Introduction: External Environment

Transcription

1 Introduction: External Environment GLOBALISATION is the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life. Impacts on markets and states: (O or T?) Interconnection of foreign markets Reliance on offshoring Deterioration of national security Energy and resource dependence Interpreting the global business context through a conceptual framework: 1. Spatial domain local, national, international (opportunity/risk) 2. Temporal domain past, present, future (change/disruption) 3. PEST model of analysis In brief: There are two sides to risk; the potential for loss and the opportunity for higher growth/profit. An opportunity can turn to risk or vice versa at slow or great speed. PEST analysis Government stability, corruption, laws, nature of regime/legal system Education skills, skill level of workforce, cyber security, innovation Structure, debt position, interest rates, growth and investment Culture, changing consumer behavior, demographics, human security, values Trajectories of change Core activities: activities that have historically generated profit for an industry Core assets: resources, knowledge and brand capital that have traditionally made an organisation unique

2 Type of change Core assets Core activities Radical (travel agencies) Threatened Threatened Progressive (commercial airlines) Stable Stable Intermediating (auctioneers) Stable Threatened Creative (film industry) Threatened Stable CSR and Sustainability Business and society constant interactions Business a key player in society o Potential to be a major change agent (e.g. facebook) o Potential to be a force for good or evil o Drives growth and prosperity Society business does not operate in a vacuum o Society impacts business o Society is constantly changing and so must business adapt to changing markets Corporate social responsibility is the notion that corporations have an obligation to society to take into account not just their economic impact but also their social and environmental impact. It is essentially socially responsible behavior in an ethical sense History Environmental impact, concern for limited resources CSR Theory Aim Features Instrumental They are about achieving Maximising shareholder value economic goals Strategies for achieving competitive advantages Cause related marketing (charities) Political Focus on the relationship between society, Corporate constitutionalism: business social institution and must use power responsibly organisations and its responsibilities Integrative social contract theory (unwritten rules between society and business) Corporate citizenship

3 Integrative Looks at organisations Issues management: manage social issues response to social demands. Business needs a society for The principle of public responsibility (approach to CSR) existence, continuity and Stakeholder management: specific issues growth Corporate social performance Ethical These theories are based on the ethical contract between Universal rights: human rights, labour and environment business and society Sustainable development Right thing to do The common good approach Five dimensions of each CSR theory: environmental, social, economic, stakeholder, voluntariness Triple bottom line: accounts for economic/profit, environmental/planet, social/people aspects of an organisation devised to achieve corporate ecological sustainability Corporate social responsibility continuum How to balance profits and social objectives Understanding what the community is asking you to do Efficiency resource efficiency, environmentally friendly Manage social costs against revenuesinverse relationship

4 The key factors in addressing the challenge of ever-increasing energy consumption are: Sustainable investment Increased efficiency Innovation new technology Supportive regulatory and social conditions (Gov. support) Business views CSRS initiatives as a way to innovate and improve their competitive positioning in their playing field. CSRS helps: - Attract customers - Reduce costs through efficiency - Achieve advantage through innovation - Improve reputation - Attract the right people - Minimize regulation CSR and Sustainability (CSRS) CSR is strategic when it yields substantial business-related benefits to the firm, in particular by supporting core business activities and thus contributing to the firm s effectiveness in accomplishing its mission. Strategic dimensions Centrality closeness of fit to the firm s mission and objectives, relevance to core activities so it is easier to integrate Specificity ability to capture private benefits by the firm (competitive advantage) Proactivity degree to which the program is planned in anticipation of emerging social trends (sociocultural, political, economic) and in the absence of crisis, making adjustments Voluntarism the scope for discretionary decision making and the lack of externally imposed compliance requirements, involves proactivity Visibility observable, recognizable credit by internal and/or external stakeholders for the firm These dimensions lead to value creation, which are identifiable, measurable economic benefits that the firm expects to receive. Sustainability CSR is the notion that corporations have an obligation to society to account for their social and environmental impact, not singularly their economic impact. It has two levels: present and future.

5 Sustainability and business A single-minded focus on economic sustainability can succeed in the short run, however long term success/sustainability requires all three dimensions to be satisfied simultaneously. Three dimensions: 1. Economic sustainability 2. Ecological sustainability 3. Social sustainability A firm is required to meet the needs of its stakeholders in the future as well as the present. A sustainable world requires: Renewable resources regeneration of resources, energy security Management of pollution and waste utilize natural systems Management of non-renewable sources acknowledgement of resource with a conscious approach The Economic Environment Two components Equilibrium in markets Microeconomics individual economic agents (firms, individuals) and their behaviour Macroeconomics system of markets (entire economy) Economic agents Homo economicus, the rational egoist, wants a maximum of utility The firm wants a maximum of profits Information Imperfections Individuals Irrationality Information is neither perfect nor universally accessible, and is not costless to acquire. This creates inefficiencies and the decisions people/firms make may be suboptimal. Powerful agents may distort markets from the economically optimal outcome. (unions, Government taxes) Game theory assumes people are always selfish all the time, experimental results are mixed. Game theory assumes rational behavior, experimental results are mixed. Supply, demand and economic output Output is a measure of the total production in an economy. This includes all goods and services. This is important as; - Increases in output constitute economic growth - Measuring output permits spatial and temporal comparison

6 Output and GDP components of output Consumption Investment Government spending Y (GDP) = C + I + G + NX Net exports (exports imports) imports represent money leaving economy overseas production Measuring output Making a list of every good and service produced is comprehensive, although not useful for comparison or analysis. Income method (GDI) aggregate pre-tax incomes (in dollars) Expenditure approach (GDP) aggregates all expenditure (in dollars) on final (not intermediate) goods and services o Both methods give similar answers, through there are discrepancies due to foreign interest payments, profits accruing to foreign companies etc. Real GDP (gross domestic product) USD figures commonly used for international comparison need to account for price changes each year. Using a single currency makes it easy to compare between countries (no exchange rate). To remove price changes from measurement (inflation), we analyse output over many years using the prices from a single year (the base year). This means changes in the total dollar value will be accounted for entirely by changes in output, not prices. This figure allows us to compare the size of different countries economies over time GDP and standard of living Dividing GDP by the population gives GDP per capita a useful measure of wealth and development. There is a strong correlation between economic development by GDP and human development measured by HDI (wealth, health, education), both influence productivity. Globalisation and economic growth Implications of globalization for investment and growth: more exposed to fluctuations in global economies, greater opportunities for trade. Trade and trade barriers Free trade: reduction of tariffs and trade barriers o Efficient, competitive firms gain access to bigger markets o Inefficient firms are exposed to greater competition Not necessarily equality and freedom o Tariffs and subsidies still present in some countries o Politicking interference of politicians (may impose tariffs)

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