The environment represents the totality of factors that affect the firm and are beyond the immediate control of the firm's management. Most traditional books on international business deal with the environment by emphasizing either the economic structure or the political structure of the world. Some recent books focus on the sociocultural aspects of the world. 1 Global Business Strategy: A Systems Approach looks at two aspects of the external business environment: the macroenvironment and the microenvironment.
The study of the macroenvironment places emphasis on the relationship between humans and their natural habitats. The natural habitat is the set of interrelated and interdependent life support systems that provide the means of human survival. Human beings affect and in turn are affected by the life support systems of nature.
In this chapter the natural ecosystem will be examined in terms of
- its ability to produce food and minerals (the so-called reservoir concept)
- its capacity to absorb human and industrial waste (the so-called sink concept)
Human systems will be examined in terms of
- the number of people on earth and the rates of growth (population/demographics)
- the cultures of the peoples of the world (religious, political, and economic systems) 2
The macroenvironment, with which most students are already familiar from courses in geography, religion, ecology or earth science, political science, and economics, is diagrammed in the upper portion of Figure 4.1.
The microenvironment is the particular environment within which an individual enterprise does business in a particular country or region. This book conceives of a business enterprise as an open system which is in continuous interaction with its external environment. Within such a system the people, both managers and workers, act as continuous scanners, seeking and receiving information about the environment. This information becomes input in the organizational decision-making process as the set of uncontrollable variables, or states of nature, in the strategic management framework (see Figure 2.5).
The literature on organizational environments, or external business environments, divides the variables that are relevant to the organization's objectives, goals, and functions but beyond its immediate control into three basic categories. 3 The first category, called the internal environment, includes all the factors in the work situation that are beyond the immediate or complete control of the jobholder (individual). The internal environment is also known as the organizational climate. The second category, called the immediate, or task, environment, represents the longstanding relationships between an organization and other organizations or individuals on which it depends for its day-to-day functioning, such as stockholders, suppliers, creditors, competitors, customers, and labor unions. Finally, the third category of organizational environments, the general external business environment, is usually defined in the literature very loosely as background factors such as social, political (or regulatory), economic, and technological conditions that affect a business organization.
This framework is presented in the lower portion of Figure 4.1. The extreme left-hand box represents the internal environment. In contemporary business literature this portion of the business environment is referred to as the corporate culture. The term refers to the accumulated experience of the people connected to the enterprise and the atmosphere and climate in which this experience is expressed. The middle box in Figure 4.1 represents the immediate/task environment. This environment consists of the interaction between the organization and other organizations to which it has longstanding commitments. Traditionally, these other organizations with which the organization has daily interactions are called sectors of the external environment. Five such sectors are identified here: banks, professional organizations (lawyers, consultants, etc.), suppliers, competitors, and government.
The third, and perhaps the most important, portion of the business microenvironment is represented in the third box in Figure 4.1. This portion of the business environment consists of various emerging issues, including social, technological, ecological, political, and economic issues.
Division of the environment into three main categories is a convenient way of making some sense of the uncontrollable variables. At least it focuses managerial attention on the uncontrollability of some of the variables that affect the decision-making process.
The framework is inadequate, however, when management wishes to become more sophisticated in strategy setting. As will be shown later, a very important part of strategic management is what is called environmental analysis. When performing environmental analysis, a manager must go beyond this simple distinction between the immediate, or task, environment and the general external environment. And the managerial task of dealing with the external environment and incorporating it into the strategic management process becomes significantly more difficult when the environment is an international one.
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