Chapter Six

Natural Resources and

Environmental Sustainability

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

 Describe the role of location, topography, climate,

and natural resources as factor conditions drawing
on Porter’s diamond model
 Explain how surface features contribute to economic,
cultural, political, and social differences among
nations and within nations
 Summarize the importance of inland waterways and
outlets to the sea
 Describe the broad influence that climate exerts on
business

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 Learning Objectives

 Outline the options available for non-renewable and

renewable energy sources and their broad business
implications
 Describe the relationship between innovation and
factor conditions
 Describe environmental sustainability and its
characteristics

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 Factor Conditions
The Cornerstone of Porter’s Diamond
 Basic Factors
 Derived from the country’s location
 Inherited
 Topography,climate, natural resources
 Can be a source of a nation’s competitive
advantage
 Lack of such resources can lead to innovation
 Advanced Factors
 Those a country can innovate
 Labor force, infrastructure
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 Why Switzerland Makes Watches

 Basic Factor Conditions

 Mostly mountainous
 Close to populated lowlands of Europe
 Transportation across mountains is expensive
 No mineral resources available

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 Why Switzerland Makes Watches
 Switzerland capitalized on its basic factor conditions to
develop advanced factor conditions
 Educated, skilled, specialized workforce
 Reliable transport system overcomes topographical
challenges
 Position of neutrality keeps trade relationships open

 These actions have led to a competitive advantage in

watches, chocolate, cheese, and pharmaceuticals

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 Natural Resources

 Key issues
 Location, topography, and climate
 Energy and non-fuel minerals
 Environmental sustainability

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 Location

 Topography
 Climate
 Sources of Energy
 Non-fuel Minerals
 Environmental sustainability

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 Location Affects Political
Relationships
 Austria took advantage of its location to
 increase trade with the east
 become the principal financial intermediary
between western and eastern europe
 strengthen its role as the regional headquarters
for international businesses operating in
Eastern Europe

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 Geographic Proximity
and Trade Relationships
 Geographic proximity is often the major reason for
trade between nations
 Faster delivery, lower freight costs
 Major factor in formation of trade groups such as
EUand NAFTA
 Chile exports grapes, peaches, raspberries to the
U.S. November - March

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 Topography

 Topography refers to the surface features of a nation

or region
• Differences in topography may require products to
be altered such as internal combustion engines
 Topography includes
 mountains and plains
 deserts and tropical forests
 bodies of water

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 Mountains and Plains
Divide Markets
 Spain: five regions with different cultures and three
different languages
 Switzerland:
 Four languages
 35 dialects
 Different TV and Media networks
 China: dozens of languages

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 Mountains and Plains Affect
Population Characteristics
 Afghanistan
 10 major
ethnic
groups
 33
languages
– 40% of
population
lives above
1800 m

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 Deserts and Tropical Plains

 Deserts and tropical plains can

 separate markets
 increase the cost of transportation
 create concentrations of population
 Australia
 Continent the size of the U.S. but with only 19
million inhabitants
 Population concentrated in
 coastal areas; in and around state capitals

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 Tropical Forests

 Tropical Rain Forests

 Brazilian Amazon basin
 Occupies one-half of Brazil
 Four percent of population
 Canadian Shield
 Massive area of bedrock covering one-half of
Canada’s land mass

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 Bodies of Water

 Bodies of water
 attract people and facilitate transportation
 Inland waterways provide inexpensive access to
markets

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7-11
 Bodies of Water
Major Inland Waterways
 Rhine Waterway
 Main transportation artery of Europe
 Carries a greater volume of goods than do the
combined railways that run parallel to it
 The Amazon River in South America
 The Tigris-Euphrates (Iraq), the Ganges (India), and
the Indus (India) Rivers in Asia
 The Great Lakes and the Mississippi River in the
United States

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 Outlets to the Sea

 Outlets to the sea

 permit low-cost transportation of goods and
people from a country’s coast to its interior
 Africa has 14 of the world’s landlocked
developing countries
 Must construct costly, long truck routes and
extensive feeder networks
 Port countries exert considerable political
influence

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 Climate

 Climate refers to temperature, precipitation, and wind

 Climate
 is the most important element of the physical
forces
 sets the limits on what people can do both
physically and economically
 influences economic development
 can impede distribution

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 Natural Resources

 Natural resources are anything provided by nature

on which people depend.
 Principal types of natural resources important to
businesspeople include
 energy
 non-fuel minerals

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 Energy
 Renewable
 Hydroelectric
 Solar
 Wind
 Geothermal
 Waves
 Tides
 Biomass (ethanol)
 Ocean thermal energy
 Non–Renewable
 Petroleum
 Nuclear Power
 Coal
 Natural Gas
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 Energy

 Conventional sources - Oil

 Estimates of reserves change
 Discoveries continue in proven fields
 Governments allow new exploration and production
 New techniques enable greater output from wells
already in operation
 Automated, less expensive equipment lowers
drilling costs

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 World Oil Reserves by Country
as of January, 2007 (billion barrels)
Reserve to % Share of
Proved
Rank Country Production World
Reserves
Ratio (Years) Production*
1 Saudi Arabia 262.3 75 13.3
2 Canada 179.2 10 1.8
3 Iran 136.3 83 5.7
4 Iraq 115.0 168 2.6
5 Kuwait 101.5 110 3.5
6 UAE 97.8 106 3.5
7 Venezuela 80.0 107 2.7
8 Russia 60.0 18 12.6
9 Libya 41.5 65 2.3
10 Nigeria 36.2 37 3.6
11 Kazakhstan 30.0 23 1.5
12 United States 21.8 11 7.2
13 China 16.0 14 5.0
14 Qatar 15.2 50 1.2
Data source: Reserves: “Worldwide Look at Reserves and Production,” Oil & Gas Journal ,
104:47(December 18, 2006), pp.24-25. From Energy Information Administration, World Oil Markets
Analysis to 2030, http://www.eia.doe.gov/emeu/international/oilreserves.html
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 Other Non-Renewable
Energy Sources

 Other non-renewable energy sources include

 Natural gas
Fastest growing source of energy
 Nuclear Power
Generates low pollution in the normal
process

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 Renewable Energy Sources

 Hydroelectric has had the most extensive application

 7% of world energy consumption
 Wind and solar energy: improved technology, new
support
 Solar: fastest-growing energy technology in the
world

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 Kyoto Protocol

 The Kyoto Protocol is the UN Framework

Convention on Climate Change
 A reduction of emission of gasses will lead to a
reduction in global warming
 Prime global warming contributor: coal power plants
 U.S. has no carbon dioxide emission regulation
 Texas would rank 8th in carbon dioxide
emissions, just behind Canada
 U.S. and Kazakhstan are the only countries to have
signed but not ratified the agreement

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Largest Recoverable Coal
Reserves by Country

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Renewable Energy Share of Global
Final Energy Consumption 2006

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Innovation and Factor Conditions

 According to Michael Porter, innovation has a large

role in the way natural resources contribute to a
country’s factor conditions
 Alternative sources of energy like wind and solar
power become more attractive when oil prices rise

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 Environmental Sustainability

 Sustainability: maintaining something

 A systems concept
 Environment, society, the economy, health
 Greenhouse gas produced in China and the
U.S. impacts people in France even though
France doesn’t produce greenhouse gas
 France uses nuclear power
 Nuclear power has its own environmental
implications

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 Sustainable Business

 A sustainable business refers to an economic state in

which the demands placed upon the environment by
people and commerce can be met without reducing
capacity of environment for future generations

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The Company in a Societal Context

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