What are some of the fundamental characteristics of the External Context and the key questions to be asked when analyzing the firm’s external context.

When a firm explores and comes up with their strategies, they not only have to look at their internal resources as we learned in the last chapter, but the external context or external environments. These factors are what affect profitability and the ability to implement their strategies. The fundamental characteristics involve factors the influence how a firm performs. (Carpenter & Sanders, 2008). In addition, one needs to understand the industry or industries in which a firm competes in order to clearly understand the external context. Carpenter and Sanders (2008) suggest the following key questions to be asked when analyzing the external environment:

What are some of the determinants and consequences of globalization?

What is the firms industry?

What are the characteristics of the industry?

How stable are these characteristics?

Looking at these, the company can better understand their options and what they may face in the external environment. What was interesting to me was how Coca-Cola decided to make wine part of their brand, a product that is un-relatable to them and to their customers. In my opinion, it seems the company was trying to market itself into the diverse markets and stay ahead with new products that were coming out. At the same time, I feel Coca-Cola assumed brand loyalty would win in this situation. They failed to realized consumers are loyal, however, to the certain extent of a product.

Ries and Trout (1986) mention how although a company is a brand leader, if it isn’t the first in a new category, it has new competition. The company needs to position itself well with launching a new product in a different category. In addition, “Positioning is what you do to the mind of the prospect” (Ries & Trout, 1986).

How to use PESTEL analysis to identify the macro characteristics of the external context.

Companies don’t have the chance or opportunities to carry out operations that could potentially hurt or ruin them. PESTEL allows a company to understand the opportunities and threats they may face by the external environment. It is best used to understand future potential impacts of environmental factors. PESTEL uses political, economic, sociocultural, technological, environmental, and legal factors to understand the external context. Although the external context involves factors that the company cannot control, they can control how they face these challenges by being ready using PESTEL and its components. For example, PESTEL can be a great way to purchase stocks, it gives you the outlook of a company and the potential earnings, technological advancements, or challenges it might face in the near future. According to Yuksel (2012), PESTEL allows one to identify the environment in which the company operates and provides an analysis and data that will help the company foresee impactful situations it may come across in the future.

What are some of the determinants and consequences of globalization.

Globalization is an integration of things good and bad, not just exporting products. As Carpenter and Sanders explain, product markets are integrated and each affects one another. Firms can be competing on either an international level, or domestic level, or both. These firms that are able to compete on a global level and understand how to implement their strategies to market globally are the ones that will be successful against its competitors. The factors that determine whether a company has globalized are markets, costs, and governments and competition. (Carpenter & Sanders, 2008). Markets that are similar can be more globalized because they share this. The same thing goes with costs. When it comes to government, markets and companies favor trade policies that are simple for them, also encouraging globalization. (Carpenter & Sanders, 2008). Globalization can have many consequences as well, such as the regulations by governments that are not as easily catered to in certain countries. Garett (2001) mentions how globalization increases volatility in economic activity. With this in mind, These are the reasons why PESTEL and globalization factors go hand in hand to determine the external context.

References:

Carpenter, M. A., & Sanders, W. G. (2008). Strategic management: a dynamic perspective–integrated StratSim simulation experience. Upper Saddle River, NJ: Pearson/Prentice Hall.

Garett, G. (2001). The distributive consequences of globalization. Retrieved from https://www.researchgate.net/profile/Geoffrey_Garr…

/2328865_The_Distributive_Consequences_of_Globalization/links/0c960533e8e0e2913e000000/The-Distributive-Consequences-of-Globalization.pdf

Murray, A. I. (n.d.). Strategic Choice under Knowledge Competition. In Global Strategy Perspectives (pp. 47-83).

Ries, A., & Trout, J. (1986). Positioning: The battle for Your Mind. Retrieved from https://www.researchgate.net/profile/Shiva_Kumar12…

Yuksel, I. (2012). Developing a Multi-Criteria Decision Making Model for PESTEL Analysis. International Journal of Business and Management, 7(24). Retrieved from https://scholar.google.com/scholar?hl=en&as_sdt=0%… analysis of the macro-environment&btnG=&oq=PESTel ana.