Chapter 3: Business Environment

Tran Minh Thu PhD

thutm@ftu.edu.vn
 Lecture Outline
• Internal environment
• External environment
+ Specific environment
+ General environment
• Analyzing the environment
• Managing the environment
 Internal environment
• Internal resources: capital, human resources,
technology, information, physical assets

• Organizational culture:
+ Tangible assets
+ Intangible assets
 Organizational culture
• Organizational culture is the totality of beliefs,
customs, traditions and values shared by the
members of the organization.
• Work environment:
+Work tasks, goals, and procedures
+Work group behavior, manager behavior
(Oganisational/ Corporate Culture)

Tangible assets: logo,

ritual, rule, historical story,
slogan …

Intangible assets:
Belief,Value
 Strong culture

(Mission)
(Adaptability)
(Employees’ involvement and participant)
(Consistency)
Adapted from Williams et al, 1989
The Organization

External strategy
Environment
Structure, systems, technology
• Legislation
• Politics
• Technology
• Education
• Society Work tasks, goals and
procedures
• Market place
• Competitors
• Consumers
• Economy Work group Manager
behavior behavior

Culture: common Characteristic

beliefs, values and patterns of
attitudes behavior
• Strong culture organization and weak culture
organization depends upon:
+ Mission
+ Adaptability
+ Employees’ involvement and participant
+ Consistency
How Organization Cultures
Form
Robbins, 1989
Top management

Philosophy of
Organization
organization’s Selection criteria
culture
founders

Socialization
 Sustaining Organizational Culture
• Three forces play a particularly important part
in sustaining a culture:
• Selection practices
• Actions of top management
• Socialization methods
 Selection
• Explicit goal – identifying and hiring individuals having
knowledge, skills and abilities to perform the jobs successfully.

• Individuals having values consistent with those of the

organization are selected as per the decision maker’s
judgements.

• Selection becomes a ‘two-way street’ as it provides

information about the organization to the applicants.
 Top Management
• The actions of top management establishes the norms for the
organization as to:

• Whether risk taking is desirable

• How much freedom managers should give to their
subordinates
• What actions will pay off in terms of pay rises, promotions
and other rewards, etc.
 Socialization
• New employees are not familiar with the organizational
culture and are potentially likely to disturb the existing
culture.

• The process through which the employees are proselytized

about the customs and traditions of the organization is known
as socialization.

• It is the process of adaptation by which new employees are to

understand the basic values and norms for becoming
‘accepted’ members of the organization.
 Socialization Process
• Socialization is a process made up of three stages:
• Pre-arrival - All the learning occurring before a new member
joins.
• Encounter - The new employee sees what the organization is
really like and confronts the possibility that expectations and
reality may diverge.
• Metamorphosis - The relatively long-lasting changes take
place. The new employee masters the skills required for the
job, successfully performs the new roles, and makes the
adjustments to the work group’s values and norms.
 How Employees Learn Culture
• Stories – Depicting the past events of the organization. Some
organizations actually try to manage this element of culture
learning.

• Rituals – Repetitive sequential activities reinforcing the values

of the organization.

• Material Symbols – Conveying social equality, desired

organizational behavior, etc. by the top management.

• Language – Acceptance and preservation of culture.

 Economic Technological
Globalisation conditions conditions

Rivals

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

Pressure
groups

Globlaizational Demographic
conditions conditions
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 External environment
• External environment refers to the outside
forces or institutions that potentially affect an
organization’s performance.
• External environment is made up of”
+ The general environment: The broad
conditions and trends that may affect the
organization.
+ The specific environment: The part of the
environment that is directly relevant to the
achievement of an organization’s goals
 General environment
• Political-legal forces
• Economic forces
• Social-cultural forces
• Technological forces
• International forces (globalization)
• Demographical forces
 Economic environment
• …regulate the exchange of materials, money,
energy, and information
• GDP trends
• Interest rates
• Money supply
• Inflation rates
• Unemployment levels
• Wage/price control
• Energy available and cost
• Disposal income
• Currency market
 GENERAL ENVIRONMENT

Economic conditions:
- Unemployment, income → purchase power
- Interest rate
- Exchange rate
- Inflation
- Economic status
• Impacts:
- Needs
- Supply
 GENERAL ENVIRONMENT

Examples:
• Inflation affects people's psychology and
consumption.
• Wages and income affect the prices of the
products and human resources needs of the
business.
 Political- legal environment
• Legal & governmental systems within which
an organization must function.
• Allocate power and provide constraining and
protecting laws and regulation
• Antitrust regulations
• Environmental protection laws
• Tax laws
• Special incentives
• Foreign trade regulations
• Attitudes toward foreign companies
• Laws on hiring and
• Promotion
 GENERAL ENVIRONMENT

- Political stability.
- The attitude of the government towards
businesses.
- Legal system
- Trade policies.
* Impacts:
- Policy
- Stategy
 GENERAL ENVIRONMENT

Political/Legal conditions:
- Government: the organization supervises, maintains
and protects the law and protects national interests, play
the role of regulating the macro-economy through fiscal
and monetary policies , taxes and spending programs.
- Law: builds rules to allow or not to allow, or binding,
which force the businesses to obey.
 GENERAL ENVIRONMENT

Social and Cultural conditions:

Attitudes, values, norms, beliefs, behaviors & associated demographic
trends characteristic of a given geographic area.

- The concepts of aesthetic.

- The tradition, the religious ideology.
- People’s jobs and lifestyle: affect the formation of the needs for
quality, variety, and designs of the products.
- Social concerns and priorities (education, environment, etc.).
Impact:
- Human resources needs and policy
• Demographic forces
• Technological forces
• Globalization
 GENERAL ENVIRONMENT

Globalization:
Lowering or erasing international investment and trade
barriers.

• Impacts:
- Create opportunities to expand market.
- Learning management experience and modern
technology.
- Increase competition and risk.
 GENERAL ENVIRONMENT

Demographic conditions: population features

- Ages, gender, population: affect the human resources,
output, and market scale, etc.
- Education (the rate between the uneducated and the
educated)
- Geographical areas
- Family structure
* Impacts:
- Needs, supply
- Human resources policy
 GENERAL ENVIRONMENT

Technological conditions:
- Technological development.
- Modern technology (production lines, modern machinary,
etc.

• Impacts:
- Raise product quality and price.
- Shorten product and technology life circle.
- Change demand for the product.
 GENERAL ENVIRONMENT

Summary
- General environment has effects in long term.
- The company cannot control.
- Impact levels and features of general
environment are based on the nature of the
industry.
- Affects the internal environment and the specific
environment.
 Specific environment
• Competitors
• Other organizations either offering (or a high
potential of offering) rival products/services.
• How do competitors compete?
• When does competition become more
intense?
• Public pressure groups
• They are special-interest groups that attempt
to influence the actions of organizations
• Which are public pressure groups?
• How do they affect the organization?
 CORE VALUES

THE FOREIGN TRADE UNIVERSITY

MODERNITY

QUALITY PROFESSIONALITY

EFFICIENCY PRESTIGE
 SPECIFIC ENVIRONMENT

Customers:
- People or organizations who purchase goods
or services of businesses and are willing to
pay for them.
Customer classification:
- Personal customers
- Organizations (enterprises)
- Government
 SPECIFIC ENVIRONMENT

• Impacts:
- Customers’ needs and loyalty may be
loosen and changed by the variety of the
goods.
- Customers who order in large quantity
may require enough supply and discounts.
- Customers may purchase other
businesses’ products for lower expenses
and higher qualities.
 SPECIFIC ENVIRONMENT

Suppliers:
People or organizations who supply materials,
semi-finished products, machinery, capital, labour, or
services (information, management, market
research, etc.) from enterprises.
• Impacts:
Dominant suppliers may increase profit by raising price,
lowering product quality or reducing levels of attached
services.
 Suppliers’ pressure

high pressure, you dint have much choice

✓ There are few substitutes for suppliers’ products

✓ Suppliers’ products are important and necessary to
the enterprises. high pressure

✓ The products of certain suppliers are widely

different from others’. high pressure because you are the only one in the market, you are unique=>
supplers put much pressure on firms

✓ There are few similar suppliers. high pressure becausr there is no one supply the
service you need

✓ Twist costs to other supplier are high.

high because it is harder for the firm to change suppliers
 SPECIFIC ENVIRONMENT

Competitors:
 SPECIFIC ENVIRONMENT

Competitors:
- Organizations and people who are able to satisfy
customers’ needs with the same products with or
substitute products for the enterprises’ products.
- Pressures: prices, qualities, attached services, new
product research and develoment, etc.
 SPECIFIC ENVIRONMENT

• Classification:
- Current competitors are organizations that have
appeared on the market: a direct competitor or
alternative indirect competitors have appeared on
the market.

- The potential competitors are organizations intend to

plan and prepare to participate in the business areas
in which the company is.
 Competitors
Barriers to potential competitors when
joining the industry:
- High initial investment required
- Product differences.
- Customer loyalty.
- Joining industry policies of the government.
- High supplier twisting costs.
- Economies of scales.
- Current companies in the industry have absolute advantages
on cost.
 Competition levels
between companies in the industry

- The industry competition structure: number and

the larger scale of the competitors in the industry, the higher competition level
scale. the higher number of the competition structure the higher competition level

- Low needs/ industry growth rate.

industry growth rate low competition level high
Ex: bep than to ong co muc do canh tranh cao
- High fixed cost and storage. fixed cost and storage high =>
high as peopel hacve to compete
to create lower cost
- Nonspecific products. nonspecific products => high
competition level

- Excess capacity in the sector.

excess capacity => high

- High withdrawal barriers. bankruptcy,...

high withdrawal barriers => hiigh as they have to exist

 SPECIFIC ENVIRONMENT

Public Pressure Groups:

• Organizations who have special interests affect the operation
of enterprises.
• Have pressure to force enterprises to change policies.
Examples:
- Trade Unions
- Environmental Protection Organization