EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces

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Strategic Management MGT603

Lesson 9

EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS)

Objectives:

A major responsibility of strategists is to ensure development of an effective external-audit system. This

includes using information technology to devise a competitive intelligence system that works. The external-

audit approach described in this Lecture can be used effectively by any size or type of organization.

Typically, the external-audit process is more informal in small firms, but the need to understand key trends

and events is no less important for these firms.

Key external Factors:

Racial equality

Average level of education

Government regulation

Attitudes toward customer service

Attitudes toward product quality

Energy conservation

Social responsibility

Value placed on leisure time

Recycling

Waste management

Air & water pollution

Ozone depletion

Endangered species

The leisure time has increased the leisure activities due to which recreational activities have been increased

and also it has given the growth to leisure industries also.

The next topic relates to environment. Just like recycling, for example the need of stationery is increasing

and these things are gong under the process of recycling. Recycling has become an important part of our

economic activity and society.

Waste management includes solid waste management and other waste. See the amount of waste in our

cities. The waste of vegetables and stationery and fuel has populated the city to great extent. Just like air and

water has been polluted due to these wastes. The populated water and air has effects the health of the

people and animals to great extent. This should be constantly monitored. Same is the case with ozone

depletion, due to which the harmful effects of sunlight are touching the surface of the earth and are

affecting the people life badly. Mainly the skin and eyes are effecting due to this.

There are a lot of species which have been endangered. All such factors should be monitored as key

economic variables.

Political, Governmental, and Legal Forces

Government Regulation

Key opportunities & key threats

· Antitrust legislation (Microsoft)

· Tax rates

· Lobbying efforts

· Patent laws

There is always change in government regulations which create opportunities and threats also. For example,

anti trust legislation where there is an effort to ban the monopolies. Some organizations think that

monopolies should be banned. Similarly, tax rates and lobbying efforts for special, lobbying entries are

those efforts which are made in order to pass special resolution laws of their own choice. Patents law and

intellectual are also relates to the same stories.

Increasing Global Interdependence:

Impact of political variables

Formulation of Strategies

Implementation of Strategies

Strategists in a global economy

Forecast political climates

Strategic Management MGT603

Legalistic skills

Diverse world cultures

Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers,

and customers of organizations. Political, governmental, and legal factors, therefore, can represent key

opportunities or threats for both small and large organizations. For industries and firms that depend heavily

on government contracts or subsidies, political forecasts can be the most important part of an external

audit. Changes in patent laws, antitrust legislation, tax rates, and lobbying activities can affect firms

significantly.

In the world of impolitic, Americans are still deeply divided over issues such as assisted suicide, genetic

testing, genetic engineering, cloning, and abortion. Such political issues have great ramifications for

companies in many industries ranging from pharmaceuticals to computers.

The increasing global interdependence among economies, markets, governments, and organizations makes

it imperative that firms consider the possible impact of political variables on the formulation and

implementation of competitive strategies.

Globalization of Industry:

Worldwide trend toward similar consumption patterns

Global buyers & sellers

E-commerce

Instant transmission of money & information across continents

Political forecasting can be especially critical and complex for multinational firms that depend on foreign

countries for natural resources, facilities, distribution of products, special assistance, or customers.

Strategists today must possess skills to deal more legalistically and politically than previous strategists, whose

attention was directed more too economic and technical affairs of the firm. Strategists today are spending

more time anticipating and influencing public policy actions. They spend more time meeting with

government officials, attending hearings and government-sponsored conferences, giving public speeches,

and meeting with trade groups, industry associations, and government agency directors. Before entering or

expanding international operations, strategists need a good understanding of the political and decision-

making processes in countries where their firm may conduct business. For example, republics that made up

the former Soviet Union differ greatly in wealth, resources, language, and lifestyle.

Nearly fifty European and Latin American heads of state recently signed the sixty-nine-point Declaration of

Rio, a sweeping agreement liberalizing trade between countries on both continents. Tariffs and no tariff

trade barriers between the two continents are being reduced in the new era of political cooperation. The

Declaration of Rio of 1999 enhanced economic development and trade between those continents as well as

the United States.

Increasing global competition accents the need for accurate political, governmental, and legal forecasts.

Many strategists will have to become familiar with political systems in Europe and Asia and with trading

currency futures. East Asian countries already have become world leaders in labor-intensive industries. A

world market has emerged from what previously was a multitude of distinct national markets, and the

climate for international business today would be much more favorable than yesterday. Mass

communication and high technology are creating similar patterns of consumption in diverse cultures

worldwide! This means that many companies may find it difficult to survive by relying solely on domestic

markets.

It is no exaggeration that in an industry that is, or is rapidly becoming, global, the riskiest possible posture is

to remain a domestic competitor. The domestic competitor will watch as more aggressive companies use

this growth to capture economies of scale and learning. The domestic competitor will then be faced with an

attack on domestic markets using different (and possibly superior) technology, product design,

manufacturing, marketing approaches, and economies of scale. A few examples suggest how extensive the

phenomenon of world markets has already become. Hewlett-Packard's manufacturing chain reaches halfway

around the globe, from well-paid, skilled engineers in California to low-wage assembly workers in Malaysia.

General Electric has survived as a manufacturer of inexpensive audio products by centralizing its world

production in Singapore.

Impact of political variables on government regulations:

Government regulation/deregulation

Tax law changes

Strategic Management MGT603

Special tariffs

Political Action Committees (PACs)

Voter participation rates

Number of patents

Changes in patent laws

Local, state, and federal laws, regulatory agencies, and special interest groups can have a major impact on

the strategies of small, large, for-profit, and nonprofit organizations. Many companies have altered or

abandoned strategies in the past because of political or governmental actions. For example, many nuclear

power projects have been halted and many steel plants shut down because of pressure from the

Environmental Protection Agency (EPA). Other federal regulatory agencies include the Food and Drug

Administration (FDA), the National Highway Traffic and Safety Administration (NHTSA), the

Occupational Safety and Health Administration (OSHA), the Consumer Product Safety Commission

(CPSC), the Federal Trade Commission (FTC), the Securities Exchange Commission (SEC), the Equal

Employment Opportunity Commission (EEOC), the Federal Communications Commission (FCC), the

Federal Maritime Commission (FMC), the Interstate Commerce Commission (ICC), the Federal Energy

Regulatory Commission (FERC), the National Labor Relations Board (NLRB), and the Civil Aeronautics

Board (CAB). A summary of political, governmental, and legal variables that can represent key opportunities

or threats to organizations is provided in Table below.

Some Political, Governmental, and Legal Variables

Sino-American relationships

Government regulations or deregulations

Russian-American relationships

Changes in tax laws

European-American relationships

Special tariffs

African-American relationships

Political action committees

Import-export regulations

Voter participation rates

Government fiscal and monetary policy

Number, severity, and location of

changes

government protests

Political conditions in foreign countries

Number of patents

Special local, state, and federal laws

Changes in patent laws

Lobbying activities

Environmental protection laws

Size of government budgets

Level of defense expenditures

World oil, currency, and labor markets

Legislation on equal employment

Location and severity of terrorist

Level of government subsidies

activities

Antitrust legislation

Local, state, and national elections

World oil situation makes a difference to us. So, either the issues is related to currency, oil or labor they

should be monitored as key external variables.

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