THE GENERAL EXTERNAL ENVIRONMENT – Laka Muralidharan General external environment is composed of dimensions in the broader society that influence an industry and the firms within it. These dimensions can be can be grouped into the following six environmental segments: demographic, economic, political/legal, sociocultural, technological and global segments. 1) Demographic segment China and India account for 1/3rd of the population and experts believe that they will remain the top two populous countries at least until 2050.
China and India would contribute 65 million and 142 million new workers respectively to the global workforce by the year 2020. Both countries offer large, educated, relatively low-cost workforces, and as worldwide quest for talent continues, China and India have become the key elements in global workforce strategies. China’s workforce brings a variety of strengths to the table beyond sheer size.
The country’s excellence in producing technical and engineering talent is well known, as is its relatively low-cost manufacturing workforce and 90% literacy rate.On the other hand two traits characterize India’s workforce: skill and experience. In the last few years, India’s workforce has become known around the world through the country’s offshore call-centre activities—but this is just one aspect of India’s talent pool.
Today, companies looking to India for talent are finding much broader opportunities than they did just a few years ago. India offers a large number of educated, skilled, English-speaking workers. Increasingly, companies have been drawing on the Indian workforce for quality and innovation, as well as for lower costs.Many large scale companies now have workforce in China or India either directly or indirectly. As this trend continues in the future, the quality of jobs and the cost of labor in China and India will rise. This situation will breed a culture of innovation and development and soon new organizations will emerge and compete against the current multinational companies.
The ethnic mix of countries population continues to change. Through careful study, companies can develop and market products that satisfy the unique needs of different ethnic groups.Changes in ethnic groups also affect a workforce’s composition and cooperation. Projections are that the combined Latino and Asian population shares will increase to more than 20% of the total US population by 2014. The world’s population is rapidly aging. In North America and Europe millions of baby boomers are approaching retirement. Although emerging economy populations are aging as well, they still have a significantly younger labor force. As workforce in the west ages and education levels rise in emerging economies, the US will likely have to accept larger numbers of immigrant workers.
2) Economic segmentThe economic segment refers to the nature and direction of the economy in which a firm competes or may compete. Firms need to scan the health of economy outside their host nation. US economy declined in 2001 and extended into 2002. In order to stimulate the economy, interest rates in the US were cut to near record lows in 2003. Largely due to the low interest rates, the economy grew substantially in 2004 and 2005.
Global trade was likewise stimulated. However high oil prices have dampened global economic additionally, economic growth slowed in 2006 with US GDP growth slowing more than 4% in 2005 to 3. % in 2006. However, the US economy, and in fact economies all over the world, came under immense pressure due to the housing bubble and the financial crisis of 2008. Soon the US fell into a tough recession period, which many analysts say is the worst recession since the great depression of 1939.
Countries all over the world, showings signs of dependence on one another, came up with many different strategies like drastically lowering interest rates, multiple bailout schemes and new tax breaks (e. g. For first time home buyers), trying finding a road to recovery.Analysts say that the economy seems to have bottomed since March 2009 and we are now currently out officially out of the recession. However, since the recovery is just a few months old, there is still a lot of skepticism about whether it is for real and whether it has some legs to run further. I think the worst is behind us, but the future is still uncertain. I believe that it would take quite a while, at least a couple of years to get back to the economic levels (unemployment rate and housing market) of 2006. 3) Political/Legal segmentThis segment is an area where organizations compete for attention, resources and a voice in overseeing the body of laws and regulations guiding the interactions among nations.
As the politics of regulations change, this segment influences the nature of competition through changing rules. An example is the global trend toward privatization of government-owned or regulated firms. Firms must carefully analyze new political administration’s business-related policies and philosophies. Often, firms develop a political strategy to influence government policies and actions that might affect them.In the global scenario, more countries continue to join the World Trade Organization (WTO) as they seem to believe that free trade across nations serves the best interest of individual countries and their citizens. Down the line, many years from now, we would see a scenario where all countries in the globe become members of organizations like WTO and there is a fair trade across all countries and free market capitalism prevails throughout the world without any bias or restrictions. 4) Sociocultural segmentThis segment is concerned with a society’s attitudes and cultural values. Sociocultural segments differ across countries.
A study in 15 countries indicated that retirement planning in the US starts earlier than in other countries – since in Western Europe the social security and pension income provide a much higher percentage of income in retirement. . As the labor force has increased, it also has become more diverse as significantly more women and minorities from a variety of cultures entered the labor force.This trend is becoming prevalent even in developing countries as well and is changing the culture and day-to-day activities surrounding women in countries like India and China. Women in the middle-east (Iran, Iraq, and Saudi-Arabia) are also stepping forward and choosing to have a professional life of their own.
This trend will continue in the future and women will eventually have equal rights as men in all the countries in the world. Another manifestation of changing attitudes toward work is the continuing growth of contingency workers (part-time, temporary and contractors) throughout the global economy.Contributing to this growth are corporate restructuring and downsizing that occur in poor economic conditions. Some companies move their resources, within the US, to a smaller city where the cost is lower.
This leads to a trend in the continued growth of suburban communities in the US and abroad. Longer commute to urban businesses, increase pressure for better transportation systems. Smaller cities for example like Lexington, KY see a lot of improvement with more companies, students and families moving in.Lexington was ranked 5th overall in the category of “Best places for business and careers” in the year 2008. I believe that this trend of moving businesses to smaller, less costly cities within the US will continue well into the future. 5) Technological segment This segment involves institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes and materials. Studies suggest that early adopters of new technology often achieve higher market shares and earn higher returns.
The internet is an example of a significant technological advance. Wireless communication technology is the next critical technological development. Handheld devices and wireless communication equipments are used to access a variety of network-based services. The use of handheld computers with wireless network connectivity, web enabled wireless phone handset and other emerging platforms is expected to increase substantially, soon becoming a dominant form of communication and commerce. This trend would bring things together and influence almost every firm no matter what industry they fit n. Companies must stay current with technology as they evolve, but also must be prepared to act quickly to embrace important new disruptive technologies shortly after they are introduced. I think the future is in cloud computing, a common platform for all the different networks that are present now, the demise of computers and laptop as we know them now, the rise of smart phones and handheld devices and companies will have easy and ready access to knowledge and information.
6) Global segmentThis segment includes relevant new global markets, existing markets that are changing important international political events, and critical cultural and institutional characteristics of global markets. The current driver for changes in this segment is that the world has become flat as illustrated by the author Thomas L. Friedman in his book “The world is flat” and in his NY Times articles. Friedman says that the world has been shrinking over a long period of time and with the spreading of the internet throughout the globe, the world has been reduced into a tiny and flattening playing field at the same time.What happened over the last decade is that there was a massive investment in technology, especially in the bubble era, when hundreds of millions of dollars were invested in putting broadband connectivity around the world, undersea cables, all those things making it easy for anyone to do remote development created a platform where intellectual work, intellectual capital, could be delivered from anywhere. It could be disaggregated, delivered, distributed, produced and put back together again — and this gave a whole new degree of freedom to the way we do work, especially work of an intellectual nature.The playing field is being leveled and countries like China and India are gaining momentum. China’s average labor costs are 90%lower than those in US and Italy.
Furthermore, China’s manufacturers are much more efficient than garment manufacturers in other low cost countries like India and Vietnam. The WTO member countries can restrict Chinese imports until 2008 if they can show that local markets are disrupted. Another significant globalization trend is the increase in global outsourcing.However, recent research suggests that organizations incur a trade off between flexibility and efficiency if all works in a particular product is outsourced. The most effective approach would be to integrate outsourcing with other tasks done internally. CONCLUSION AND PREDICTION The current state of affairs followed by some prediction of how some of the trends will continue in the future was seen in the above sections.
The following paragraph leads to a brief discussion of how the different segments could affect or influence each other and a prediction of how things will shape up in the long future.The globalization of the world, (Flat world) will force companies to shift to places that have less expensive and/or more efficient workforce. Companies will shift to Brazil, Russia, India and China (BRIC) and the demographic segments of those places will change dramatically.
The BRIC countries will eventually build their multinational companies and become in par or move ahead of the current world leaders. With the world becoming flat and the demography becoming different, it will affect the economic segment of all the companies throughout the world.Outsourcing to the BRIC countries would not be an economically viable option for companies established in the current developed countries. Instead, people from the developed countries will move, thereby creating a more diverse sociocultural effect in the BRIC countries.
A world stock exchange would open up where companies established in different part of the globe could be traded in. The number of contractors and temporary workers would further increase. It is a win-win situation for both the company and the contractor.Companies would avoid the baggage that comes along with a full-time employee (like benefits, health insurance, headcount in financial reports etc) and the contractors will benefit by staying flexible and keeping his/her entrepreneurship options open.
Also, with the spreading of the internet, broadband, wireless and cloud computing technologies, communication and sharing information barriers between countries will be completely broken and political barriers will soon follow suit.