Macro Environment Analyses
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Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7f Political and Legal Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc.
2-7f Political and Legal Forces
Political and legal forces are outcomes of changes in laws and regulations, and they significantly affect managers and companies. Political processes shape a society’s laws, which constrain the operations of organizations and managers and thus create both opportunities and threats. For example, throughout much of the industrialized world there has been a strong trend toward deregulation of industries previously controlled by the state, and privatization of organizations once owned by the state. In the United States, deregulation in 1979 allowed 29 new airline companies to enter the industry between 1979 and 1993. The increase in passenger-carrying capacity after deregulation led to excess capacity on many routes, intense competition, and fare wars. To respond to this more competitive environment, airlines needed to look for ways to reduce operating costs. The development of hub-and-spoke systems, the rise of nonunion airlines, and the introduction of no-frills, discount service are all responses to increased competition in the airlines’ task environment. Despite these innovations, the airline industry still experiences intense fare wars, which have lowered profits and caused numerous airline company bankruptcies. The global telecommunications service industry is now experiencing the same kind of turmoil following the deregulation of that industry in the United States and elsewhere.
Chapter 2: External Analysis: The Identification of Opportunities and Threats: 2-7f Political and Legal Forces Book Title: Strategic Management: An Integrated Approach: Theory and Cases Printed By: Pearl Chen ([email protected]) © 2020 Cengage Learning, Inc.
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