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Strategy A View From the Top By: Kluyver & Pearce. Chapter 3: Analyzing the External Strategic Environment. Globalization.

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strategy a view from the top by kluyver pearce

Strategy A View From the TopBy: Kluyver & Pearce

Chapter 3: Analyzing the External Strategic Environment


Globalization as a political, economic, social, and technological force, seems unstoppable. In this era the lines between countries has been broken and the flow of information is being shared at and incredibly fast pace.

Globalization centers on the flow of high technology and real-time information as defining traits of the modern world economics.

globalization continued
Globalization Continued

3 Primary Reasons for Globalization

  • Political globalization
    • Marked with the fall of communism in the 1989
  • Economic globalization
    • Countries opted for democracy and market driven economies
    • Deregulated industries
    • Privatized formally state run enterprises
    • Liberated capital flows
  • Technological Globalization

Some analysts view regionalism as the stepping stone to a global economy. But others view that it will create more tension between as like countries and societies forge economic and political structures.

  • Examples
    • NAFTA – Canada, United States, Mexico
    • EU- accounts for 25% of all world trade
    • ASEAN- coordinates trading policies for Southeast Asia
    • EUROMED- group of 12 Mediterranean countries for free trade
    • Mercosur- small trading club founded by Argentina, Brazil, Paraguay, and Urugauy.
new powerhouses india and china
New Powerhouses: India and China
  • India
    • GDP has grown more than 5% annually in the last 5 years
    • Western style is taking hold
    • Investments are growing
    • Foreign capitol and technology are coming in
  • China
    • Preferred location for manufacturing companies
    • Huge population
    • Low labor cost
    • Foxconn Example
global tectonics
Global Tectonics

Study done by the Penn State Center for Global Business Studies

-Refers to the developing trends in technology, nature, and society slowly revolutionize the business environment, much like the Earths tectonic plates shifting the ground.

global tectonics continued
Global Tectonics Continued
  • Environmental Tectonics
    • Arise from the interaction between people and their environment, such as the growth of the worlds population or the phenomenon of urbanization.
  • Technological Tectonics
    • Advances in biotechnology, nanotechnology, information systems power economic growth and development, global integration, and the speed by which the global economy is becoming a “knowledge” economy.
  • Societal Tectonics
    • Represents the shift in international governance and political and cultural value.
12 global trends
12 Global Trends

The project identified 12 global trends that are likely to present the most significant challenges for the companies in the next 30 years.

12 global trends continued
12 Global Trends Continued

1. Population Trends

Across the planet, demographics trends are transforming societies, changing patterns of economic activity, creating new economic and social dependencies, and altering the geopolitical landscape

  • World population is expected to hit 7.8 Billion by 2025 and 9 billion by 2050
  • Growth is higher in areas least capable of supporting such growth
  • New Migration and imagration patterns will emerge
  • Aging population in Europe, United States, and Japan will present challenges for the public and private sector
12 global trends continued1
12 Global Trends Continued

2. Urbanization

Migration from rural to urban areas is rapidly becoming a major challenge. Today less than half of the worlds population live in cities, by 2030 this number is suppose to increase 60%

  • Local and federal governments will be pressed to provide necessary infrastructure and social services
  • Rising potential for social, health – related, economic, and security volatility
  • Mega cities with 10 milion or more will become a commonplace.

These trends offer large opportunities for business

12 global trends continued2
12 Global Trends Continued

3. The Spread of Infectious Disease

  • As levels of migration and cross-border flow of labor and goods increase, the likelihood of epidemics and the spread of infectious disease become greater.
  • The impact on the economic growth and development can be enormous.
  • Many of these problems would have to be provided by the private sector – from heath care infrastructure to developing new drugs.
  • Example Swine Flu
12 global trends continued3
12 Global Trends Continued

4. Recourse Management

  • The strategies of many companies around the world depend on the availability of such critical resources as water, food, and energy.
  • Energy availability is an ongoing concern in many industries and has spawned innovation and investment in a whole new range of renewable source of energy.
12 global trends continued4
12 Global Trends Continued

5. Environmental Degradation

  • “Global Warming”
  • Solution to these problems will require a partnership between the private sector and the regulatory authorities on a global scale.
12 global trends continued5
12 Global Trends Continued

6. Economic Integration

  • higher levels of cross border economic activity have increased interdependence among the worlds economies and created a fully integrated economic system on the global scale.
  • Example Airbus
    • Wings are manufactured in Britain
    • Fuselage and tail in Germany
    • Doors in Spain
    • Cockpit in France
12 global trends continued6
12 Global Trends Continued

7.Knowledge Dissemination

  • Knowledge is changing the nature of the products and services companies bring to the market and the business model they use to develop and manage.
  • Smart products – interactive products that become smarter the more they are used and that can be customized are a primary focus of modern product development
  • Example of a tire that notifies the driver that the air pressure is low
12 global trends continued7
12 Global Trends Continued

8. Information Technology

  • Changed the way we do business
  • People can now log into websites to look up orders and track shipments.
  • Businesses have created intranets so that employees can work together on projects and still be hundreds of miles away.
  • People are now able to work from home to balance work and family life.
12 global trends continued8
12 Global Trends Continued

9. Biotechnology

  • Rapid advances in humankinds ability to understand and manipulate the basic elements of life are likely to fundamentally alter scientific inquiry and offer solutions to problems that could not be solved before
  • The bio technology revolution is likely to have the greatest potential in three areas.
    • Medicine
    • Agriculture
    • environment
12 global trends continued9
12 Global Trends Continued

10. Nanotechnology

  • The ability to create new materials one atom at a time is fundamentally reshaping our vision of the future, with stronger and lighter materials that will reduce the cost of transportation and reduce pollution.
  • Example
    • “Nanomedicines” that will be able to monitor, repair, and control human biological systems.
12 global trends continued10
12 Global Trends Continued

11. Conflict

  • The fall of the Berlin wall in 1989 changed the nature of international conflict. Now we have multiple civil and intracountry conflicts, that are mostly clusters of developing countries.
  • Terrorism has become a major threat for business and civil society and continues to threaten the stability of the international political and economic order.
12 global trends continued11
12 Global Trends Continued

12. Governance

  • Societies and corporations are connected by two interrelated sets of laws
    • Rule of law defined by local and national legislatures, multilateral agreements, and an emerging body of international law
    • Market defines the second law
risk and uncertainty
Risk and Uncertainty
  • To capture the lack of predictability, decision making situations often are described in three ways
    • Certainty – accurate, measurable information in known
    • Uncertainty – little is known about the outcomes
    • Risky- we cannot predict its outcome

We must be able to assess the degree of uncertainty associated with relevant events, the speed with which changes are likely to occur, and the possible outcomes they foreshadow.

scenario analysis
Scenario Analysis
  • The purpose is to analyze the effects of various uncontrollable change forces on the strategic playing field and to test the resiliency of specific strategic alternatives.
    • Divides Knowledge into two categories:
      • Things we believe we know something about
      • Elements we consider uncertain or knowable
scenario analysis continued
Scenario Analysis Continued
  • Scenario- building process
    • Deciding what possible future developments to probe, which trends-technology changes, demographic changes, or resource issues.
    • Identifying what forces or developments are likely to have the greatest ability to shape the future.
    • Constructing a comprehensive set of future scenarios based on different combinations of possible outcomes.
    • Generating scenario- specific forecasts that allow an assessment of the implications of the alternative futures for strategic postures and choices.
global futures the global scenario group
Global Futures: The Global Scenario Group
  • The Global scenario group examined a number of scenarios that would develop in the twenty first century based on Conventional worlds, Barbarization, and Great transition.
global futures the global scenario group continued
Global Futures: The Global Scenario Group Continued
  • Conventional World Scenarios
    • Market Forces – incorporated mid range population and development projections and typical technological change assumptions.
    • Policy Reform – Adds strong, comprehensive, and coordinated government action, as called for in many policy – oriented discussions of sustainable, to achieve greater social equity and environmental protection.
global futures the global scenario group continued1
Global Futures: The Global Scenario Group Continued
  • Barbarization Scenarios
    • Breakdown- crises combined and spin out of control , leading to unbridled conflict, institutional disintergration, and economic collapse.
    • Fortress World – This variant features an authoritarian response to the threat of breakdown
global futures the global scenario group continued2
Global Futures: The Global Scenario Group Continued
  • Great Transitions Scenarios
    • Eco-Communalism – incorporates the green vision of bioregionalism, localism, face-to-face democracy, small technology, and economic autarky.
    • New Sustainability Paradigm - Shares some of the goals of the eco – communalism scenarios, but would seek to change the character of the urban, industrial situation, rather than to replace it, build a more humane and equitable global civilization rather than retreat into localism.
a new compact between business and society
A New Compact Between Business and Society?
  • In the emerging environment, companies will find it harder to do business as usual.
  • Traditional strategies for companies grow, cut cost, innovate, differentiate, and globalize are now subject to a set of new laws of doing business in relationship to society.
a new compact between business and society continued
A New Compact Between Business and Society? Continued

Size means Scrutiny

Cutting cost raises compliance risk

Strategy must involve society

Reducing risks means building trust

Satisfying shareholders means satisfying stakeholders

Global growth requires global gains

Productivity requires sustainability

Differentiation relies on representation

Good governance needs good representation