1. Facts about the External Environment:
1) all external factors are EXTERNAL meaning the firm has no control over the issue, and 2) external opportunities must not include STRATEGIES.
2. Edward Deming said: “In God We Trust, All Others Bring the Data.” Fact gathering is an important component of this course and all case analysis! The databases will help you identify key aspects of the external environment; especially your industry report.
3. NO FIRM CAN PURSUE EVERY STRATEGY THAT WILL BENEFIT THE FIRM, SO PRIORITIZATION (ASSIGNING WEIGHTS AND RATINGS) IS VERY IMPORTANT IN STRATEGIC PLANNING.
4. Read the end of Chapter Assurance of Learning Exercises to review pertinent concepts in each chapter.
5. Today is election day; should firms take stances on political issues? A pro is that the firm can win over thousands of customers, but a con is that the firm can lose thousands of customers. Political stances do matter for business, especially in today’s world of instant tweeting and emailing. For example, to openly and actively endorse various political candidates can alienate customers/employees who support the other party’s candidate(s). In essence, should firms should weigh the pros and cons of taking stances on political issues. In general, it is best not to take stands on political issues, unless a compelling reason warrants such action. Being an activist is definitely a risky strategy, because firms are comprised of, and need the support of, large groups of people who have different opinions/beliefs.
6. There are legal/ethical ways to gather competitive intelligence as well as illegal/unethical ways. Various legal and ethical ways to obtain competitive intelligence include the following:
- Hire top executives from rival firms
- Reverse engineer rival firms’ products
- Utilize surveys and interviews of customers, suppliers, and distributors
- Conduct drive by and on-site visits to rival firm operations
- Search on-line databases
- Contact government agencies for public information about rival firms
- Systematically monitor relevant trade publications, magazines, and newspapers
- Include gathering competitive intelligence in the job description of salespersons
Some illegal/unethical ways include bribery, wire tapping, conducting job interviews with no intent of hiring but rather simply to gain information, lying, sabotage, coercing, and stealing.
7. As value of the dollar rises, USA firms doing business abroad see their profits fall, so some firms raise prices of their products to offset the decrease in profits. There are risks associated with raising prices.
Trends in the dollar’s value have significant and unequal effects on companies in different industries and in different locations. A low value of the dollar means lower imports and higher exports, which helps U.S. companies’ competitiveness in world markets. Manufacturers in many domestic industries actually benefit because of a weak dollar, which forces foreign rivals to raise prices and extinguish discounts. Domestic firms with big overseas sales, such as McDonald’s, greatly benefit from a weak dollar. The value of the dollar changes some every day, but generally in 2012-2013 the value of the dollar was strong and thus profits of USA companies with a lot of revenue from abroad were lowered on average six to seven percent. Why the lowered profits? Because, for example, 100 euros earned in Europe, when translated back to U.S. dollars for reporting purposes, the 100 euros is worth maybe $75. To combat this “loss,” some companies try to raise prices in their European or Mexican stores, but that carries a risk of alienating shoppers, angering retailers, and giving local competitors a price edge. Some advantages of a strong dollar however are that companies with substantial outside USA operations, see their overseas expenses, such as salaries paid in euros, become cheaper. Another advantage of a strong dollar is that it gives American companies greater firepower for international acquisitions. Another advantage of a strong dollar is that companies that import benefit from greater buying power, since their dollars now go further overseas.
8. Social media sites like Facebook and Twitter can represent a major threat or opportunity for a companies in terms of broadening exposure to a wider market, but overlooking these technological trends or waiting to long to act on them may represent a threat to a company’s survival. Bad news can spread very fast on social network sites, representing a major threat to firms. Good news can also spread very fast, representing a major opportunity to firms.
9. The “process of performing an external audit” in an organization doing strategic planning for the first time should involve as many managers and employees as possible. A company must first gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Individuals should be asked to monitor various sources of information, such as key magazines, journals, and newspapers. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. Once the information is gathered, it should be assimilated and evaluated. A meeting or series of meetings is needed to collectively identify the most important opportunities and threats facing the firm. Factors should be ranked and prioritized. A final list of the most important key external factors should be communicated and distributed in the organization. Strategies will be derived from matching these key external factors with key internal factors.
10.. Do the advantages of a low value of the dollar offset the disadvantages for (1) a firm that derives 60 percent of its revenues from foreign countries and (2) a firm that derives 10 percent of its revenues from foreign countries? A key advantage of a weak U.S. dollar is that it raises the revenues and profits of firms that do business outside the United States. Therefore, a weak U.S. dollar will create more profit for the firm that derives 60 percent of its revenue from foreign countries, in comparison to the firm that derives 10 percent of its revenue from foreign countries. However, neither firm should overlook the disadvantages of a weak dollar, including the potential for inflation, an increase in oil prices, and stock prices falling in the long run.
11. Governments worldwide are turning to “nationalization of companies” to cope with economic recession. There are strategic implications of this trend for firms that compete with nationalized firms. Competing with subsidized or nationalized companies is oftentimes more difficult than competing against private firms because government-backed firms have formal backing of their host country. When companies accept government bailouts, they are forced to comply with constraints and priorities set by political leaders. One implication of this trend is that domestic firms are less likely to begin or maintain operations in countries where nationalization of host firms is a threat.
12. Governments worldwide are turning to “protectionism” to cope with economic problems, imposing tariffs and subsidies on foreign goods and restrictions/incentives on their own firms to keep jobs at home. Some of the strategic implications of this trend for international commerce include: an increasing number of countries utilize protective tariffs to allow companies within these countries to prosper. However, many economists say that protectionist trade constraints make it harder for a country’s economy to grow, restricts imports, and also invites retaliation from other countries that may do the same to “protect” their firms. Protectionism hurts international commerce.
