Business

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Chapter
2
Understanding the
Environments of
Business
1-2
 Chapter Outline
Organizational Boundaries &
Business
Environments
Economic Environment
Technological Environment
Political-Legal Environment
Sociocultural Environment
Business Environment

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 Organizational Boundaries
Business & Environments
• External Environment

• Organizational Boundary-
Separates Organization From
Environment

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 Dimensions of
External Environments
Technological
Business
Sociocultural
Economic

The Business
Organization

Business
Political-
Legal
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Business Economic Environment
• Business Cycle
• Aggregate Output
– Standard of Living
– Gross Domestic Product (GDP)
• Real
• Nominal
– Gross National Product (GNP)
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Business Business Cycle
Expansion

Contraction
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 % GDP Change
Business From Previous Period
8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%
1975 1985 1995 2003

Source: U.S. Department of Commerce, Bureau of Economic Analysis

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Business U.S. GDP & Real GDP
$12,000
(In $ Billons)
$10,000
Gross Domestic
$8,000 Product
$6,000
Gross Domestic
$4,000 Product (2000
Dollars)
$2,000

$0

Source: U.S. Department of Commerce, Bureau of Economic Analysis

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Business GDP & GDP Per Capita

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 Purchasing Power Parity
Business (Big Mac Index Based On At Market Exchange Rate 12/13/04)

China $1.26
Russia $1.49 US Big Mac = $3 Average
Argentina $1.60 (Average of 4 Cities)
Mexico $2.12
Japan $2.50
Chile $2.56
U.S. $3.00
Euro Area $3.75
Switzerland $5.46
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00
Source: The New York Times, “Big Mac Index”, Dec. 16 th, 2004. http://www.economist.com/markets/bigmac/displayStory.cfm?story_id=3503641

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Business U.S. Productivity

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 GDP % Change From
Business Preceding Period
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0% *
-4.0%
-6.0% Expansion vs. Recession vs. Depression?
-8.0%
-10.0%
*3rd Quarter 2004
Source: U.S. Dept. of Commerce- Bureau of Economic Analysis

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 % GDP Change vs.
Business % Labor Productivity Change
5.0%
4.5%
4.0%
3.5%
3.0%
GDP
2.5%
Productivity
2.0%
1.5%
1.0%
0.5%
0.0%
1995 1997 1999 2001 2003

Source: U.S. Department of Commerce, Bureau of Economic Analysis U.S. Department of Labor- Bureau of Labor Statistics

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 U.S. Balance
Business of Trade (2003)
U.S. Sells $1.0 Trillion of
Goods/Services

U.S. Balance of Trade

-$500 Billion

U.S. Buys $1.5 Trillion of

Goods/Services

Source: U.S. Census Bureau- Foreign Trade Statistics (2003 Annual Highlights), http://www.census.gov/foreign-trade/statistics/highlights/annual.html
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Business U.S. National Debt
$8
$7
$6
$5
In $ Trillions*
$4
$3
$2
$1
$0
1950 1960 1970 1980 1990 2000
Source: Bureau of the Public Debt: Historical Debt Outstanding- Annual, http://www.publicdebt.treas.gov/opd/opdhisto4.htm

*For Today’s Figure go to “U.S. National Debt Clock”, http://www.brillig.com/debt_clock/

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 Economic Stability
• Inflation- Widespread Price
Business
Increases In An Economic System

• Unemployment- Level
of Joblessness Among
Those Actively Seeking
Work In An Economic
System

• Recession vs. Depression

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 U.S. Consumer Price Index
(Dec.- All Urban Consumers)
Business
180
160 1982-1984- = 100
140
120
100
80
60
40
20
0
1965 1970 1975 1980 1985 1990 1995 2000

Source: U.S. Department of Labor- Bureau of Labor Statistics

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 U.S. Unemployment Rate
Business (Seasonally Adjusted on 12/31)
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1965 1970 1975 1980 1985 1990 1995 2000 2004*
* 11/30/04
Source: U.S. Department of Labor- Bureau of Labor Statistics, http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

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 Managing the U.S.
Economy
Business
• Fiscal Policy- Determines How
Government Collects/Spends
Revenues

• Monetary Policy- Determines

Size of Nation’s Money Supply

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Business Monetary Policy
Interest Rates 
Tight
Spending 

Interest Rates 
Easy
Spending 
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 U.S. Prime Interest Rate
Business (Jan.1)
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1950 1960 1970 1980 1990 2000 2004
Source: Board of Governors of the Federal Reserve System

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Business Technological Environment
Product/Service
Technologies

Business Process
Technologies- Enterprise
Resource Planning

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 Earnings & Educational
Business Attainment (1999 Dollars)

Not H.S. Grad.

H.S. Grad. Full-Time Year-Round
Workers
Some College
Associate's
Bachelor's
Master's
Professional
Ph.D.

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000

Source: U.S. Census Bureau

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Business Political-Legal Environment
• Regulation- Defines
Relationship Between
Government & Business

• Government = Pro vs.

Anti-Business Sentiment

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 Foreign Direct Investment
Business Confidence Index (Oct. 2004)
Taiwan
Corporate Investors’ Interest in
Mexico Global Investment
Brazil Scale = 0-3
Russia
Japan
Germany
India
U.S.
China

0 0.5 1 1.5 2 2.5

Low Confidence High Confidence
Source: A.T. Kearney Consulting, http://www.atkearney.com/main.taf?p=5,3,1,89
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Business Sociocultural Environment
• Customer Preferences/Tastes- Vary
– International
– National

• Ethical Compliance &

Responsible Behavior
– Enron
– Arthur Andersen
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Business Business Environment
• Redrawing Corporate Boundaries-
Core Competencies
• Challenges/Opportunities
– Outsourcing
– Vertical Integration
– Viral Marketing
– Business Process Management
– Post-9/11
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