very important that such
factors are considered
Vital for competitive advantage, and is a major driver of globalization.
IMI explain about globalization and its impact on organizations.
Global village:
The concept of boundaryless world; the production and marketing of goods and services worldwide.
What does it mean to be ‘Global’?

- Exchanging goods and services with consumers in

other countries.

- Using managerial and employee talent from other


- Using financial sources and resources outside

home country.
How Do Organizations Go Global?
Multinational Corporations (MNCs):
Any type of international company that maintains operations in multiple countries. Three types are:
Management and other decisions are decentralized to the local country in which it is operating. Relies on local
employees to manage the business, tailors strategies to each country’s unique characteristics, and is used by many
consumer product companies. Example: McD
Transnational Corporation (TNC):
An MNC where artificial geographical boundaries are eliminated.
Country of origin or where business is conducted becomes irrelevant; increases efficiency and
effectiveness in a competitive global marketplace.
Global corporation:
An MNC in which management and other decisions are centralized in the home country. World market is
treated as an integrated whole; focus is on control and global efficiency.
Stages of going global
Selling of local products for use or resale in foreign countries
Indirect Exporting:
Use an independent international marketing companies such as
export companies at the home market, agent brokers and etc
(low cost strategy)

Direct Exporting:
- Handles its own exports.
- Building your own export and sales team
- Overtime, as your sales grow, it may be necessary as the cost
of an indirect approach could be higher and yet one do not have
control over indirect exporters.

> Avoids the often substantial cost of establishing manufacturing

> May help firm achieve experience curve & location economies

> Firm may manufacture in centralized location & export to other

national markets to realize scale economies from global sales
volume (Sony/TV, Matsushita/VCR, Samsung/Chips)

> Not appropriate if lower cost manufacturing locations

> High transport costs can make exporting uneconomical especially bulk

> Tariff barriers can make exporting uneconomical

> If firm delegates marketing, sales & service to another company they
may have divided loyalties because they carry competing products or are a
large MNE (Diebold)

> Can set up wholly owned subsidiaries to handle local marketing & sales ->
can exercise tight control while reaping cost advantage of manufacturing in
a single location
Buying of products from foreign countries for use or resale locally
A contractual agreement in which one firm grants access to its patents, trade secrets, or technology to another
for a fee

• Receive royalties for granting the rights to intangible property to

licensee for specified period (patents, inventions, formulas, processes,
designs, copyrights, trademarks)

• Licensee puts up most of the capital to get the operations going –

increase the development cost & risk

• Allows firm to participate where there are barriers to investment


• Frequently used when firm possesses intangible property but does

not want to develop the business application itself (Coca Cola/clothing)

• Primarily used by manufacturing firms


> Does not give firm tight control over manufacturing, marketing &
strategy to realize experience curve & location economies

> Does not allow firm to coordinate strategic moves across countries
by using profits earned in one country for competitive attacks in

> Firms can lose control over the competitive advantage of their
technological know-how. – Cross-licensing can increase risk by holding
each other hostage for mis-use – Firms can reduce risk by forming a
joint venture with each party taking equity stakes
A form of licensing in which one firm contracts with another to operate a certain type of business under an
established name according to
specific rules

• Involves longer term commitment than licensing. Primarily used by

service firms (McDonalds)

• Franchiser sells intangible property (trademark) & insists

franchisee agrees to abide by strict business rules (location,
methods, design, staffing, supply chain)

• Royalty payments that are some percentage of franchisee’s


• Firm relieved of many costs & risks of opening new market.


• No manufacturing so no location economies & experience curve

• May inhibit the ability to take profits out of one country to support
competitive attacks in another

• Risk of worldwide reputation if no quality control – Firm can set up

“master franchise” in each country – subsidiary which is JV
(McDonalds & local firm)

• Franchisors may do really well

A partially or wholly owned company that is part of a larger corporation with headquarters in another country.
Foreign subsidiary companies are incorporated under the law’s of the country it is located
Advantages of Wholly Owned Subsidiary

• When there is technological competence wholly-owned subsidiary

reduces risk over losing control

• Give firm tight control over operations in country -> engage in

strategic coordination with profits

• Can realize location & experience curve economies – centrally

determined decisions
Disadvantages of Wholly Owned Subsidiary

• Most costly method of market entry

• Risk associated with learning to do business in a new culture

Increased concern for quality
Continuous improvement:
> Organizational commitment to constantly
improving the quality of a product or service
> Kaizen : the Japanese term for an
organization committed to continuous
Work process engineering:
Radical or quantum change in an organization
Just in time:
Denoting a manufacturing system in which materials or components are delivered immediately before they
are required in order to minimize inventory costs.