Chapter 3 Business Environment 2015 1 Essay

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THE ORGANISATIONAL
ENVIRONMENT
Priyanka Jayashankar

The general environment
Broad environmental forces impact firms:
- Change in the growth trajectory of counties
- Change in demographics: ageing population

Unexpected events (black swans):
Collapse of financial institutions leading to the Great Recession
- Impact of SARS epidemic on tourism in South-East Asia
- Disruptive forms of technological innovation: music file swapping -

Elements of country risk Political risk:
i) Operating risk: Government’s interference in the firm’s operations/ strikes/wars ii) Transfer risk: Government interferes with a firm’s ability to shift funds into and out of the country

Economic risk:
i) economic cycles: booms and downturns ii ) exchange rate fluctuations iii) Changes in foreign direct investment policies

Legal risk:
i) Enactment of laws with respect to foreign investment/joint ventures ii) Infringement of intellectual property rights and patents

Examples of political risk
Example of political risk - case of Venezuela:
http://www.youtube.com/watch?v=02YfNO1tp

Yo
OECD’s country risk classification: http://www.oecd.org/tad/xcred/cre-crc-currentenglish.pdf Investors’ growing concerns following political instability in Egypt

Examples of economic risk
East Asian Crisis of 1997
The ongoing Euro crisis in the EU: rising

national debt
http://www.youtube.com/watch?v=pOizZ9nH
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Managing risk in a volatile environment: case of Myanmar
Under a military regime for almost half a

century
Political reforms implemented since 2011
Current government reaching out to foreign

investors
Poor infrastructure and corruption

http://www.youtube.com/watch?v=Cpk7xPrA9 vE If your company is planning to invest in

Myanmar, what in your view would be the biggest risks?
What are the advantages of investing in a

country like Myanmar, which is undergoing reforms? Breaking down the general environment into: P – Political/Legal Environment
E – Economic Environment
S – Socio-cultural Environment
T – Technological Environment
I - International Environmental

Political/legal environment
Policies of local, state and federal

governments
Impact of Healthcare Act of 2010 on businesses
Policies impacting trade

Role of judicial system
Case of Delaware
Antitrust legal battles in the software industry

Economic environment
Impact of exchange rates on imports and

exports
Corporate tax regimes
Economic cycles: booms and recessions

Socio-cultural conditions
Companies need to adapt themselves to societal

norms and values
Change in lifestyle trends:
- McDonalds offering healthier menus in the US
Multinationals adapting to cultures of host countries: - Case of Disneyland in Paris and Hong Kong

Technological environment
Methods for converting resources into

products and services
From assembly line manufacturing to 3D printing Impact of e-business

International environment
Lower trade barriers
Surge of emerging markets
Production processes becoming globalised
Global economy becoming more knowledge-

intensive

Example of McDonalds

Group exercise
Form groups consisting of 5-6 members each…