KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000â€™s USA

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Strategic Management MGT603

Lesson 8

KEY EXTERNAL FACTORS

Objectives:

Increasing turbulence in markets and industries around the world means the external audit has become an

explicit and vital part of the strategic-management process. This lecture provides a framework for collecting

and evaluating economic, social, cultural, demographic, environmental, political, governmental, legal,

technological, and competitive information. Firms that do not mobilize and empower their managers and

employees to identify, monitor, forecast, and evaluate key external forces may fail to anticipate emerging

opportunities and threats and, consequently, may pursue ineffective strategies, miss opportunities, and invite

organizational demise. Firms not taking advantage of the Internet are falling behind technologically.

Economic Forces:

It is important to monitor key economic factors such as:

Foreign countries' economic conditions

Import/export factors

Demand shifts for goods/services

Income differences by region/customer

Price fluctuations

Exportation of labor & capital

Monetary policies

Fiscal policies

Tax rates

ECC policies (European policies)

OPEC policies (Organization of Petroleum exporting countries)

LDC policies (Less developed countries)

Price fluctuation refers to general price fluctuation. They affect the economic factors and affect the

customers buying behaviors. The customers are more conscious about the economic changes and responds

according to the changes in key variable factors. So, any change in the price affects the customer buying

trend directly.

As far as the exportation of capital and labour is concerned, over the last 300 years Pakistan has seen a

tremendous exportation of labour. Capital is not only left a vacuum on organization.

Monetary policies and Fiscal policies are changed every year. The person or businesses engaged in business

for profit making or non profit organizations always have to keep an eye on the economic structure of the

countries.

As far as the tax rates are concerned, government also changes the tax rate with the passage of time. So it

affects the economic forces.

ECC and OPEC policies and LDC policies have also a major effect on the economic factors.

Social, Cultural, Demographic, and Environmental Forces

Social, cultural, demographic, and environmental changes have a major impact upon virtually all products

(Preferences change), services, markets, and customers. Small, large, for-profit, and nonprofit

organizations in all industries are being staggered and challenged by the opportunities and threats arising

from changes in social, cultural, demographic, and environmental variables. In every way, the United States

is much different today than it was yesterday, and tomorrow promises even greater changes. We may use

the following analysis in understanding the Social, Cultural, Demographic, and Environmental Forces:

Consider Pakistan--

Population growing older

Increase in younger population

Ethnic balance changing

Gap between rich and poor widening

Ethnic balance changes due to the migration of the people from different areas to different areas. This

affects the ethical behavior very much. As the traditions and norms are very much different in different

areas of Pakistan, therefore the behavior of the migrated people also have a major affect on the behavior of

the resident people. Due to the increased gap between rich and the poor, there is a tremendous change in

the social behavior of the people.

Strategic Management MGT603

Now consider America--

Population growing older

Increase in younger population

Less Caucasian

Gap between rich and poor widening

65 and older will rise to 18.5% of population by 2025

By 2075, no racial or ethnic majority

The United States is getting older and less Caucasian, feeding generational and racial competition for jobs

and government money. The gap between rich and poor is growing in the United States. America's 76

million baby boomers plan to retire in 2011, and this has lawmakers and younger taxpayers deeply worried

and concerned about who will pay their social security, Medicare, and Medicaid. Persons aged 65 and older

in the United States will rise from 12.7 percent of the population to 18.5 percent between 1997 and 2025.

By the year 2075, the United States will have no racial or ethnic majority. This forecast is aggravating

tensions over issues such as immigration and affirmative action. Hawaii and New Mexico already have no

majority race or ethnic group and as of the year 2000, neither has California.

An increase in tourism worldwide is an opportunity for many firms. France is the destination for more

tourists annually than any other country.

The factors are same as in Pakistan but with a littlie difference, due to the strategies that are different in

order to run the social factors.

Also consider the factors:

World population > 6 billion

U.S. population < 300 million and Pakistan population is 150-160 million (domestic strategy is risky in

case of Pakistan)

Great potential for domestic production expansion to other markets

Domestic only is a risky strategy

Same goes for Pakistan

Population of the world passed 6 billion on October 12, 1999; the United States has less than 300 million

persons. That leaves billions of persons outside the United States who may be interested in the products

and services produced through domestic firms. Remaining solely domestic is increasingly a risky strategy.

Given table provides the percentage increase in population projected for major areas of the world between

1998 and 2050. The world population will reach 7 billion in 2013; 8 billion in 2028; and 9 billion in 2054.

World Population Statistics

1998

2050

% Increase

Asia

3.6 billion

5.3 billion

47.22

Africa

749 million

1.8 billion

140.32

Latin America/Caribbean

504 million

809 million

60.52

Europe

628 million

729 million

16.08

North America

305 million

392 million

28.52

Oceania

30 million

46 million

53.33

Adapted from United Nations Population Division, World Population Prospects, 1999.

NAFTA (regional group)

U.S. exports to Mexico increased 170%

2000, U.S. trade deficits:

Mexico -- $25 billion

China -- $84 billion

Japan -- $81 billion

2001 Recession (U.S. and World)

60,000 lay off along Mexico Border with U.S.

Consider SAARC & other Regional Assoc.

Strategic Management MGT603

Trends for the 2000's

USA:

More educated consumers

Population aging

Minorities more influential

Local rather than federal solutions

Fixation with youth decreasing

Hispanics increase to 15% by 2021

African Americans increase to 14% by 2021

Pakistan:

Provincial rather than federal solutions

Youth getting more independent

Steady change in ethnic balance

More educated consumers

Higher average lifespan

Increase in number of youth

Minorities have more say (including women)

Social, cultural, demographic, and environmental trends are shaping the way Americans live, work, produce,

and consume. New trends are creating a different type of consumer and, consequently, a need for different

products, different services, and different strategies. There are now more American households with people

living alone or with unrelated people than there are households consisting of married couples with children.

Census data suggest that Americans are not returning to traditional lifestyles.

Significant trends for the 2000s include consumers becoming more educated, the population aging,

minorities becoming more influential, people looking for local rather than federal solutions to problems,

and fixation on youth decreasing. The United States Census Bureau projects that the number of Hispanics

will increase to 15 percent of the population by 2021, when they will become a larger minority group than

African Americans in America. The percentage of African Americans in the U.S. population is expected to

increase from 12 percent to 14 percent between 1999 and 2021. Many states currently have more than

500,000 Hispanics as registered voters, including California, New Mexico, Arizona, Texas, Florida, New

York, Illinois, and New Jersey. The fastest-growing businesses in the United States are owned by women of

color. The Hispanic population in the United States increased by 40 percent from 1990 to 1998. States with

the largest percentage increase of Hispanics during that period were Arkansas (149%), Nevada (124%),

North Carolina (110%), Georgia (103%), and Nebraska (96%).

During the 1990s, the number of individuals aged fifty and over increased 18.5 percent, to 76 million. In

contrast, the number of Americans under age fifty grew by just 3.5 percent. The trend toward an older

America is good news for restaurants, hotels, airlines, cruise lines, tours, resorts, theme parks, luxury

products and services, recreational vehicles, home builders, furniture producers, computer manufacturers,

travel services, pharmaceutical firms, automakers, and funeral homes. Older Americans are especially

interested in health care, financial services, travel, crime prevention, and leisure. The world's longest-living

people are the Japanese, with Japanese women living to 86.3 years and men living to 80.1 years on average.

By 2050, the Census Bureau projects the number of Americans age one hundred and older to increase to

over 834,000 from just under 100,000 centenarians in the United States in 2000. Senior citizens are also

senior executives at hundreds of American companies. Examples include eighty-four-year-old William

Dillard at Dillard's Department Stores, seventy-six-year-old Sumner Redstone, CEO of Viacom, sixty-eight-

year-old Ellen Gordon, President of Tootsie Roll Industries, seventy-four-year-old Richard Jacobs, CEO of

the Cleveland Indians, seventy-three-year-old Leslie Quick, CEO of Quick & Reilly, eighty-year-old Ralph

Roberts, Chairman of Comcast, and seventy-three-year-old Alan Greenspan, Chairman of the Federal

Reserve. Americans age sixty-five and over will increase from 12.6 percent of the U.S. population in 2000 to

20.0 percent by the year 2050.

The aging American population affects the strategic orientation of nearly all organizations. Apartment

complexes for the elderly, with one meal a day, transportation, and utilities included in the rent, have

increased nationwide. Called life care facilities, these complexes now exceed 2 million. Some well-known

companies building these facilities include Avon, Marriott, and Hyatt. By the year 2005, individuals aged 65

Strategic Management MGT603

and older in the United States will rise to 13 percent of the total population; Japan's elderly population ratio

will rise to 17 percent, and Germany's to 19 percent.

Americans are on the move in a population shift to the South and West (Sun Belt) and away from the

Northeast and Midwest (Frost Belt). The Internal Revenue Service provides the Census Bureau with

massive computer files of demographic data. By comparing individual address changes from year to year,

the Census Bureau publishes extensive information about population shifts across the country. For

example, Arizona is the fastest-growing state. Nevada, New Mexico, and Florida are close behind. Wyoming

is the nation's least-populated state and California the most-populated state. States incurring the greatest

loss of people are North Dakota, Wyoming, Pennsylvania, Iowa, and West Virginia. This type of

information can be essential for successful strategy formulation, including where to locate new plants and

distribution centers and where to focus marketing efforts.

Americans are becoming less interested in fitness and exercise. Fitness participants declined in the United

States by 3.5 percent annually in the 1990s. Makers of fitness products, such as Nike, Reebok International,

and CML Group&151;which makes NordicTrack&151;are experiencing declines in sales growth. American

Sports Data in Hartsdale, New York, reports that "the one American in five who exercises regularly is now

outnumbered by three couch potatoes."

A summary of important social, cultural, demographic, and environmental variables that represent

opportunities or threats for virtually all organizations is given in Table below.

Key Social, Cultural, Demographic, and Environmental Variables

Government regulation

Childbearing rates

Attitudes toward retirement

Number of special interest groups

Attitudes toward leisure time

Number of marriages

Attitudes toward product quality

Number of divorces

Attitudes toward customer service

Number of births

Pollution control

Number of deaths

Attitudes toward foreign peoples

Immigration and emigration rates

Energy conservation

Social security programs

Social programs

Life expectancy rates

Number of churches

Per capita income

Number of church members

Location

retailing,

Social responsibility

manufacturing,

and

service

Attitudes toward careers

businesses

Population changes by race, age, sex,

Attitudes toward business

and level of affluence

Lifestyles

Attitudes toward authority

Traffic congestion

Population changes by city, county,

Inner-city environments

state, region, and country

Average disposable income

Value placed on leisure time

Trust in government

Regional changes in tastes and

Attitudes toward government

preferences

Attitudes toward work

Number of women and minority

workers

Buying habits

Number of high school and college

Ethical concerns

graduates by geographic area

Attitudes toward saving

Recycling

Sex roles

Waste management

Attitudes toward investing

Air pollution

Racial equality

Water pollution

Use of birth control

Ozone depletion

Average level of education

Endangered species

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