3

Chapter

The
Management
Environment

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Publishing as Prentice Hall.
 Economic Technological
Globalisation conditions conditions

Rivals

Social-
Political/Legal The
Suppliers Cultural
conditions Customers organisation conditions

Pressure
groups

Physical Demographic
conditions conditions
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2 2-2
Q1. FILL ONE WORD IN THE BLANK.
•A PESTLE/PESTEL analysis is a TOOL (1) that can provide
prompts to the governors, management and staff involved
in the analysis of the changes in the ENVIRONMENT (2) that
could impact future management DECISIONS (3).
•A PESTLE is usually as a part of the strategic development
of a business PLAN (4), however a PESTLE analysis can be
used as part of identifying the OPPORTUNITIES (5) and
THREATS(6) for operational planning within environments.
The PESTLE provides a simple FRAMEWORK (7) within
which to consider EXTERNAL (8) factors.

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 The External
Environment

Figure 2.1
2–4
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General Environment
• Dimensions in the broader society that influence
the industry and the firms within it.
– Political/legal
– Economic
– Sociocultural
– Technological
– Demographic
– Global
2–5
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Q2. PUT THE FOLLOWING FACTORS INTO
THE RIGHT CATEGORY OF PESTEL.
1.GDP  ECONOMIC
2. Invention  TECHNOLOGICAL
3. Gender and age  SOCIAL-
CUTURAL
4. Income  ECONOMIC
5. Laws  LEGISLATIVE/LEGAL
6. Interest rate  ECONOMIC
7. Inflation  ECONOMIC
8. Tradition and customs 
SOCIAL-CUTURAL
9. New processes 
TECHNOLOGICAL
10. Exchange rate  ECONOMIC
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11. Stability of the country 
POLITICAL
12. Trade policy 
LEGISLATIVE/LEGAL
13. Life style  SOCIAL-CUTURAL
14. COVID-19  ENVIRONMENTAL
15. Weather  ENVIRONMENTAL
16. Infrastructure 
ENVIRONMENTAL
17. Labor law  LEGISLATIVE/LEGAL
18. Industrial Revolution 4.0 
TECHNOLOGICAL
19. Employment  ECONOMIC
20. Globalization  ECONOMIC
2-6
 Industry Environment
• Set of factors directly influencing a firm and its
competitive actions and competitive
responses.
– Threat of new entrants
– Power of suppliers
– Power of buyers
– Threat of product substitutes
– Intensity of rivalry among competitors
2–7
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General Environment
• The Economic Segment
– GDP
– Inflation rates
– Interest rates
– Trade deficits or
surpluses
– Exchange rate
– Personal savings rate
– Business savings rates
2–8
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General Environment (cont’d)
• The Political/Legal Segment
– Antitrust laws
– Taxation laws
– Labor laws
– Educational
philosophies and
policies
– Corporate laws

2–9
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General Environment (cont’d)
• The Socio-cultural Segment
– Women in the workplace
– Workforce diversity
– Attitudes/Norms
– Concerns about environment
– Shifts in work and career
preferences
– Religion
– Customs

2–10
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General Environment
• The Demographic Segment
– Population size
– Age structure
– Geographic
distribution
– Ethnic mix

2–11
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General Environment (cont’d)
• The Technological Segment
– Product innovations
– Applications of
knowledge
– Focus of private and
government-supported
R&D expenditures
– New communication
technologies

2–12
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 Industry Environment

The Five Forces of

Competition Model

Figure 2.2
2–13
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Bargaining Power of Suppliers
increases when:
1. Suppliers are big and few in number
2. Suitable substitute products are not available
3. Individual buyers are not main customers of
suppliers and there are many of them
4. Suppliers’ goods are important to buyers’
marketplace success
5. Suppliers’ products create high switching costs.
6. Suppliers pose a threat to integrate forward into
buyers’ industry

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Barriers to entry. These barriers
are high when:
1. Economies of scale are high.
2. Product differentiation is high.
3. High Capital requirements
4. High Switching costs
5. Limited Access to distribution channels
6. Government policy discourages.

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Threat of Substitute Products
increases when:
1. Buyers face low switching costs
2. The substitute product’s price is lower than the
firm’s.
3. Substitute product’s quality and performance
are equal to or better than the existing product

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Bargaining Power of Buyers
increases when:
1. Buyers are big and few in number
2. Buyers purchase a large portion of an industry’s
total outputs
3. Buyers’ purchases are a large portion of a
supplier’s annual revenues
4. Buyers can switch to another product without
incurring high switching costs
5. Buyers pose threat to integrate backward into
the sellers’ industry

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Intensity of Rivalry Among
Competitors increases when:
1. There are many or equally balanced competitors
2. Industry growth slows or declines
3. There are high fixed costs or high storage costs
4. There is a lack of differentiation opportunities or
low switching costs
5. When high exit barriers prevent competitors
from leaving the industry

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