PESTEL Analysis

July 30, 2011 1 Comment

PESTEL model is useful for leaders and managers to analyze the microeconomics of business environment they are working in or attempting to enter in the future. Strategist use PESTEL model to find the macro-environmental factors that can or will affect their strategy implementations and the organizational performance. PESTEL model include six environmental influencers, which are Political, Economic, Social, Technological, Environmental, and Legal. These influencers may look independent but they are related to each other in different ways. Change in the political situation may change the economical and the environmental regulations. The environmental standards may be relaxed which make the organizational investments unjustified, on the contrast, the environmental regulations may become more stringent which may need more investment in an approved project.

Political factors: governmental instability make the intended market undesirable because new government may revoke contracts or change social policies (Evans & Richardson, 2007). The unexpected changes may consume the intended profit margin. Tax policies and trade regulations, like NAFTA, are equally important political factors.

Economic factors include unemployment rate, buyers disposable income, and credit accessibility (Carpenter & Sanders, 2009). These three factors affect the individuals buying power. Strategist need to look at these factors along with interest rate and inflation before offering their products and services in the intended market.

Social Factors are lifestyles, educational levels, wealth distribution, and population demographics (Evans & Richardson, 2007). A product or service may be successful in a country or part of the country because of the lifestyle of that area but could be unsuccessful in another. Trendy cafes may be successful with the young population but gourmet coffee shops are more desirable for the older population.

Technological factors like innovations and discoveries can affect the pace of technological obsolescence (Carpenter & Sanders, 2009). The introduction of iPod in the market signaled the obsolescence of the Sony Walkman. The same situation can be noticed with the DVD use over VHS tapes and now the online rent services made the DVD lose market share fast. Digital and audio books affected the printed books heavily. Boarders, the bookshop chain, just announce its troubled operations and its intention to close more stores.

Environmental factors are increasing and becoming more stringent every year. Waste disposal, energy conservation, and protections laws are the most important factors but not all. Environmental laws keep on increasing the limits after the noticed global environmental changes. Managers and business leaders need to plan for more changes in the protection laws because of the constant demand from the environmental groups and the international environmental organizations.

Legal factors are changing constantly depending on the market needs, or government political views (Carpenter & Sanders, 2009; Evans & Richardson, 2007). Change in the employment regulations like minimum wage, discrimination laws, and health and safety regulations can affect the operational cost.

Managers and business leaders should expect the risk of the changes in the above factors. Well planned and risk managed strategy can decrease the cost and maybe signal good opportunities in the future.

References:

Carpenter, M. A., & Sanders, W. G. (2009). Strategic management. Upper Saddle River, NJ: Pearson Prentice Hall.

Evans, C., & Richardson, M. (2007). Assessing the environment. Manager: British Journal of Administrative Management(60), i-iii.

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Meetings: What Is Really Going On?

December 15, 2010 6 Comments

Listen to this postWe spend few hours everyday in meetings. Some meetings are short and simple, like a one-on-one meeting to discuss specific issues and take decisions. Other meetings are usually last between half to full hour with attendance between 3 to 7 participants half of them do not know why they are sent to the meeting. Some meetings are large, noisy, crowded and long. They are more like a workshop than a meeting but they exist in the business world and many of us had survived few of them. These large meetings are the least productive meetings because they are difficult to control. It would be almost impossible In such meetings to listen to every participants’ input and give them enough time to discuss their thoughts.
Mismanaged meeting consume the management time and effort and hold the participants in a place were they are only listening instead of working on important issues outside the meeting. You will know that you are in a mismanaged meeting when the participates have side talks and others are frequently checking their iPhones and Blackberries instead of participating in the meeting. You will know that you have been in a good meeting when everybody leave the room knowing enough about the subject to describe it to anybody who ask them about it later. The participants in a good meeting will leave the meeting with a set of actions to take with a specific outcome on a target date. They know whom they should contact for clarifications and to whom they should report their progress. This post is an introduction to a series of posts on the same subject I will be updating in the coming days.

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Geo-economics Theory

November 2, 2010 1 Comment

International and subcultures issues had remarkable effect on the international organizations. Comparison of the popular theories like institutional, agency and resource-based theories test the chinese culture and geographic differences (Tsui, 2006). The geo-economics theory integrates the effect of economics and management on the success of the organization which competes in the international market and its geographical differences.

Study by Schlevogt (2001) tackled the differences between 124 organizations in the North of China and South of China found that “government support, organizational structure and management expertise” were the most important reasons for the effectiveness in North of China (Schlevogt, 2001).

Geo-economics differences are obvious in the Gulf Cooperation Council (GCC) area where the countries speak the same language, have same religion and similar heritage, but business and economic differences are obvious to the local and the international business community.

References:

Schlevogt, K.-A. (2001). Institutional and organizational factors affecting effectiveness: Geo-economics comparison between. Asia Pacific Journal of Management, 18(4), 519.

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Keiretsu

October 7, 2010 2 Comments

Minority networks of Japanese organizations have shares in the other organizations to create a larger network. The network collaborates to boost each other’s interest (Jones, 2007).
Financial Keiretsu link and group various companies which have their own large banks. The capital Keiretsu is used to manage input and output linkages between the small networks of organizations (Jones, 2007).
Toyota is using capital Keiretsu by owning as large as 40% share from the companies that supply it with inputs. With this share, Toyota is able to exercise good control on its resources (Jones, 2007). The Fuyo Keritsu is a financial Keiretus that has Hitachi, Nissan, Canon and many other companies joined by Fuji bank which provide the financial services to the group.
Just In Time (JIT) principle is part of the Keiretsu theory where companies depend on receiving the needed parts just in time for their use from a supplier that produce the right amount for the user. Keiretsu enabled Toyota to have the strong relation with its suppliers without the cost of owning and managing them. General Motors (GM) has full ownership of its suppliers than any other carmaker which made GM incur the cost of the supplier while the supplier running inefficient operations knowing that GM will buy their products regardless of their business efficiency.
Ford the car manufacturer formed its Keiretsu by owning minor share in its engine supplier, windows producers, body parts and wheels manufacturer. Ford also had notable ownership in the car rental company Hertz which use Ford’s cars only (Jones, 2007).

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Skilled Workers Vs. Cheap Labor

September 23, 2010 1 Comment

Listen to this postInternational producers, like China, are exporting  their products to sell them at or lower than the production cost (Vandenbussche & Zanardi, 2008). Local companies can compete with the low-cost labor by making the costly labor more efficient to produce the same product in less time and with less waste (time and material). Klempa (2006) states that productivity can be drastically improved when the roadblocks are removed. Productivity improve by improving management planning, making productivity a strategic initiative, aiming high, measuring progress and making changes as needed (Klempa, 2006). The same worker might cost more but he or she would produce high output with less reworks. Local business would face stiff competition from the international producers if the same quality could be produced with cheaper labor.

References:

Klempa, M. (2006). Eliminating productivity roadblocks. Financial Executive, 22(8), 32-35.

Vandenbussche, H., & Zanardi, M. (2008). What explains the proliferation of antidumping laws? Economic Policy, 23(53), 93-138. doi: 10.1111/j.1468-0327.2007.00196.x

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Greenfield Investment or Merger and Acquisition

September 19, 2010 14 Comments

Listen to this postGreenfield investment is defined by Investopedia as “A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.” So is greenfield investment is a better choice to enter a new market in a developing country, or should the investor target an existing local company for merger or acquisition.

Nanda (2009) state that greenfield Foreign Direct Investment (FDI) can bring benefits to the developing countries while Merger and Acquisition (M&A) FDI can be harmful or have little help for the same country. FDI should promote economical growth in the developing country to be considered a useful investment.  FDI transfer physical capital to the developing country along with technology and other intangible assets (Miao & Wong, 2009). Greenfield investment should start new business that help the developing country to grow, however, some of the investments are oriented mostly toward benefiting the investor (Nanda, 2009). M&A investments should be welcomed in the developing countries to help national ailing organization that need capital and knowhow to rise again as a competitive organization.

M&A investment is easier in developing countries because of the acquired organizations is established and operating within the local rules and regulations. The greenfield investments would need clearances from different governmental departments that could delay the greenfield investment beyond the target date (Nanda, 2009). Nanda (2009) state that China has more stringent regulatory regime than India but China is faster in approving or disapproving FDI projects. This simple fact is believed to be one of the reasons that made China more economically successful than India (Nanda, 2009). A study based on 84 countries from 1987 to 2001 by Miao & Wong (2009) showed positive growth effect from the greenfield investments while the M&A had negative effect. Furthermore, M&A investments required a minimum level of human capital to have positive impact on the developing country’s economy, but the Greenfield investment does not need that level of human capital to be effective (Miao & Wong, 2009). Muller (2007) had more accurate segmentations on the choice of entry mode in the developing countries. Muller (2007) suggest that Greenfield investments is best used if the competition in the local market is either high or low, but acquisition would be the best choice if the completion is intermediate.

Also read in this blog: Mergers and Acquisitions: How Good Are They?

References:

Nanda, N. (2009). Growth effects of FDI: Is greenfield greener? Perspectives on Global Development & Technology, 8(1), 26-47. doi: 10.1163/156914909×403171

Miao, W., & Wong, M. C. S. (2009). What drives economic growth? The case of cross-border M&A and greenfield FDI activities. Kyklos, 62(2), 316-330. doi: 10.1111/j.1467-6435.2009.00438.x

Muller, T. (2007). Analyzing modes of foreign entry: Greenfield investment versus acquisition. Review of International Economics, 15(1), 93-111. doi: 10.1111/j.1467-9396.2006.00634.x

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Should We Outsource Pharmaceutical Products?

September 14, 2010 1 Comment

Listen to this postOutsourcing became almost a must for most of the organizations. The electronics producers are a good example for outsourcing where most of the parts are outsourced or sometimes the products is completely manufactured by a different company. If you flip you iPhone and check the writing on the bottom of the phone you will notice “Designed by Apple in California, Assembled in China”!! Outsourcing eelectronic is more acceptable than other products like pharmaceutical products. The risk in outsourcing pharmaceutical products is very high because of the products nature. Melamine-laced mile products were responsible for the death of six babies and  poison contaminants in cough syrup were responsible for the death of more than 100 people in Panama. About 80% of the prescription drugs sold in the U.S are made outside the U.S. (“Outsourcing safety,” 2009). Risk management is very important to overcome the risk in pharmaceutical products (Fiscus, 2009). Product liability lawsuit could wipe out the cost saving from outsourcing the product and have a permanent scare in the firm’s brand (Fiscus, 2009).

References:

Fiscus, P. W. (2009). Global risks for drug manufacturers. Risk Management (00355593), 56(4), 50-54.

Outsourcing safety. (2009). Editorial, Nature Medicine, pp. 221-222. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=36818298&site=ehost-live

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Short Introduction to: WTO, IMF and OECD

September 4, 2010 2 Comments

LONDON. Before meetings of the Heads of State ...
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Listen to this postThe three principle international institutions that influence the global economic relations are World Trade Organization (WTO), the International Monetary Fund (IMF), and the Organization for Economic Co-operation and Development (OECD) (Rose, 2005). WTO is primarily concerned with trade but does not have the biggest effect on trade. The recent recession had weakened the WTO and many countries started implementing preferential trade agreements that may not agree with the WTO (Dieter, 2009). The recession made many managers and policy makers questioned the international institutions ability to control the trade and generate more sales (Dieter, 2009). Globalization call for international finance and trade agreement, and for the same reason, globalization made most of the financial and business crises more global (Arner & Taylor, 2009). The Group of 20 (G20) called for greater consistency and systematic corporations between countries during their London Summit in April 2009. This call came while the WTO and the IMF are in effect but not effective as expected to be (Arner & Taylor, 2009). WTO was developed and was effective ten years ago but the resent recession’s downturn discouraged the organizations and the countries to neglect the trade agreements between them (Dieter, 2009).  Dieter (2009) state that IMF is not as important international organization as it was ten years ago.

Globalizations was and still believed to benefit the producing countries but the recent economical recession made many lose their confidence in OECD although Rose (2005) believe that OECD is the only international institution that that still can influence the pattern of global economic relations. Rose (2005) state that IMF has an agenda but fewer tools to implement it while OECD had legal instruments and tools but could offer fewer incentives.

References:

Arner, D. W., & Taylor, M. W. (2009). The global financial crisis and the financial stability board: Hardening the soft law of international financial regulation. University of New South Wales Law Journal, 32(2), 488-513.

Dieter, H. (2009). The decline of global economic governance and the role of the transatlantic powers. Business & Politics, 11(3), 1-23.

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Is Anti-dumping Misused?

August 30, 2010 1 Comment

Listen to this postDumping refer to the act of exporting goods by a country to another at a price below its cost of production. Anti-dumping is the penalty imposed on low-priced imported goods to give local products fair chance to compete against the suspiciously low-priced imports (Kochher, 2009). Theoretically, dumping was set to give fair chance to the local product and local producers, however, an anti-dumping started between China and India and affected many other countries. Each country is imposing the anti-dumping penalties as a retaliation to the same act done by the other. Anti-dumping spread from 35 to 96 countries between 1980 and 2003 (Vandenbussche & Zanardi, 2008). World Trade Organization (WTO) should revise its anti-dumping rules to prevent some countries for misusing the anti-dumping rules. The Foreign Direct Investment (FDI) was affected by anti-dumping misused in China but Dang, Feng, & Lv (2010) stated that multinational corporations’ FDI will not be affected if China select to impose fair anti-dumping measures.

References:

Dang, J., Feng, Z., & Lv, H. (2010). The effects of antidumping measures on the FDI: A pre-marketing behavior aspect analysis in China. [Article]. International Journal of Organizational Innovation, 2(3), 206-224.

Kochher, P. (2009). India and china antidumping wars: Who is the winner? Globsyn Management Journal, 3(2), 61-64.

Vandenbussche, H., & Zanardi, M. (2008). What explains the proliferation of antidumping laws? Economic Policy, 23(53), 93-138. doi: 10.1111/j.1468-0327.2007.00196.x

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International Trade Policy

August 28, 2010 3 Comments

Listen to this postTrade policy is a set of standards, rules and regulations that govern the country’s trade. A good trade policy would maintain or improve the country’s trade by regulating the tax, tariffs and  inspections regulations. Countries would look for a set of trading standard or regulations to smooth out the trading between both of them. A strategic trade policy would affect the firms strategic interactions in international oligopoly (Sen, 2005). A business can push for a trade policy that give it more advantage of over the international competitors. For example, if two producers of the same product are competing in the local market but one of them is national producer, the national producers should ask for tax or tariff put on the international producer to give it the price advantage in the local market. The U.S. entered in three free trade agreements. The second agreement was with Canada and the third was the North American Free Trade Agreement which is known as NAPTA (Taylor, 2009). The three agreements were set as a result of the U.S. experience in the globalization and multilateral system. Free trade agreement would be the best agreement the business may bush for because it lefts taxes, tariffs and quotas. Globalization would be faster and more effective between countries who agree on the free trade because the products can have fair opportunities in participating countries and the best product would be available to the consumer at the lowest price.

References:
Sen, S. (2005). International trade theory and policy: What is left of the free trade paradigm? Development & Change, 36(6), 1011-1029. doi: 10.1111/j.0012-155X.2005.00447.x

Taylor, C. O. N. (2009). Of free trade agreements and models. Indiana International & Comparative Law Review, 19(3), 569-609.

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