Analysis of the Macroenvironment

Chapter 6

Learning Objectives

Understand the meaning of the term “macroenvironment”

Describe the components of each of the SPENT influences

Understand how SPENT influences are linked

External Analysis

External microenvironment Porter’s 5 Forces Analysis Resource-based Approach to Analysis

External macroenvironment SPENT analysis

SPENT Analysis

The purpose of SPENT analysis is to identify factors in the macro-environment that may affect the business and it’s industry

SPENT analysis helps identify threats to, and opportunities for, a business based on macro-environment factors

Macroenvironment

Macroenvironment - the “far” environment (outside an organization’s industry and markets)

Internal

Industry

Macro-Environment

Characteristics of the Macroenvironment

Influences the microenvironment (industry and market)

Will impact all organizations in an industry, a market, or even all organizations in an economy

Source of competitive advantage – being able to predict changes in the macroenvironment and take action

SPENT Analysis

Socio-demographic factors Political factors Economic factors Natural environmental factors Technological factors

SPENT: Socio-Demographic Influences

Influences originating from changes in society

Main influences social culture (values, attitudes and beliefs) demography social structure

SPENT: Political Influences

Includes political, governmental, legal and regulatory influences

Influences at 3 levels: National level – for example, laws and regulations

passed by the Chinese government Subnational level – for example, laws and

regulations passed by the Beijing Municipal government

Supranational level – for example, agreements made within the WTO, of which China is a member

SPENT: Economic Influences

Macroeconomic changes and influences on the macroeconomy by governments Fiscal policy – government regulation

related to taxing and spending Monetary policy – government regulation

of the money supply

SPENT: Natural environment influences

Includes influences such as natural catastrophes, weather, environmental degradation

Characteristics: Difficult to predict and avoid Risk varies by location

SPENT: Technological Influences Focuses on how changes in technology affect

an industry, organizations in the industry, and activities of the organizations

Includes areas such as: Goods and services Production processes Information and communications Transport and distribution Society, politics and economics

SPENT Linkages

Analyze separately, but understand how they influence each other

Application of SPENT: China

Socio-demographic factors Migration of population from countryside to

cities Growing middle-class

Political factors Government approach to property rights

Economic factors Government policy on the RMB

Technological factors

Socio-Demographic Factors: China’s Middle Class

Urban households with yearly income of less than 25,000 RMB = 77%

Urban households with yearly income of less than 25,000 RMB =10%

Urban Chinese households are one of the largest consumer markets in the world (20,000,000,000,000 RMB each year)

2007 2025 (Forecasted)

Data from The Value of China’s emerging Middle Class, McKinsey Quarterly, June 2006

Socio-Demographic Factors: China’s Middle Class Forecasted lower-middle class of 290

million people by 2011 (yearly incomes of 25,000 RMB – 40,000 RMB)

Forecasted upper-middle class of 520 million people by 2025 (yearly incomes of 40,000 RMB – 100,000 RMB)

Both middle income classes are forecasted to be larger than the urban-rich segment of 40 million people (yearly incomes of more than 100,000 RMB)

Data from The Value of China’s emerging Middle Class, McKinsey Quarterly, June 2006

Socio-Demographic Factors: China’s Middle Class

China’s middle-class will be unusually young compared to international averages

People will likely continue to migrate from the countryside to the cities in search of higher paying jobs

Political Factors: China

China has recently passed laws protecting property rights, including intellectual property rights

Protection of property rights is thought to promote business activity by having a standard legal framework

As of now, it is unclear what property rights in China means

Economic Factors: China

China currently manages the RMB exchange rate

Officially, China will manage the RMB exchange rate for gradual revaluation

Since mid-2005, the RMB has appreciated by 11% against the USD

Technology Factors: China

Adoption of 3G technology for mobile phones So far, China has delayed implementation of 3G

services due to problems with the technology standard used in China (Time Division-CDMA)

China has passed Japan in terms of spending on technology research & development, and could pass Europe within 4 years and the U.S. within 7 years

Source: FT.com

Analysis: Ginter and Duncan

Scanning – the macroenvironment for possible changes

Monitoring – environments for specific trends and patterns

Forecasting – future directions of changes

Assessing – current and future trends and how they affect the organization

Limitations

Complexity Speed of change Uncertainty

Homework

For first class next week, research SPENT factors that may influence Ctrip.com

Read handout, article titled “The Value of China’s Emerging Middle Class”

Prepare to discuss Ctrip.com That means:

Read the case carefully Prepare to discuss your analysis of the case, the

problems, alternatives to solve problems, and recommendation

BRING THE CASE TO CLASS

Homework (2nd Class Next Week)

Read Chapter 9, Evaluation and Selection of Strategies, pp. 182-191