Global EnvironmentProf. Prashant MehtaNational Law University, Jodhpur

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BUSINESS ENVIRONMENTAL & ANALYSIS

Nature of GlobalizationWhy Do Companies Go GlobalManifestation of GlobalizationStrategic Response to the EnvironmentCompetitive EnvironmentPorter’s Five Forces Model – Competitive Analysis

Nature of Globalization

•In new paradigm it means fresh belief, new working methods, PEST realities

in which previous assumptions are no longer valid.

•Integration of developing economies with the world economies. Creating

one huge market (EURO, BRICS, NAFTA, OPEC)

•Reduction in tariffs and Removal of trade barriers.

•For companies it means:

•Globalization creates MNC or TNC with diversified portfolio using R&D,

Production, Marketing, and Financial advantages.

•Ability to compete in domestic market with foreign competitors.

Nature of Globalization

•Global Companies has three Characteristics

•It is conglomerate of multiple units located at different parts of the world

•Multiple units draws common pool of resources, money, credit information,

patents, trade name, and control systems.

•Units responds to common strategy

•Super-national enterprise created by IMF or World Bank – works with nations

which permits its entry and will bring economic world closer together. It could

serve all nations without being especially attached to nay one of them.

Why Do Companies Go Global

• Rapid shrinking of time and distance across globe due to faster

communication, speedier transportation, growing financial flows, and fast

emerging new technology.

• Home markets is not in position to absorb all goods / services that are

produced. Like Japanese goods flooding US markets.

• Develop attractive new products for home markets Export these products

Foreign demand grows Foreign production Foreign Direct Investment.

• Companies go global to source cheaper raw materials besides protecting the

old markets and exploring the new markets.

• To reduce transportation costs. The higher the ratio of unit cost to the selling

price per unit, more significant transportation factor becomes.

Why Do Companies Go Global

• Companies in electronic and communication go global to recover the

expenditure of R&D spends by selling it across major markets and

generate cash flows.

• The following developments are responsible for TNC operations.

• Increasing emphasis on market forces and growing role of private sector in

nearly all developing countries.

• Globalization of firms and Industries

• Fast changing technology affecting the organization

• The rise of service sector in the world economy, regional economic

integration and its growth.

Manifestation of Globalization

• Configuring anywhere in the world - Going to any location

• Interlinked and Independent Economies – Linked to Global economy

• Lowering of Trade and Tariff barriers – Less government intervention,

privatization makes markets more competitive and cheaper .

• Infrastructural Resources and Inputs at International Prices creates

competitive environment (check inflation and high infrastructural costs).

Manifestation of Globalization

• Increasing trends toward Privatization regulated by regulators

• Entrepreneur and his unit have central economic role and create national

wealth.

• Mobility of skilled resources and other factors of production – Eg. Inviting FDI

• Market Side Efficiency i.e. Cost, quality, processing time, terms of business are

dominant competition drivers. Better quality of product and service is

provided.

• Formation of Regional Blocks - Eg. SAARC which provides for regional

development, economic, social, cultural technical cooperation on matters of

common interests.

Responses To The Environment

What business should do in particular situation in the environment?

It should exploit the opportunities and address the threats.

• Least Resistance: Goal maintaining units, passive in their behaviour,

content in taking path which offers least resistance.

• Proceed with Caution: They adapt to changing environment, monitor the

changes, analyse the impact on their goals and activities and adopt

strategies of survival, stability, and strength by taking corrective –adaptive

strength.

• Dynamic Response: Partially manageable and controllable business

environment. Feedback system is highly dynamic, converts threats in

opportunities. Have alternative course of action.

Organizations can shape part of its relevant external environment on a reciprocal basis

Competitive Environment

The competitive environment of a business is the part of a company's

external environment that consists of other firms trying to win customers in

the same market. It is the segment of the industry that includes all

immediate rivals.

Who are the competitors?

What are their product and services?

What are their market share?

What are their financial position?

What gives them cost and price advantage?

What are they likely to do next?

Who are the potential competitors?

Competitive Environment

Cooperation in Competitive Environment:

• Oligopoly converting into Monopoly situation. Eg. OPEC

• Cooperation arrangement between Tata and Fiat

• Cold drink manufacturer in arrangement with restaurant chain

• Cooperative networks in Japan called as Kieretsus

Cooperation on Account of Family Ownership:

• The interest of family largely influence the managerial decisions and

activities of the enterprise. Birla, Tata, Reliance, Modi group etc.

• Succession remains a tricky issue.

• Split is sometimes possible hurting the interest of businesses and

investor sentiments.

Porter’s Five Forces Model– Competitive Analysis

Porter’s Forces Model– Competitive Analysis

Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an industry.

With a little adaptation, it is also useful as a way of assessing the balance of power in more general

situations. It works by looking at the strength of five important forces that affect competition:

• Supplier Power: The power of suppliers to drive up the prices of your inputs.

• Buyer Power: The power of your customers to drive down your prices.

• Competitive Rivalry: The strength of competition in the industry.

• The Threat of Substitution: The extent to which different products and services can be used in place of your

own.

• The Threat of New Entry: The ease with which new competitors can enter the market if they see that you

are making good profits (and then drive your prices down).

By thinking about how each force affects you, and by identifying the strength and direction of each force,

you can quickly assess the strength of your position and your ability to make a sustained profit in the

industry. You can then look at how you can affect each of the forces to move the balance of power more in

your favor.

Porter’s Forces Model– Competitive Analysis

• This worries him:

• The threat of new entry is quite high: if anyone looks as if they're making a

sustained profit, new competitors can come into the industry easily, reducing

profits.

• Competitive rivalry is extremely high: if someone raises prices, they'll be quickly

undercut. Intense competition puts strong downward pressure on prices.

• Buyer Power is strong, again implying strong downward pressure on prices.

• There is some threat of substitution.

Unless he is able to find some way of changing this situation, this looks like a

very tough industry to survive in. Maybe he'll need to specialize in a sector of

the market that's protected from some of these forces, or find a related

business that's in a stronger position.