Transcript Scenario 1

STRATEGY
CHAPTER 3
ANALYZING THE EXTERNAL
STRATEGIC ENVIRONMENT
Team 2
Ashley Burnett
Shawn Buck
Whitney Horton
Kelly Riester
Jennifer Shotts
Sam Snelling
Mickea Smith
Introduction
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We will analyze the process of globalization in
general and specific trends.
How to develop new global strategies
We will introduce scenario analysis.
Is there a new compact between business and
society?
Globalization
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Is a strong political, economic, social, and technological
force.
Geographic boundaries are meaningful in political
terms, but have diminished as far as global competition
goes.
People are more aware of different cultures, and some
fear losing their own identities.
We live in a global society.
Study abroad
 Customer service
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Understanding Globalization
1. Political Globalization
Fall of communism in
1989.
 Many countries opted for
democracy& market
driven economies
 Made former state run
businesses private
 Deregulated industries
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2. Economic Globalization
Trade Increase
 Cross Country investment
increase
 Free enterprise
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Understanding Globalization
3. Technological Globalization 4. PsychologicalGlobalization
 Helped economic
 Gradual convergence of
globalization
human expectations on a
global scale.
 Internet
 Cell Phones
Regionalism: A Stepping Stone on the
Path Toward a Global Economy?
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Triad is made up of the U.S., EU, and Japan.
The Triad headquarters 4/5 of the world’s 500 largest
publicly traded companies.
Regional trading blocks accounts for 60% of world
trade.
NAFTA
 EU
 ASEAN
 EUROMED
 APEC
 Mercosur
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Regionalism: A Stepping Stone on the
Path Toward a Global Economy?
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Some say regionalism causes “like” countries to
forge economic and political structures that will be
difficult to change later.
If this is true free trade globally will not occur any
time soon.
New Powerhouses: India and china
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Japan rose to economic prominence in the last half
of the twentieth century.
China and India today are seeing a similar
breakthrough.
Russia is also an emerging powerhouse that wasn’t
talked about. They are growing at annual rate of
7%.
India and China
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India
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Their country’s GDP grew
more than 5% annually in the
last 5 years.
They have become the
premiere location for
software development and
other technology services.
Example: when you call a tech
support hotline, you will most
likely be connected to
someone in India.
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China
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China has become the
preferred location for
manufacturing because of the
low cost of labor.
They created a global
competitive advantage by
combining inexpensive labor
with technology.
Challenges faced in China
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China still controls many aspects of the business
environment
There are few wholly owned American companies;
most are joint ventures.
China requires multi-national business’ to hire
Chinese
Global Tectonics
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The book says “global tectonics” is the process by
which developing trends in Technology, nature and
society slowly revolutionize the business
environment, much like earth’s tectonic plates.
There are 3 different types of global tectonics;
environmental, technological, and societal
Global tectonics Cont.
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Environmental: is the interactions between people
and the environment
Technological: means advances in all technology.
Societal: represents shifts in international
governance, political and cultural values.
12 Global Trends
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Trends that are likely to present the most significant
challenges for companies in the next 30 years.
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Developments in areas such as demography, infectious
diseases, resource degradation, economic integration,
nanotechnology, international conflict and governance
all will have major consequences for corporate
strategy.
They might shake up individual companies or entire
industries.
1. Population Trends
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The world pop. Is rising fast from 6.4 billion today to an
expected 7.8 billion by 2025 & 9 billion by 2050.
Growth is highest in those areas of the world least capable of
supporting such growth.
New migration and immigration patterns will emerge.
Developed nations
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Older people spend a higher proportions of their consumption is services
and intangible where as younger people prefer to buy more tangible
products
Women, now outnumber men in American higher education, increasingly
look for flexible work opportunities in the knowledge technologies
2. Urbaniztion
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Today less than half of the world’s pop. Lives in cities, by 2030
this number is expected to increase to nearly 60%.
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Local and federal gov. will be hard pressed to provide the necessary
infrastructure and social services.
These trends offer large opportunities for business. To make
mega cities livable requires innovation, investment, and
economic growth.
3. Spread of infectious disease
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As levels of migration & cross
border flow of labor &
goods increase, the likelihood
of epidemics & spread of
infectious disease becomes
greater.
Many of the solutions to
these problems will have to
be provided by the private
sector
4. Resource Management
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Depends on the availability
of such critical resources as
water, food, and energy.
Access to plentiful fresh
water is a key concern in
many areas and is a major
determinate of local growth
and investment.
Prudent forecasts suggest
hat future conflict over water
resources is increasingly
likely.
The availability of food is
impacted by & affects
population growth,
technology, & governance.
5. Environmental Degradation
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“Global Warming”
Many species of plants and animals will adapt or move to
deal with the shift in climate, but many might become extinct.
 Water pollution, deforestation, desertification, & erosion
also pose significant threats to the environment.
 Solutions to these problems will require a partnership b/w
the private sector & regulatory authorities on a global
scale.
 More fuel efficient cars & non-fossil-fuel energy sources,
such as hydroelectric power, solar power, hydrogen engines,
and fuels cells, all promise big cuts in green house gases.
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6. Economic Integration
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Higher levels of cross-border economic activity have
increased interdependence among the world’s
economies and created a fully integrated economic
sys. On a global scale.
 Air-Bus
consortium is a good example.
 Wings
are manufactured in Britain, fuselage and tail in
Germany and Spanish companies produce the doors and
cockpit with final assembly taking place in France.
7. Knowledge Dissemination &
8.Information Technology
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Knowledge-based Internet Economy allows for information
and ideas to spread across the world almost instantly.
Ex.)Google- made information readily available to almost everyone in
every possible category you can think of
Smart Products- interactive product that becomes smarter
the more they are used
The iPhone has a feature that locates you exactly where you are, then gives
your directions from where you are located.
These products have allowed us to access information that at
once was either not possible or extremely hard to come by
9. Biotechnology
Most likely to have the greatest potential in 3 areas:
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Medicine
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Agriculture
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The environment
ex.) Many car companies are introducing hybrids
to their lines.
10. Nanotechnology
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With stronger and lighter technology we are able to
create cost affective products that will reduce
transportation cost and and reduce pollution.
11. Conflict
Terrorism has become a major threat not only to
the government and civilians but businesses as
well.
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12. Governance
Societies and corporations are connected
by 2 sets of laws:
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The rule of law, set by local, national and
international legislation.
These legal structures vary greatly throughout the
world
Most have roots that were developed centuries and
centuries ago
12. Governance Continued
2. Created by the market- which is becoming the dominant
force in the evolution of corporate governance
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Corporations have created their management structures to compete in
the global markets
Business Culture is starting to change. Corporations have to balance local
identities, allegiances, and conflicts
Ex.) Diamonds from Africa that may be considered “Conflict diamonds” can create
a conflict in the world market. Many Companies like James Avery and Baily Banks
and Biddle now come with guarantees that they only carry non-conflict diamonds.
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Another trend putting pressure on the product market is the increase in
cross-border investments
World wide cross border merger and acquisition now top $500 Billion
Implications of a Global Economy
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The new economy is not governed by laws of scarcity, but
rather information which grows as it’s shared.
The effect of location is diminished. We now have round-theclock operation and unlimited capabilities.
Products are now manufactured in places with the fewest
barriers and the highest demand.
The same knowledge can have different implications based
on the individual user.
Knowledge has higher value when it’s in systems, rather than
when it can “walk out the door” in people’s heads.
Human capital is the basis for any knowledge based
company.
IPhone
http://www.youtube.com/watch?v=PZoPdBh8KUs
Risk and Scenario Analysis
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Risk lies along a continuum; companies must assess risk
accordingly to achieve accurate forecast.
Certainty
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Scenario Analysis: A way of examining possible futures.
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Uncertainty
Things we know about (Ex- knowing new technologies will come)
Elements considered uncertain (Ex- future int. rates, oil prices)
Scenario building occurs when we encourage diversity and
sharpen our perception.
1. Identify changes and trends 2. Focus on developments that shape your
future 3. Utilize combinations 4. Forecast
Global Futures:
The Global Scenario Group
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The Global Scenario Group (GSG)
Assembled by the Stockholm Environment Institute in 1995
by Paul Raskin (president)
 Purpose: To examine the prospects for world development
in the twenty-first century based on three different social
visions for the future
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Conventional Worlds
 Barbarization
 Great Transitions
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Goal: To answer the question, "What global futures could
emerge from the turbulent changes shaping our world?”
Conventional Worlds
Envision the global system of the twenty-first century
evolving without major surprises, sharp discontinuities, or
fundamental transformations in the basis for human
civilization.
 Characteristics:
Dominant values and institutions currently driving
globalization will continue to shape the future.
 Incremental market and policy adjustments are able to cope
with social, economic, and environmental problems as they
arise.
 This division is distinguished by essential continuity.
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Conventional Worlds: Scenarios
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Scenario 1: Market Forces
 Competitive,
open and integrated global markets drive
world development.
 Social and environmental concerns are secondary.
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Scenario 2: Policy Reform
 Assumes
that comprehensive and coordinated
government action is initiated for poverty reduction and
environmental sustainability.
Barbarization
Foresees the possibilities that problems are not
managed. Instead, the problems cascade into selfamplifying crises that overwhelm the coping capacity
of conventional institutions. Civilization descends into
anarchy or tyranny.
Barbarization: Scenarios
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Scenario 3: Breakdown
Conflict and crises spiral out of control.
 Leads to unbridled conflict, institutional disintegration, and
economic collapse.
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Scenario 4: Fortress World
Features an authoritarian response to the threat of
breakdown
 The world divides into a kind of global apartheid with the
elite in interconnected, protected enclaves and an
impoverished majority outside.
 There is repression, environmental destruction, and misery.
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Great Transitions
Envision profound historical transformations in the
fundamental values and organizing principles of
society.
Characteristics:
New
values and development paradigms ascend that
emphasize:
The quality of life and material sufficiency
Human solidarity and global equity
Affinity with nature and environmental sustainability
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Great Transitions: Scenarios
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Scenario 5: Eco-Communalism
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green vision of bio-regionalism, localism, face-toface democracy, small technology, and economic
autarky.
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Scenario 6: New Sustainability Paradigm
 Goal:
To build a more humane and equitable global
civilization rather than retreat into localism.
 Seeks to change the character of the urban, industrial
situation, rather than to replace it.
A New Compact Between Business and
Society?
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Society forces companies to rethink approach
Dealing more effectively with full-range of
stakeholders
Limited attention paid to stakeholders
Public relations and lawyers normally deal with
major societal concerns
Take societal considerations into account when
approaching core strategy and business model
design
9 “Laws” that Play Key Roles
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Size means scrutiny
Cutting costs raises
compliance risk
Strategy must involve
society.
Reducing risks means
building trust
Satisfying shareholders
means satisfying
stakeholders
9 “Laws” Continued
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Global growths requires global gains
Productivity requires sustainability
Differentiation relies on reputation
Good governance needs good representation
5 Takeaways
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Globalization is our future
12 Global Trends
Strategic Implications of Global Economy
Scenario Analysis
 Decide
 Identify
 Construct
 Generate
5 Takeaways Continued
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Business and Society
 Globalization
means
dealing with full-range
of shareholders
 Use societal problems
to an organizations
advantage
 Use 9 “laws” to play
key role in strategy
formulation in the
future