PART 1

SETTING THE CONTEXT

FOR MANAGEMENT

Chapter 2
THE GLOBAL
BUSINESS
ENVIRONMENT

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
After reading this chapter, you should be able to:
• Understand the role that globalization, including
trade agreements and trade associations, has
played in shaping the business landscape
• Define the primary dimensions of the external
environment of a firm, including the components
of the general and task environments
• Differentiate between the four components of the
internal environment of a firm, including owners,
boards of directors, employees, and culture
• Describe how changing contextual forces in
the global business environment impact the
competitive position of a firm
 Globalization

• Integration and interdependence of economic,

technological, sociocultural, and political systems
across diverse geographic regions
• Advocated by leading economists and politicians
post-World War II
• Movement led to the creation of several
international trade agreements

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Globalization

• Is globalization new?
• Post war trade and political philosophy
• Emergence of Global Trade Agreements
– World Bank
– International Monetary Fund
– GATT

• Measuring world trade

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Table 2.4 > Selected Regional Trade Agreements

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Comparative Advantage

• Countries should specialize in producing goods

for which they have the lowest opportunity cost of
production
– Specialization in a particular product, helps become an
efficient producer
• Free trade leads to a more efficient allocation of
resources
– Results in all countries that are involved in trade
benefiting from access to cheaper goods

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 The Business Environment

• Represents all of the external forces that affect

the firm's business
– General environment
• Includes the technological, economic, political/ legal, and socio-
cultural dimensions that affect a firm’s external environment
– Task environment
• Includes entities that directly affect a firm on a constant basis
and include competitors, suppliers, and customers

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 2.4 > The Firm’s Business Environment

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 The General Environment
• Technological dimension
– The processes, technologies, or systems that a firm can use to
produce outputs
• Economic dimension
– The general economic environment in the markets where the firm
performs activities
• Political dimension
– Refers to the political events and activities in a market that affect a
firm
• Legal dimension
– The regulations and laws that a firm encounters in its markets
• Sociocultural dimension
– Demographic characteristics as well as the values and customs of a
society
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Social Values

The deeply rooted system of principles

that guide individuals in their everyday
choices and interactions

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Table 2.6 > Universal Social Dimensions

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Task Environment

• Competitors
– Any organization that creates goods or services
targeted at a similar group of customers
• Suppliers
– A company that provides resources or services for a
firm to help in its creation of products and services
• Customers
– The people or other organizations that buy a firm’s
products and services

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Internal Environment

A group of parties or factors that directly

impact a firm, including owners, the
board of directors, employees, and
culture

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Internal Environment

• Owners
– The people or institutions that maintain legal control of an
organization
• Board of directors
– A group of individuals elected by shareholders and charged
with overseeing the general direction of the firm
• Employees
– The people who make the products and provide
the services that allow a firm to exist
• Culture
– Pattern of basic assumptions about the way in which an
organization and individuals in it should work and interact with
each other
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
KEY TERMS

Board of directors Legal dimension

Comparative advantage Owners
Competitor Political dimension
Customers Social values
Economic dimension Sociocultural dimension
Employees Supplier
External environment Task environment
General environment Technological dimension
Globalization
Internal environment

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.