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What exactly is business environment? What are the constituents of a business environment? Identify & examine three classes of business environment? What is the behaviour and performance outcomes of management for each class of business environment? Business Environment Scanning and analysis (BESA). What are the benefits of conducting a BESA? Where should you focus the analysis? Macro Environment Analysis (BESA). Using the PESTEL model to conduct macro environment analysis. Where should you focus the analysis? What are the attributes of an excellent macro-environment analysis?
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BUSINESS ENVIRONMENT
© 2013 Berlin Asong. All rights reserved. 2
I. What exactly is business environment?
i. What are the constituents of a business environment?
ii. Identify & examine three classes of business environment?
iii. What is the behaviour and performance outcomes of management for each
class of business environment?
II. Business Environment Scanning and analysis (BESA).
i. What are the benefits of conducting a BESA?
ii. Where should you focus the analysis?
Learning Objectives
© 2013 Berlin Asong. All rights reserved. 3
III. Macro Environment Analysis (BESA).
i. Using the PESTEL model to conduct macro environment analysis.
ii. Where should you focus the analysis?
iii. What are the attributes of an excellent macro-environment analysis?
Learning Objectives
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Business Environment
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The space in which an organisation
does business.
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What is inside that space?
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Classes of Business
Environment.
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Stable
Dynamic
Complex
Classes of Business Environment
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Minimal or subtle changes.
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Manager’s are relatively confident in their decisions and of
the future.
Mood of Management
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Managers tend to have plenty of time to “right” past mistakes.
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Performance (Results)
Organisational performance tends to be predictable.
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Planning Cycle
In principle, strategic plans tend to run their full course.
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In a globalisation age, is there such thing
as a stable business environment?
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Speedy and challenging changes.
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Manager’s are relatively less confident in their
decisions and uncertain about the future.
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Time becomes a luxury to managers.
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Performance (Results)
Organisational performance tends to
be less predictable.
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Planning Cycle
Strategic plans are unlikely to run their full course, & if they do, they are shorter.
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An extension of a dynamic environment; myriad of contradictory
issues, difficult to understand.
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Short-term & long-term decisions
become hard to make.
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Performance (Results)
Organisational performance is less
predictable.
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Planning Cycle
Strategic plans are no match to tumultuous & uncertain environment.
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The 2008/09 global financial
meltdown epitomises today’s complex
environment.
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Business Environment Scanning &
Analysis
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Importance of environmental scanning
in strategic planning process?
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Strengths Opportunities
Weaknesses Threats
…leads to the identification of 1
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Strengths & Weaknesses are concerned with ‘internal issues’.
Strengths Opportunities
Weaknesses Threats
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Opportunities & Threats are concerned with ‘external issues’.
Strengths Opportunities
Weaknesses Threats
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Strengths Opportunities
Weaknesses Threats
Minimise
Convert
Minimise
Match
Convert
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The process is information driven; can improve the quality
of strategic decisions.
2
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The firm maybe better prepared to capture market
opportunities; confront market risks.
3
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The assumption is the process enables managers to grow specific knowledge vital to outperform the competition.
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Improved managerial knowledge of the business
environment.
4
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To identify & deploy suitable competitive
strategies.
5
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Can result to effective and efficient
use of firm’s resources.
6
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Can lead to improved sales and profit.
7
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of Business Environment
Analysis Dimensions
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Consumers, communities, competitors, suppliers, etc
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McKinsey 7S diagnosis
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Pri
mary Support
Inbound Logistics
Production Outbound Logistics
Marketing & Sales
Service
Procurement
Technology Development
Human Resource Management
Firm Infrastructure
Margin/Profit
Margin/Profit
Value-chain diagnosis
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Macro-Environment: PESTEL Analysis
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PESTEL Analysis
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Opportunities
Risks
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PoliticalEnvironment
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Political rule or governance of a country or state.
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How appealing is your country to foreign businesses? What initiatives are
been taken by your national government to attract foreign businesses?
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…ushers in new policies.
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Obama signs into Law new Wall Street Reforms and Consumer Protection
Reforms— 21 July 2010
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David Cameron’s immigration cap and economic austerity—
July 2010
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Political uncertainty in Syria, 2012.
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Civil unrests in the Gulf region, and geopolitical tension between the West
and Iran tend to push up oil prices.
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Picture Source: Wikipedia
Libya’s crude oil production output
fell, supply-routes were disrupted by the 2011
spring uprising.
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Libya's Oil Production Could Quadruple In A Year
Source: Business Insider (2011). Retrieved from http://articles.businessinsider.com/2011-10-20/markets/30301294_1_libyan-crude-oil-industry-libyan-oil
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Source: Business Insider (2011). Retrieved from http://articles.businessinsider.com/2011-10-20/markets/30301294_1_libyan-crude-oil-industry-libyan-oil
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The political, economic, socio-cultural and technological
integration of nations.
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Opportunities Globalisation
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Access to low-cost labour and raw materials.
1
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Access to new markets
2
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Access to additional income streams.
3
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Increased productivity
4
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Threats Globalisation
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Political risks Regulatory risks
Competitive forces Exchange rate risks Competitive forces Natural disasters
Etc.
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Executive | Parliament | Judiciary | Human rights
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A clear political order & application of laws
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War Political stability
Change of governments Governmental policies
Terrorism Etc.
Summary
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EconomicEnvironment
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Recession | Recovery | Boom
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Rise in real GDP Rising employment rate
Increase in personal income Increase in consumer spending
Rise in corporate spending Rise in corporate earnings
Etc.
Booming Economy Indicators
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GDP contraction Fall in personal income
Rising unemployment rate Decline in corporate earnings
Fall in consumer spending Fall in corporate spending
Etc.
Declining Economy Indicators
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UK Economy Continues to Contract
Have firms modified their behaviours as a result of the 2008/09 global economic recession? In what ways?
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Laid-off staffs Exited market
Entered new markets Renewed focus on ethics Forged new partnerships Risk-adverse management Focused on short-term gains
Reconfigured competitive strategy Etc.
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Mass layoffs in the auto, financial, retail, FMCG, tech,
public-service industries between 2008 & 2012.
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UK Unemployment Rate 2008-2010
Are some industries more affected by rising
unemployment?
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Sony’s 2010 & 2011 TV sales were hurt by a strong Yen amidst other reasons.
Does the UK tourism industry benefit from a
declining British pound?
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Does Brazil’s export industry benefit from
a declining real?
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Levies on personal & corporate earnings.
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Low corporate tax rates is one of the main reasons Ireland attracts businesses like Google & Facebook.
Humphries, C. (2012), “Apple Announces 500 New Jobs in Ireland”. Retrieved April 20, 2012, from www.retuers.com
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The price of borrowed money.
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Has the BoE’s interest rate of 0.5%
stimulated bank lending?
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Fiscal policies aimed at reducing national debt
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Welfare benefit cuts. Public sector job-cuts.
Cut in government spending. Public-sector wage cut/freeze.
Increase in taxes (income, consumption, corporate, etc.). Etc.
Austerity (Fiscal) Policies
© 2013 Berlin Asong. All rights reserved. 139
Are austerity measures the reason for slow economic
growth in the Eurozone?
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An increase in the prices of products and services in a country over a period of time.
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Is inflation good or
bad to an economy
?
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…expressed by the number of competitors in an industry.
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E.g.: the market for desktop operating systems
Monopoly A single provider of a service or good in an industry
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E.g.: the market for desktop operating systems
Duopoly An industry dominated by two firms
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The aerospace industry is far from being duopolistic.
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E.g.: the market for desktop operating systems
Oligopoly An industry dominated by few firms
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Availability and quality of services used to facilitate economic
transactions & development.
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Fiscal policies Banking system Transport system Monetary policies
Telecommunication system
Economic Infrastructure
How strong is the economic infrastructure
in your country?
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GDP Interest rates
Exchange rates Consumer confidence
Price inflation Unemployment
Size of disposable income Nature of market competition
Etc.
Summary
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Socio-culturalEnvironment
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Source: Office for National Statistics, UK, 2010
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Age Group Growth Rate
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Fertility | Mortality | Life Expectancy
Source: Office for National Statistics, UK, 2010
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Growing Middle Class Population.
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1820
Middle-class population as a % of global population.
2006 1960 1938 1913 1990 1890 1980 1950 2000
Source: Economist
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1700 2006 1850 1980 1950
Source: Economist
Middle-class population as a % of global population
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7+ 1—2
Family-size Segments
5—6 3—4
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... Couple-households
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... Single-mother households
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Source: Office for National Statistics, UK, 2010
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Widow Single
Marital-status Segments
Divorced Married Widower Engaged
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The habits, attitudes, moral standards, economic level, etc., that typify your
mode of living.
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Source: Office for National Statistics, UK, 2010
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Murder Hacking
Kidnappings Money laundering Bribery & corruption
Counterfeiting Hijacking
Piracy Theft Etc.
Crimes
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Wal-Mart May Pay Millions to Resolve Mexican Bribery Allegations.
Source: LA Times (2012). Retrieved from www.latimes.com/business/la-fi-wal-mart-bribery-20120424,0,2920404.story
Should the bribery allegation be true, what effect
would it have on Wal-Mart?
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Global Corruption Barometer: 2009 Corruption Perception Index (CPI)—Selected Ranks
Source: Selected data from the TI Corruption Perception index, 2009
Top 20—Least Corrupt 1. New Zealand
2. Denmark
3. Singapore
3. Sweden
5. Switzerland
6. Finland
6. Netherlands
8. Australia
8. Canada
8. Iceland
11. Norway
12. Honk Kong
12. Luxembourg
14. Germany
14. Ireland
16. Austria
17. Japan
17. United Kingdom
19. United States
20. Barbados
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Global Corruption Barometer: 2009 Corruption Perception Index (CPI)—Selected Ranks
Source: Selected data from the TI Corruption Perception index, 2009
Bottom 20—Most Corrupt 158. Tajikistan
162. Angola
162. Congo Brazzaville
162. Dem Rep Congo
162. Guinea-Bissau
162. Kyrgyzstan
162. Venezuela
168. Burundi
168. Equatorial Guinea
168. Guinea
168. Haiti
168. Iran
168. Turkmenistan
174. Uzbekistan
175. Chad
176. Iraq
176. Sudan
178. Myanmar
179. Afghanistan
180. Somalia
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Pandemics
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Avian Flu Swine flu Mad-cow
Which industries were affected by the 2009 Swine flu pandemic?
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Airline Food
Agribusinesses Restaurant dining
Public-gathering activities
It’s difficult to predict a pandemic. Pandemic-vulnerable businesses should have contingency plans.
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Increasing preference for
healthy foods & drinks.
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Source: Joe (2009). Retrieved from www.livestrong.com/blog/blog/curious-joe-wants-to-know-are-you-addicted-to-diet-coke/
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Launched in March 2012
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Source: Northattan (2011). Retrieved from http://northattan.com/wp-content/uploads/2011/11/IMG_93111.jpg
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ST Paul’s Cathedral, London
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Source: Bonini, McKillop, & Mendonca 2007
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Protectionism
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Buddhism Christianity Hinduism
Islam Judaism Shintoism
Etc.
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Power distance Uncertainty avoidance
Individualism Masculinity
Hofstede Four Dimensions of National Culture
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According to
Geert Hofstede…
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Power distance culture
The degree to which hierarchy and
class exist in a society.
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Brazil Spain
Singapore Japan
Philippines Venezuela
France India Etc.
High Power Distant Culture Nations
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UK Germany Australia Austria USA
Denmark Canada
Etc.
Low Power Distant Culture Nations
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Uncertainty avoidance culture
The degree to which people tend to avoid
uncertainty, ambiguity, conventions.
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Japan South Korea
Greece Pakistan
Etc.
High Uncertainty Avoidance Culture Nations
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Hong Kong Denmark
Etc.
Low Uncertainty Avoidance Culture Nations
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Individualism culture
The degree to which people place personal interests
over collective interests.
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Australia Canada
Netherland UK USA Etc.
High Individualism Culture Nations
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Columbia Greece
Hong Kong Mexico Peru
Taiwan Etc.
Low Individualism Culture Nations
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TechnologicalEnvironment
The state and pace of technological advances
and uses.
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Internet
The internet has altered the business landscape, & continues to
rewrite the “rules” of doing business.
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© 2013 Berlin Asong. All rights reserved. 249 Source: Office for National Statistics, UK, 2010
How is the internet revolutionising society and
businesses?
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Broadband Speed
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Then Now
The impact of mobile technologies on society.
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The advent of mobile payment.
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Influence of Social Media
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Source: Office for National Statistics, UK, 2010
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Has the power of social media been
exaggerated?
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EcologicalEnvironment
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Tsunami Drought
Earthquake Volcanic eruption
Hurricane Flooding
Etc.
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2011 Japanese Tsunami: lost of lives & livelihood; supply-
chains disrupted, etc.
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Flight cancellations in urope in 2010 & 2011
aused by the Icelandic volcanic ash-cloud.
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Drought in the Horn of Africa.
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Depletion of natural resources.
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Waste
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BP oil spill in the Gulf of Mexico of 2010.
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LEGALEnvironment
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Advertising laws Competition laws
Consumer protection laws Intellectual property laws
Health & Safety laws Employment laws
Etc.
Major Business Regulatory Frameworks.
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Burger King to scrap ad after complaint
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What are the attributes of a great macro-environment
analysis?
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Thorough & facts-checked.
1
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The issues covered are relevant to the purpose for which the analysis was commissioned.
2
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PESTEL PESTEL PESTEL PESTEL PESTEL
PESTEL
PESTEL PESTEL
PESTEL PESTEL
PESTEL
PESTEL
PESTEL
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It’s up-to-date and tracks future trends.
3
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It’s actionable.
4
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