Week 2 Assignment 1
CHAPTER 4
Managing in the Global Environment
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Learning Objectives (1 of 2)
4-1. Explain why the ability to perceive, interpret, and respond appropriately to the organizational environment is crucial for managerial success.
4-2. Differentiate between the global task and global general environments.
4-3. Identify the main forces in both the global task and general environments, and describe the challenges that each force presents to managers.
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Learning Objectives (2 of 2)
4-4. Explain why the global environment is becoming more open and competitive and identify the forces behind the process of globalization that increase the opportunities, complexities, challenges, and threats that managers face.
4-5. Discuss why national cultures differ and why it is important that managers be sensitive to the effects of falling trade barriers and regional trade associations on the political and social systems of nations around the world.
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What Is the Global Environment? (1 of 3)
Global Organizations
In more than one country
Uncertainty and unpredictability
Global Environment
Set of global forces and conditions that operate beyond an organization’s boundaries but affect a manager’s ability to acquire and utilize resources
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Global forces change over time and thus present managers with opportunities and threats.
New and efficient production technology can allow companies to develop and sell more products.
The availability of lower-cost components gives a company the change to acquire more resources and capital.
When new international markets open up, they present more markets to a company.
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Forces in the Global Environment
Figure 4.1
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TOPICS FOR DISCUSSION (1 of 4)
Why is it important for managers to understand the forces in the global environment that are acting on them and their organizations? [LO 4-1]
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The text defines an organization’s environment as the forces outside of its boundaries that have the potential to affect the way it operates. Changing forces present managers with opportunities and threats. The organization’s environment includes the task environment and the general environment (some theorists include the internal environment as another kind of environment.)
The task environment consists of forces from suppliers, distributors, customers, and competitors.
The general environment refers to the wider economic, technological, sociocultural, demographic, legal-political, and global forces. The general environment affects the way an organization operates. Managers must constantly analyze forces in the general environment because these forces affect long-term decision making and planning. Furthermore, these forces in an organization’s general environment can have profound effects on an organization’s task environment.
It is important to understand the forces in the task environment because they have the ability to pressure and influence managers on an ongoing, daily basis and have a significant impact on short-term decision making. These forces affect an organization’s ability to obtain inputs and dispose of its outputs, which is critical to the success of any organization. For example, it would be important for managers to understand the economic forces present in their general environment because they could affect their organization in both a positive and negative manner. Low levels of unemployment and falling interest rates provide opportunities for an organization. This could result in a change in their customer base since people have more money to spend on goods and services. A decline in the economy could result in a threat to the financial health of an organization. Declining economic conditions limit managers’ ability to gain access to the resources their organizations need to survive. Furthermore, customers would have less money to spend on goods and services.
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What Is the Global Environment? (2 of 3)
Task Environment
Set of forces and conditions that originate with suppliers, distributors, customers, and competitors and affect an organization’s ability to obtain inputs and dispose of its outputs because they influence managers daily
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What Is the Global Environment? (3 of 3)
General Environment
The wide-ranging global, economic, technological, socio-cultural, demographic, political, and legal forces that affect an organization and its task environment
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More difficult to identify and respond to than task environments are general environments. But it is important to note that changes in general environment forces can result in major impacts on an organization.
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The Task Environment (1 of 6)
Suppliers
Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services
Raw materials, component parts, labor (employees)
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The text uses Dell Technologies as an example. One of the many sources Dell uses is the training of future Dell employees. By training these individuals, Dell provides itself with skilled workers.
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Suppliers
Changes in the nature, number, or types of suppliers produce opportunities and threats to which managers must respond.
Depending upon these factors, a supplier’s bargaining position may be either strong or weak.
At a global level, managers have the opportunity to buy products from foreign suppliers or to become their own suppliers and manufacture their own products abroad.
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A strong bargaining position for suppliers may result in raised prices. If a supplier is the only source for an organization and that input is vital to that organization then a supplier has a strong hand at the bargaining table.
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Global Outsourcing
Global Outsourcing
The purchase or production of inputs or final products from overseas suppliers to lower costs and improve product quality or design
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The text speaks of Apple’s connections to companies in Taiwan and China. These companies supply Apple with chips, batteries, and LCD displays that power its digital devices. Apple also contracts with outsourcers such as Foxconn to assemble iPhones and iPads and their other products. Global distribution is also outsourced with companies such as FedEx.
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The Task Environment (2 of 6)
Distributors
Organizations that help other organizations sell their goods or services to customers
If distributors become so large and powerful that they can control customers’ access to a goods and services, they can threaten the organization by demanding that it reduce the prices of its goods and services.
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Examples: Federal Express, UPS, and the U.S. Postal Service have become vital distributors for the millions of items bought online and shipped to customers by companies both at home and abroad.
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The Task Environment (3 of 6)
Customers
Individuals and groups that buy the goods and services that an organization produces
Identifying an organization’s main customers and producing the goods and services they want is crucial to organizational and managerial success.
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Example: Dell’s customers can be segmented into several distinct groups:
individuals who purchase PCs for home and mobile use,
small companies,
large companies, and
government agencies and educational institutions.
Changes in the number and types of customers or in customers’ tastes and needs create opportunities and threats.
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The Task Environment (4 of 6)
Competitors
Organizations that produce goods and services that are similar to a particular organization’s goods and services
A high level of rivalry typically results in price competition, and falling prices reduce customer revenues and profits.
Potential Competitors
Organizations that presently are not in a task environment but could enter if they so choose
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Competitors are organizations trying to attract the same customers, exemplified by competition among Dell, Apple, and HP, as well as Sony and Toshiba.
When new competitors enter an industry, competition increases and prices and profits decrease—as furniture and electronic stores such as Best Buy have discovered as they battle Amazon.
The Task Environment (5 of 6)
Barriers to Entry
Factors that make it difficult and costly for the organization to enter a particular task environment or industry
Economies of Scale
Cost advantages associated with large operations
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The more difficult and costly it is to enter the task environment, the higher are the barriers to entry. The higher the barriers to entry, the fewer the competitors in an organization’s task environment and thus the lower the threat of competition. With fewer competitors, it is easier to obtain customers and keep prices high.
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The Task Environment (6 of 6)
Brand Loyalty
Customers’ preference for the products of organizations currently existing in the task environment
Government Regulations
In some cases, act as a barrier to entry at both the industry and the country level
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A new entrant into a market will find it more difficult if another company has great brand loyalty. They will need to invest in advertising costs in order to garner customer awareness.
Deregulation in industries such as air transport and telecommunications resulted in a high level of new entrants. These new companies in the market forced existing companies to operate more efficiently.
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Barriers to Entry and Competition
Figure 4.2
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The General Environment (1 of 6)
Economic Forces
Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization
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Low levels of unemployment and falling interest rates give people more money to spend, and as a result organizations can sell more goods and services. Good economic times affect the supply of resources that become easier or more inexpensive to acquire, and organizations have an opportunity to flourish.
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TOPICS FOR DISCUSSION (2 of 4)
How do political, legal, and economic forces shape national culture? What characteristics of national culture do you think have the most important effect on how successful a country is in doing business abroad? [LO 4-3, 4-5]
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National cultures differ in many ways, and although we seem to be moving toward a more global culture, each country has a culture that is a unique mix of competing and complimentary forces. One force that seems pervasive to all aspects of a nation’s culture is the political system that is in place. The global range of political systems ranges from communism to representative democracies, with many variations in between. Citizens may elect individuals to represent their interests, as they do in representative democracies, or have one single political party or individual that monopolizes political power, as is the case in totalitarian regimes, and this can have major effects on the nation’s culture. The political culture is important to managers trading with foreign countries because issues of economic freedom and legal representation can arise that may be more easily resolved in a democratic society.
Also, ethics is a concern for managers dealing with some foreign countries, for example, totalitarian regimes that may not respect human rights. A country’s economic system is determined by the force that drives the production of goods and services. A free market economy operates under the law of supply and demand, and production is in the hands of private enterprise. In a command economy, the government decides which goods and services are produced, the quantity in which they are produced, and the prices at which they are sold. A mixed economy combines characteristics of free market and command economies, with some government ownership and some free enterprise. The economic system that is in place has major ramifications for a nation’s culture. Fewer restrictions to expansion to global markets make free market economies attractive. In democracies, services tend to be better because private enterprises must compete with each other for survival, in contrast to a state-run industry where there is no competition. Also, nations with free economies tend to have higher rates of economic growth and are more economically developed, so their citizens tend to have higher per capita incomes and more spending power. The degree to which a nation’s populace can support itself and its families has great impact on a nation’s culture.
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The General Environment (2 of 6)
Technology
The combination of skills and equipment that managers use in designing, producing, and distributing goods and services
Technological Forces
Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services
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In the last few decades, technological change has accelerated, due in part to advancements in microprocessors. In turn, most businesses and industries have also made technological advances. The coming years will likely see even more and greater advances.
The General Environment (3 of 6)
Sociocultural Forces
Pressures emanating from the social structure of a country or society or from the national culture
Social Structure
The traditional system of relationships established between people and groups in a society
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High degree of social stratification: India and Tibet
Recognition of social classes: Great Britain and France
Lower degrees of social stratification: New Zealand and the United States
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The General Environment (4 of 6)
National Culture
Set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society
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Societal values and norms differ from country to country (or even regions to regions, communities to communities). The United States values individualism, wherein Korea and Japan put community above the individual.
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The General Environment (5 of 6)
Demographic Forces
Outcomes of changes in or changing attitudes toward the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, or social class
Most industrialized nations are experiencing the aging of their populations.
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An aging population.
There has been a relative decline in the number of young people joining the workforce, and an increase in the numbers who are postponing retirement beyond 65.
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TOPICS FOR DISCUSSION (3 of 4)
The population is aging because of a combination of declining birth rates, declining death rates, and the aging of the baby boom generation. What might some of the implications of this demographic trend be for (a) a pharmaceutical company, and (b) the home construction industry? [LO 4-1, 4-2, 4-3]
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The aging population is an example of a demographic force in an organization’s general environment. The aging of the population has increased many opportunities for organizations that provide goods and services to the older population. The aging population will have a positive effect on the pharmaceutical industry. People are living longer due to advancements in the medical field in the form of cures for diseases and medications that alleviate the debilitating effects of old age. This results in a greater demand for prescription drugs and medical supplies, the output of the pharmaceutical industry. Furthermore, in order to effectively compete, pharmaceutical companies must spend a tremendous amount of money on research and development in order to remain competitive in their industry. The reward of inventing a much-needed medication is a patent that prevents other companies from producing that medication for 17 years. Because they are the sole producers of the medicine, in response to the demand for the product, they have the capabilities to charge high prices since they have no competition.
The home construction industry will see a change in the demands of their customers. Older customers who have already raised their families will be looking for homes and apartments with less square footage. They also require easier accessibility, such as single-level homes, fewer steps, and buildings equipped with elevators. The older population has more time to spend on socializing; clubhouses and swimming pools become more popular.
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The General Environment (6 of 6)
Political and Legal Forces
Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and an increased emphasis on environmental protection
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A deregulation trend is occurring in industries previously controlled by the state, and organizations once owned by the state are being privatized. This is happening through the industrialized world. Increasingly, nations are forming political unions that allow free exchange of resources and capital.
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The Process of Globalization (1 of 2)
Globalization
The set of specific and general forces that work together to integrate and connect economic, political, and social systems across countries, cultures, or geographical regions so that nations become increasingly interdependent and similar
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The world is becoming increasingly interdependent; through world markets and businesses, the international community has become entwined.
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The Process of Globalization (2 of 2)
Forces That Drive Globalization
Human capital
Financial capital
Resource capital
Political capital
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The four principal forms of capital that flow between countries are: • Human capital: the flow of people around the world through immigration, migration, and emigration. • Financial capital: the flow of money capital across world markets through overseas investment, credit, lending, and aid. • Resource capital: the flow of natural resources, parts, and components between companies and countries, such as metals, minerals, lumber, energy, food products, microprocessors, and auto parts. • Political capital: the flow of power and influence around the world using diplomacy, persuasion, aggression, and force of arms to protect the right or access of a country, world region, or political bloc to the other forms of capital.
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Declining Barriers to Trade and Investment
Tariff
A tax that a government imposes on imported or, occasionally, exported goods
Free-Trade Doctrine
The idea that if each country specializes in the production of the goods and services that it can produce most efficiently, this will make the best use of global resources
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When one country imposes a tariff, another country follows, resulting in retaliatory moves throughout the global market—a good reason for the removal of tariffs.
Effects of Free Trade on Managers
Declining Trade Barriers
Opened enormous opportunities for managers to expand the market for their goods and services
Allowed managers to now both buy and sell goods and services globally
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A more open global economy has resulted in not only more opportunities for selling, but for buying as well. However, buying from other countries is not always welcomed. As the text points out: the apparel maker Ralph Lauren was heavily criticized when it was discovered the uniforms it made for the 2012 U.S. Olympic team were manufactured in China. Americans were not ready for their team uniforms to be made in another country.
Regional Trade Agreements
North American Free Trade Agreement (NAFTA)
Aimed to abolish the tariffs on 99% of the goods traded between Mexico, Canada, and the United States by 2004
It has removed most barriers on the cross-border flow of resources, giving retail businesses in Canada and the United States unrestricted access to the Mexican marketplace.
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The benefits of NAFTA have included companies such as Walmart and other U.S. retail chains expanding their operations in Mexico. Mexican products now inhabit their shelves. However, some managers feel the threat of the cross-border industries. Mexican industries feel threatened by the efficiency of U.S. industries. And U.S. companies experience the threat of lower labor costs, such as in the textile industries in Mexico.
TOPICS FOR DISCUSSION (4 of 4)
After the passage of NAFTA, many U.S. companies shifted production operations to Mexico to take advantage of lower labor costs and lower standards for environmental and worker protection. As a result, they cut their costs and were better able to survive in an increasingly competitive global environment. Was their behavior ethical—that is, did the ends justify the means? [LO 4-4]
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The problem with the decision to shift production operations to low-wage countries, like Mexico, is that eventually the wages will increase due to increased demand for workers, and companies will be forced to again shift their production operations in pursuit of lower costs. In addition, American workers feel slighted, understandably, when plants close and layoffs occur due to these shifts. Increased competition to provide low-priced, quality goods and services is indeed an issue that managers must confront in a more open global environment, but there are other alternatives to shifting production to other countries. Organizations can avoid these hazards by building efficiency and effectiveness into their existing operations.
Decisions involving decentralization of management and other cost-cutting measures can replace less ethical solutions. Also, lax standards in environmental and worker protection can often hurt the organization in terms of public relations and consumer image. Nike has come under attack for its operations in foreign countries, and Ivanka Trump experienced similar attacks for the sweatshop conditions in the factories that produce her footwear line. These disadvantages, while perhaps not as easily discerned as effects on the bottom-line, need to be considered when an organization contemplates relocation of production operations.
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The Role of National Culture (1 of 2)
Values
Ideas about what a society believes to be good, desirable and beautiful
Provides the underpinnings for notions of individual freedom, democracy, truth, justice, honesty, loyalty, social obligation, collective responsibility,
Very slow to change
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Values change over time, often in what can be a slow and painful process.
Example: the value systems of many formerly communist states such as Georgia, Hungary, and Romania have undergone significant changes as those countries move away from values that emphasize state control toward values that emphasizes individual freedom.
The Role of National Culture (2 of 2)
Norms
Unwritten informal codes of conduct that prescribe how people should act in particular situations and are considered important by most members of a group or organization
Mores
Norms that are considered to be central to functioning of society and to social life
Folkways
Routine social conventions of everyday life
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To violate a folkway would not be considered a serious or moral matter. Folkways, or custom and practices, include good social manners, the proper way of dining, behavior towards neighbors, dress, and so forth. Someone who eats peas with a knife as opposed to a fork (in Western countries), might be considered eccentric, but certainly not immoral.
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Hofstede’s Model of National Culture (1 of 6)
Individualism
A worldview that values individual freedom and self-expression and adherence to the principle that people should be judged by their individual achievements rather than by their social background
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Individualism is prevalent in Western countries where personal success is admired. Being a successful entrepreneur is highly valued in countries like the United States.
Hofstede’s Model of National Culture (2 of 6)
Collectivism
A worldview that values subordination of the individual to the goals of the group and adherence to the principle that people should be judged by their contribution to the group
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In communist counties collectivism is valued, and yet Japan is a noncommunist country where collectivism is also highly valued.
Hofstede’s Model of National Culture (3 of 6)
Power Distance
The degree to which societies accept the idea that inequalities in the power and well-being of their citizens are due to differences in individuals’ physical and intellectual capabilities and heritage
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Societies in which inequalities are allowed to persist or grow over time have high power distance. In high-power-distance societies, workers who are professionally successful amass wealth and pass it on to their children, and, as a result, inequalities may grow over time. In such societies, the gap between rich and poor, with all the attendant political and social consequences, grows very large. In contrast, in societies with low power distance, large inequalities between citizens are not allowed to develop.
Hofstede’s Model of National Culture (4 of 6)
Achievement Orientations
Worldview that values assertiveness, performance, success, and competition
Nurturing Orientation
Worldview that values quality of life, warm personal friendships, and care for the weak
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The United States and Japan are achievement-oriented; Sweden and Denmark are more nurturing-oriented.
Hofstede’s Model of National Culture (5 of 6)
Uncertainty Avoidance
Degree to which societies are willing to tolerate uncertainty and risk
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Low uncertainty avoidance cultures (e.g., U.S. and Hong Kong) value diversity and tolerate differences in personal beliefs and actions
High uncertainty avoidance societies (e.g., Japan and France) are more rigid and skeptical about people whose behaviors or beliefs differ from the norm
Hofstede’s Model of National Culture (6 of 6)
Long-Term Orientation
Worldview that values thrift and persistence in achieving goals
Short-Term Orientation
Worldview that values personal stability or happiness and living for the present
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Societies with a long-term orientation include Taiwan and Hong Kong, well known for their high rate of per capita savings. The United States and France have a short-term orientation, and their citizens tend to spend more and save less.
National Culture and Global Management
Management practices that are effective in one country might be troublesome in another.
Managers must be sensitive to the value systems and norms of an individual’s country and behave accordingly.
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Management must be aware of cultural differences and contexts in other countries.
Example: Pay-for-performance works in the U.S., but doesn’t go over as well in Japan.
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BE THE MANAGER
Analyze the major forces in the task environment of a retail clothing store.
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Retail clothing is by definition a representation of old and new. The old is represented by the consumers who do not care about the latest fashions and always purchase the same styles. The new is represented by the consumers who love to keep up with the latest fashions that they see on TV, in the movies, in magazines, or on friends. Both can be lucrative markets, but one must first analyze the environment. This includes the competition as well as the general social, economic, political, and global trends. For example, Levi Strauss responded to Casual Fridays by marketing Dockers. Levi Strauss is a good example of a company that markets a standard brand with little change and is still in demand while also responding to changing trends such as relaxed fit for the expanding waists of Baby Boomers. Many catalog stores (such as L.L. Bean and Land’s End) have also developed websites that allow customers to shop from catalogs and order online.
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APPENDICES
Long descriptions of images
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Appendix 1: Forces in the Global Environment
The graphic is set in a circle that shows the organization at the center, surrounded by the task environment (competitors, distributors, customers, and suppliers).
The general environment is the outer circle, consisting of technological forces, sociocultural forces, demographic forces, political and legal forces, and economic forces.
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Appendix 2: Barriers to Entry and Competition
Economies of scale, brand loyalty, and government regulation lead to the creation of barriers to entry, which lead to deterring potential competitors.
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