Environmental Analysis

Chapter Three
Contains
PEST Analysis
Political, Legal, Economics, Socio-Culture,
Technological, and International environment analysis
framework (Individualism Vs Collectivism, totalitarian
system vs democracy, common law vs civil law system),
determinants of culture state of technological stage,
impact of ecological and international factors)
Industry and Competitive Analysis
Strategic Group Mapping
Monitoring
 Environment
It refers to the forces that create conditions and
influences on the capacity of a firm to compete in the
market.
Complex and unpredictable environment increase
degree of uncertainty & vice versa.
Definition:
According to Gareth (2002):
‘The set of forces surrounding an organization
that have the potential to affect the way it operates
and its access to scarce resources.’

According to Robbins and Coulter (2000):

‘An environment refers to institutions or forces
that are outside the organisation and potentially
affect the organization’s performance.’
 Political
Environment

Legal Economic
Environment Environment

Remote
Environm
ent

Technological Socio-cultural
Environment Environment
Component of remote environment:
Political Factors
Economic Factors
Socio-cultural factors
Technological factors
Legal Environment Factors
 Political Environment
Political Stability
Task of military invasion
Intellectual property protection
Trade regulations and tariffs
Pricing regulations
Foreign policies
Wages legislations- minimum wages and overtime
Industrial safety regulations
Product labelling requirements
 Economic Environment
Type of economic system in the countries
Government intervention in the free market
Exchange rates and stability of host country currency
Efficiency of financial markets
Skill level of workforce
Business cycle stage (e.g. Prosperity, recession, recovery)
Economic growth rate
Unemployment rate
Inflation rate
Interest rates
 Socio-cultural Environment
Demographics
Class Structure
Education
Cultural value and norms
Entrepreneurial spirit
Attitudes (health, environmental consciousness. Etc.)
 Technological Environment
Recent technological developments
Technology accessibility
Technological knowledge
Research & development
 Legal Environment
Company act
Contract act
Tax law
Labour union law
Consumer welfare protection law
Employment law
International Environment
One of the most dramatic and significant world trends in the
past two decades has been the rapid, sustained growth of
international business. Markets have become truly global for
most goods, many services, and especially for financial
instruments of all types.
International business includes any type of business activity
that crosses national borders.
The analysis of the global environment of a company is
called global environmental analysis. This analysis is part of
a company’s analysis-system, which also comprises various
other analyses, like the industry analysis, the market
analysis and the analyses of companies, clients and competitors.
 You have no choice but to operate in a world
shaped by globalization and the information
revolution. There are two options: Adapt or Die
Andrew S. Grove
Intel corporation
former chairman

You do not choose to become

global. The market chooses for you;
it forces your hand
Alain Gomez
CEO, Thompson SA
Methods of the global environmental analysis
The segmentation according to the six presented factors of the
PESTLE analysis is the starting point of the global environmental
analysis. The analysis can be done with the help of a checklist that
evaluates every criteria of a segment. In this manner, the status of
the global environment shall be defined. In general, every segment
needs to be worked on systematically to recognize changes. Then,
the factors and its impacts can be interpreted right. After the
segmentation, the analysis consists of four further steps:
Environmental Scanning
Environmental Monitoring
Environmental Forecasting
Environmental Assessment
Environmental scanning

The first step is called scanning. Through environmental scanning, every

segment is analyzed to find trend indicators. Thus, after having
examined the segment, indicators for its development are defined.
[8]
 According to Fahey and Narayanan, scanning reveals ‘actual or
imminent change because it explicitly focuses on areas that the
organisation may have previously neglected’.[9] Scanning is also used to
detect weak signals in the environment, before these have conflated into
a recognizable pattern, which might affect the organization’s competitive
environment.
Scanning can include every material published in the media such as
television, newspapers and periodicals. [10] This method of scanning is
called media-scanning. Product-scanning includes scanning of products
which announce re-emerging consumer behaviour. Looking for global
trends on the internet can be defined as online-scanning. [11]
Environmental monitoring
Environmental scanning is only one component of global
environmental analysis. After having identified critical trends and
potential events they have to be monitored. The next step in global
environmental analysis is called environmental monitoring. It can be
defined as 'the process of repetitive observing for defined purposes, of
one or more elements or indicators of the environment according to
pre-arranged schedules in space and time, and using comparable
methodologies for environmental sensing and data collection'. Through
environmental monitoring, data about environmental developments
are recorded, followed and interpreted. Out of this, historical
development changes that are important for the company can be
recognized and evaluated. Additionally, the relevance and the reliability
of the data sources are tested. Furthermore it is checked, where
prognoses are required.
Environmental forecasting
The direction, intensity and speed of environmental
trends are explored through
environmental forecasting. Especially the search for
possible threats is of importance. A prognosis of
trends is necessary to get a picture of the future. This is
done by adequate methods, like strategic
foresight or scenario analysis. Several other methods of
forecasting are the following: guessing, rule of thumb,
expert judgement, extrapolation, leading indicators,
surveys, time-series models and econometric systems
Environmental assessment
In the last step of the global environmental analysis, the results of the previous three
steps (Scanning, Monitoring, Forecasting) are assessed. The discovered
environmental trends are reviewed to estimate the probability of their occurrence.
Furthermore, they need to be analyzed to evaluate whether they represent a chance
or a risk for the company. The dimension of the chances or risks is also of
importance. Moreover, a reaction strategy to the occurring risks or chances needs to
be defined. This is done with the help of the Issue-Impact-Matrix, an adequate
instrument to evaluate and prioritize trends. The forecasted environmental factors
are here classified with respect to their probability of occurrence and their impact
on the company. According to their classification, they demonstrate a high, medium
or low priority for the company. The factors with a high occurrence probability and a
high, significant impact on the company have the highest priority. The higher the
priority, the faster need to be reacted to avoid risks and to benefit from chances. [16]
 The environmental assessment represents the last step of the global environmental
analysis.
Individualism
Individualism is the moral stance, political philosophy,
ideology, or social outlook that emphasizes the moral
worth of the individual. Individualists promote the exercise
of one's goals and desires and so value independence and
self-reliance and advocate that interests of the individual
should achieve precedence over the state or a social
group, while opposing external interference upon one's
own interests by society or institutions such as the
government. Individualism is often defined in contrast
to totalitarianism, collectivism, authoritarianism, communi
tarianism, and more corporate social forms.
Individualism makes the individual its focus and so starts
"with the fundamental premise that the human individual
is of primary importance in the struggle for
liberation." Classical liberalism, existentialism,
and anarchism are examples of movements that take the
human individual as a central unit of
analysis. Individualism thus involves "the right of the
individual to freedom and self-realization".
It has also been used as a term denoting "The quality of
being an individual; individuality" related to possessing
"An individual characteristic; a quirk." Individualism is
thus also associated with artistic and bohemian interests
and lifestyles where there is a tendency towards self-
creation and experimentation as opposed to tradition or
popular mass opinions and behaviors as so also
with humanist philosophical positions and ethics.
Collectivism
Collectivism is the moral stance, political philosophy, ideology, or
social outlook that emphasizes the group and its interests. Collectivism
is the opposite of individualism. Collectivists focus on communal,
societal, or national interests in various types of political, economic,
and educational systems.
In a collectivist culture, an individual identifies himself or herself as
with a group. He or she believes that the desire and goals of their group
are more important than anyone else's individual ideas. Thus, he or she
is more connected to his or her group and care less about personal goals
as an individual and more about combined goals as a whole group. In a
collectivist society, people value their in group as a whole, taking into
account how their actions give a positive or negative impression to out
groups while staying tightly knit with their in group.
Several studies have shown the consistent impact that
collectivist cultures and individualist cultures have on the
willingness to cooperate with others during group activities.
Collectivists are more likely to accommodate when in an
individualistic culture and change their behaviors based on
their situations better than individualists.
There are two types of collectivism: institutional
collectivism and in-group collectivism. Institutional
collectivism is the idea that a work environment creates a
sense of collectivist nature due to similar statuses and
similar rewards, such as earning the same salary. In-group
collectivism is the idea that an individual's chosen group of
people, such as family or friend groups, create a sense of
collectivist nature. In-group collectivism can be referred to
as family collectivism.
Democratic System
Democracy ("rule of the people"), in modern usage, is a
system of government in which the citizens exercise power
directly or elect representatives from among themselves to
form a governing body, such as a parliament. Democracy is
sometimes referred to as "rule of the majority".  Democracy
is a system of processing conflicts in which outcomes
depend on what participants do but no single force controls
what occurs and its outcomes. The uncertainty of outcomes
is inherent in democracy, which makes all forces struggle
repeatedly for the realization of their interests, being the
devolution of power from a group of people to a set of rules.
According to political scientist Larry Diamond,
democracy consists of four key elements: (a) A
political system for choosing and replacing the
government through free and fair elections; (b) The
active participation of the people, as citizens, in
politics and civic life; (c) Protection of the human
rights of all citizens, and (d) A rule of law, in which the
laws and procedures apply equally to all citizens.
Totalitarianism
Totalitarianism is a political system in which the state recognizes
no limits to its authority and strives to regulate every aspect of
public and private life wherever feasible. A distinctive feature of
totalitarian governments is an "elaborate ideology, a set of ideas
that gives meaning and direction to the whole society“
The concept was first developed in the 1920s by
the Weimar German jurist, and later Nazi academic, Carl Schmitt,
and Italian fascists. Schmitt used the term, Totalstaat, in his
influential work on the legal basis of an all-powerful state, The
Concept of the Political (1927).The concept became prominent
in Western political discourse as a concept that highlights
similarities between Fascist states and the Soviet Union.
Common law
Common law (also known as judicial precedent or judge-made law or case law) is the
body of law developed by judges, courts, and similar tribunals.  The defining characteristic of
“common law” is that it arises as precedent. In cases where the parties disagree on what the
law is, a common law court looks to past precedential decisions of relevant courts, and
synthesizes the principles of those past cases as applicable to the current facts. If a similar
dispute has been resolved in the past, the court is usually bound to follow the reasoning used
in the prior decision (a principle known as stare decisis). If, however, the court finds that the
current dispute is fundamentally distinct from all previous cases (called a "matter of first
impression"), and legislative statutes are either silent or ambiguous on the question, judges
have the authority and duty to resolve the issue (one party or the other has to win, and on
disagreements of law, judges make that decision). The court states an opinion that gives
reasons for the decision, and those reasons agglomerate with past decisions as precedent to
bind future judges and litigants. Common law, as the body of law made by judges, stands in
contrast to and on equal footing with statutes which are adopted through the legislative
process, and regulations which are promulgated by the executive branch (the interactions are
explained later in this article). Stare decisis, the principle that cases should be decided
according to consistent principled rules so that similar facts will yield similar results, lies at
the heart of all common law systems.
Civil law
Civil law is a branch of the law. In common law countries such as
England, Wales, and the United States, the term refers to non-
criminal law.  The law relating to civil wrongs and quasi-
contracts is part of the civil law. The law of property is embraced by
civil law. Civil law can, like criminal law, be divided
into substantive law and procedural law. The rights and duties of
individuals amongst themselves is the primary concern of civil
law. It is often suggested that civil proceedings are taken for the
purpose of obtaining compensation for injury, and may thus be
distinguished from criminal proceedings, whose purpose is to
inflict punishment. However, exemplary or punitive damages may
be awarded in civil proceedings. It was also formerly possible
for common informers to sue for a penalty in civil proceedings.
because some courts have both civil and criminal
jurisdiction, civil proceedings cannot be defined as those
taken in civil courts. In the United States, the expression
"civil courts" is used as a "shorthand for trial courts in
civil cases".
In England, the burden of proof in civil proceedings is in
general, with a number of exceptions such as committal
proceedings for civil contempt, proof on a balance of
probabilities. In civil cases in the Maldives, the burden
of proof requires the plaintiff to convince the court of
the plaintiff's entitlement to the relief sought. This
means that the plaintiff must prove each element of the
claim, or cause of action in order to recover.
Culture  is the social behavior and norms found in human societies.
Culture is a central concept in anthropology, encompassing the range of
phenomena that are transmitted through social learning in
human societies.
Some aspects of human behavior, such as language, social practices such
as kinship and marriage, expressive forms such
as art, music, dance, ritual, and religion, and technologies such as tool
usage, cooking, shelter, and clothing are said to be cultural universals,
found in all human societies. The concept of material culture covers the
physical expressions of culture, such as technology, architecture and art,
whereas the immaterial aspects of culture such as principles of social
organization (including practices of political organization and
social institutions), mythology, philosophy, literature (both written and o
ral), and science comprise the intangible cultural heritage of a society.
Business Ethics
Ethics:
Personal believes in what is good & What is bad? Or what is
right and what & wrong?
Ethics are moral guidelines which govern good behaviour...
It affects by the different elements:
 Personal believes & values
 Friends circle
 Life experience
 Situational factors
Cont....
Business Ethics:
Business ethics are moral features of commercial
activities which reflects the philosophy of business
 Business ethics are nothing more than code of values
and principles that govern the action of a person or a
group of people, regarding what is right versus what is
wrong.
Behaving ethically in business is widely regarded as
good business practice.
Why should company strategies be ethical?
An unethical strategy is morally wrong and reflects
badly on the company
Puts reputation in risk
May be avoided by customers
Makes it difficult to recruit and retain employees
Increase public support
Helpful on implementing and evaluating the
strategies
Increase interest and support of stakeholders
 Social Responsibility
Social or financial activities for the welfare of society
Ethics encourage doing social responsibilities
Social responsibilities are:
Provide good quality product
Reasonable price
Good wages
Employment opportunity for local and ethnic group
Pollution control
Planting trees
Convocational training provide
Other different social supports
Arguments For Social Responsibility
FOR
Public Expectations
Long Run Profit
Ethical Obligation
Public Image
Better Environment
Discouragement of further Govt Regulation
Balance of Power and Responsibility
Stockholders Interests
Possession Of resources
Superiority Of Prevention Over Curse
Business Is the part of Society
New Avenues to create Profits
AGAINST
Violation Of Profit Maximization of Goal
Dilution of Purpose
Costs
Too Much Power:- already has a power CSR provide
enough power.
Lack Of Skills
Lack Of Accountability
Lack Of Accountability
Lack Of Broad Public Support
 Approaches To Social Responsibility

REACTIVE DEFENSIVE ACCOMMODATIVE pROACTIVE

Lowest Degree Highest Degree

Approaches To Social Responsibility
Reactive: Respond when higher
pressure
Defensive: Defend potential
challenges from Society
Accommodative: required by the law
not more than that
Proactive: Actively takes part in CSR
Areas Of Social Responsibility
Towards
INVESTOR
EMPLOYEES
CUSTOMER
GOVERNMENT
SOCIETY
INTER-BUSINESS
Role of Senior Executives: Linking Strategy
with Ethics
Insist all aspects of company’s strategy reflect high
ethical standards
Make it clear that all employees are expected to act
with honesty
Install organizational check and balances to
 Monitor behavior
 Enforce ethical code of conduct
 Provide guidance to employees in gray areas

Display genuine commitment to conduct business

activities ethically
 Linking strategy with social responsibilities
Management should match a company’s social responsibility
to its
Core values
Business mission
Overall strategy
Some companies integrate social responsibility objectives into
their
Mission
Performance targets
Strategies
There is no generic approach linking strategy and social
responsibility
 C H
M U
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