Business Policy and Strategy Question

3 The External Assessment

CHAPTER OBJECTIVES

After studying this chapter, you should be able to do the following:

1. Discuss the nature and role of labor unions in the USA as a corporate strategic issue.
2. Describe how to conduct an external strategic-management audit.
3. Discuss 10 major external forces that affect organizations: economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive.
4. Describe key sources of external information.
5. Discuss important forecasting tools used in strategic management.
6. Discuss the importance of monitoring external trends and events.
7. Explain how to develop an EFE Matrix.
8. Explain how to develop a Competitive Profile Matrix.
9. Discuss the importance of gathering competitive intelligence.
10. Discuss market commonality and resource similarity in relation to competitive analysis.

ASSURANCE OF LEARNING EXERCISES

The following exercises are found at the end of this chapter.

EXERCISE 3A Competitive Intelligence (CI) Certification
EXERCISE 3B Develop Divisional PepsiCo EFE Matrices
EXERCISE 3C Develop an EFE Matrix for PepsiCo
EXERCISE 3D Perform an External Assessment
EXERCISE 3E Develop an EFE Matrix for Your University
EXERCISE 3F Comparing PetSmart with PETCO Animal Supplies
EXERCISE 3G Develop a Competitive Profile Matrix for PepsiCo
EXERCISE 3H Develop a Competitive Profile Matrix for Your University

This chapter examines the tools and concepts needed to conduct an external strategic management audit (sometimes called environmental scanning or industry analysis). An external audit focuses on identifying and evaluating trends and events beyond the control of a single firm, such as increased foreign competition, population shifts to coastal areas of the USA, an aging society, and taxing Internet sales. An external audit reveals key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats. This chapter presents a practical framework for gathering, assimilating, and analyzing external information. The Industrial Organization (I/O) view of strategic management is introduced.

The Chapter 3 boxed insert company pursuing strategies based on an excellent external strategic analysis is PetSmart, Inc. Note that PetSmart has more than 1,200 stores in the USA and Canada.

The Nature of an External Audit

The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided. As the term finite suggests, the external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; rather, it is aimed at identifying key variables that offer actionable responses. Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats. Figure 3-1 illustrates with white shading how the external audit fits into the strategic-management process.

PetSmart Inc.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASE

Do you own a dog or cat or pet of any kind? If yes, you may be interested to know that PetSmart is the top pet company in the industry. PetSmart is the number-one U.S. specialty retailer of pet food and supplies, with 1,270 stores in the USA and Canada. PetSmart has become profitable and is growing rapidly as a result of excellent strategies based on a “humanization of pets” mission whereby the company treats pet owners as pet parents and treats pets and children.

CEO Bob Moran at PetSmart says his company does not ask customers “How can I help you?” but rather says “Please tell me about your pet.” PetSmart plans to open 50 new stores each year between 2012 and 2022. A key advantage for PetSmart is its excellent strategic transition from being a pet-supply store to being a pet-service center.

Ranging from 12,000 to 20,000 square feet in size, PetSmart stores offer more than 10,000 products, ranging from scratching posts to iguana harnesses and all sold under national brands and PetSmart’s own private labels. Most of these stores include a pet hotel and pet hospital. The company also sells products through its PetSmart website. Stores also provide in-store boarding facilities (PetsHotels), grooming services, day camps (Doggie Day Camps), and obedience training. Veterinary services are available, as well, in about 800 shops through pet hospital operator Medical Management International (known as Banfield), of which PetSmart owns about 20 percent.

Because there are more cats in urban areas because of size constraints, urban PetSmart stores focus more on cats and cat customers, whereas nonurban stores focus more on dog customers. But all PetSmart stores are meeting places because Moran says customers come in with their pets and just want to talk about their pets and then buy products or services offered. He says the trend toward providing more natural, organic foods and products for pets is a rapidly growing trend and PetSmart provides the latest and greatest organic products and services.

In 2013, PetSmart began letting customers reserve pet rooms and services online after extensively improving their website in prior years. The company takes full advantage of seasonal holidays by, for example, providing numerous Halloween toys and costumes in different colors and makes during October each year. But the overriding competitive advantage for PetSmart is their overarching philosophy to treat pet owners like parents and to treat pets like children, providing tender loving care of both.

Facing thousands of mom-and-pop pet stores nationwide as well as mass retailers such as Walmart and Target, PetSmart’s major competitor is privately held PETCO Animal Supplies, which has more than 1,000 stores in the USA and is headquartered in San Diego, California.

Source: Based on Emily Glazer, “PetSmart Thrives Treating Owners Like Parents,” Wall Street Journal (9-12-12): B7.

FIGURE 3-1 A Comprehensive Strategic-Management Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40.

Key External Forces

External forces can be divided into five broad categories: (1) economic forces; (2) social, cultural, demographic, and natural environment forces; (3) political, governmental, and legal forces; (4) technological forces; and (5) competitive forces. Relationships among these forces and an organization are depicted in Figure 3-2. External trends and events, such as rising food prices and people in African countries coming online, significantly affect products, services, markets, and organizations worldwide. IMPORTANT NOTE: WHEN IDENTIFYING AND PRIORITIZING KEY EXTERNAL FACTORS IN STRATEGIC PLANNING, MAKE SURE THE FACTORS SELECTED ARE SPECIFIC, IE QUANTIFIED TO THE EXTENT POSSIBLE; PERHAPS MORE IMPORTANTLY MAKE SURE THE FACTORS SELECTED ARE ACTIONABLE, IE MEANINGFUL IN TERMS OF HAVING STRATEGIC IMPLICATIONS. For example, regarding actionable, to say “the stock market is rising” is not actionable because there is no apparent strategy that the firm could formulate to capitalize on that factor. In contrast, a factor such as “the GDP of Brazil is 6.8 percent” is actionable because the firm should perhaps open 100 new stores in Brazil. In other words, select factors that will be helpful in deciding what to recommend the firm to do, rather than selecting nebulous factors.

Changes in external forces translate into changes in consumer demand for both industrial and consumer products and services. External forces affect the types of products developed, the nature of positioning and market segmentation strategies, the type of services offered, and the choice of businesses to acquire or sell. External forces directly affect both suppliers and distributors. Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives, and to develop policies to achieve annual objectives.

FIGURE 3-2 Relationships Between Key External Forces and an Organization

The increasing complexity of business today is evidenced by more countries developing the capacity and will to compete aggressively in world markets. Foreign businesses and countries are willing to learn, adapt, innovate, and invent to compete successfully in the marketplace. There are more competitive new technologies in Asia today than ever before, as recently introduced for example by Lenovo in China and Samsung in South Korea.

The Process of Performing an External Audit

The process of performing an external audit must involve as many managers and employees as possible. As emphasized in previous chapters, involvement in the strategic-management process can lead to understanding and commitment from organizational members. Individuals appreciate having the opportunity to contribute ideas and to gain a better understanding of their firm’s industry, competitors, and markets.

To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal, and technological trends. Individuals can be asked to monitor various sources of information, such as key magazines, trade journals, and newspapers. These persons can submit periodic scanning reports to a committee of managers charged with performing the external audit. This approach provides a continuous stream of timely strategic information and involves many individuals in the external-audit process. The Internet provides another source for gathering strategic information, as do corporate, university, and public libraries. Suppliers, distributors, salespersons, customers, and competitors represent other sources of vital information.

Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a chalkboard. A prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity or threat to 20 for the least important opportunity or threat. These key external factors can vary over time and by industry. Relationships with suppliers or distributors are often a critical success factor. Other variables commonly used include market share, breadth of competing products, world economies, foreign affiliates, proprietary and key account advantages, price competitiveness, technological advancements, population shifts, interest rates, and pollution abatement.

Freund emphasized that these key external factors should be (a) important to achieving long-term and annual objectives, (b) measurable, (c) applicable to all competing firms, and (d) hierarchical in the sense that some will pertain to the overall company and others will be more narrowly focused on functional or divisional areas. A final list of the most important key external factors should be communicated and distributed widely in the organization. Both opportunities and threats can be key external factors.13 The External Assessment

CHAPTER OBJECTIVES

After studying this chapter, you should be able to do the following:

1. Discuss the nature and role of labor unions in the USA as a corporate strategic issue.
2. Describe how to conduct an external strategic-management audit.
3. Discuss 10 major external forces that affect organizations: economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive.
4. Describe key sources of external information.
5. Discuss important forecasting tools used in strategic management.
6. Discuss the importance of monitoring external trends and events.
7. Explain how to develop an EFE Matrix.
8. Explain how to develop a Competitive Profile Matrix.
9. Discuss the importance of gathering competitive intelligence.
10. Discuss market commonality and resource similarity in relation to competitive analysis.

ASSURANCE OF LEARNING EXERCISES

The following exercises are found at the end of this chapter.

EXERCISE 3A Competitive Intelligence (CI) Certification
EXERCISE 3B Develop Divisional PepsiCo EFE Matrices
EXERCISE 3C Develop an EFE Matrix for PepsiCo
EXERCISE 3D Perform an External Assessment
EXERCISE 3E Develop an EFE Matrix for Your University
EXERCISE 3F Comparing PetSmart with PETCO Animal Supplies
EXERCISE 3G Develop a Competitive Profile Matrix for PepsiCo
EXERCISE 3H Develop a Competitive Profile Matrix for Your University

The Chapter 3 boxed insert company pursuing strategies based on an excellent external strategic analysis is PetSmart, Inc. Note that PetSmart has more than 1,200 stores in the USA and Canada.

The Nature of an External Audit

PetSmart Inc.: EXCELLENT STRATEGIC MANAGEMENT SHOWCASE

Source: Based on Emily Glazer, “PetSmart Thrives Treating Owners Like Parents,” Wall Street Journal (9-12-12): B7.

FIGURE 3-1 A Comprehensive Strategic-Management Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40.

Key External Forces

FIGURE 3-2 Relationships Between Key External Forces and an Organization

The Process of Performing an External Audit

The Industrial Organization (I/O) View

The Industrial Organization (I/O) approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm for achieving competitive advantage. Proponents of the I/O view, such as Michael Porter, contend that organizational performance will be primarily determined by industry forces. Porter’s Five-Forces Model, presented later in this chapter, is an example of the I/O perspective, which focuses on analyzing external forces and industry variables as a basis for getting and keeping competitive advantage. Competitive advantage is determined largely by competitive positioning within an industry, according to I/O advocates. Managing strategically from the I/O perspective entails firms striving to compete in attractive industries, avoiding weak or faltering industries, and gaining a full understanding of key external factor relationships within that attractive industry. I/O research provides important contributions to our understanding of how to gain competitive advantage.

I/O theorists contend that external factors and the industry in which a firm competes has a stronger influence on the firm’s performance than do the internal functional issues in marketing, finance, and the like. Firm performance, they contend, is based more on industry properties such as economies of scale, barriers to market entry, product differentiation, the economy, and level of competitiveness than on internal resources, capabilities, structure, and operations. The USA’s recent economic recovery having such a positive impact on both strong and weak firms adds credence to the notion that external forces are more important than internal.

The I/O view has enhanced the understanding of strategic management. However, it is not a question of whether external or internal factors are more important in gaining and maintaining competitive advantage. Effective integration and understanding of both external and internal factors is the key to securing and keeping a competitive advantage. In fact, as discussed in Chapter 6, matching key external opportunities and threats with key internal strengths and weaknesses provides the basis for successful strategy formulation.

Economic Forces

The lingering high underemployment rate in the USA bodes well for discount firms ranging from Dollar Tree to TJ Maxx to Walmart to Subway, but hurts thousands of traditional priced retailers in many industries. The Dow Jones Industrial Average is over 15,000, corporate profits are high, dividend increases are up sharply, and emerging markets are growing. Yet, job growth is still stymied, home prices remain low, and millions of people work for minimum wages or are either unemployed or underemployed. As a result of droughts, commodity prices are up sharply, especially food, which is contributing to rising inflation fears. Many firms are switching to the extent possible to part-time rather than full-time employees to avoid having to pay health benefits. Consumer spending is rebounding. Much of Europe lingers in a recession.

Economic factors have a direct impact on the potential attractiveness of various strategies. For example, with interest rates, funds needed for capital expansion are less costly. As interest rates rise, discretionary income declines, and the demand for discretionary goods falls. When stock prices increase, the desirability of equity as a source of capital for market development increases. When the market rises, consumer and business wealth expands. A summary of economic variables that often represent opportunities and threats for organizations is provided in Table 3-1.

To take advantage of Canada’s robust economy and eager-to-spend people, many firms are aggressively expanding operations into Canada, including TJX opening many Marshalls stores, Target opening stores, Walmart opening supercenters, and Tanger Outlet Factory Centers opening new stores. “Canada is one of the most economically prosperous countries in the world,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consultancy and investment banking firm. “It has a stable currency, it did not have a banking crisis and it did not spend itself into insanity.”

TABLE 3-1 Key Economic Variables to Be Monitored

Shift to a service economy in the USA

Availability of credit

Level of disposable income

Propensity of people to spend

Interest rates

Inflation rates

Money market rates

Federal government budget deficits

Gross domestic product trend

Consumption patterns

Unemployment trends

Worker productivity levels

Value of the dollar in world markets

Stock market trends

Foreign countries’ economic conditions

Import/export factors

Demand shifts for different categories of goods and services

Income differences by region and consumer groups Price fluctuations

Export of labor and capital from the USA

Monetary policies

Fiscal policies

Tax rates

European Economic Community (EEC) policies

Organization of Petroleum Exporting Countries (OPEC) policies

Coalitions of Lesser Developed Countries (LDC) policies

Trends in the dollar’s value have significant and unequal effects on companies in different industries and in different locations. For example, the pharmaceutical, tourism, entertainment, motor vehicle, aerospace, and forest products industries benefit greatly when the dollar falls against the yen and euro. Agricultural and petroleum industries are hurt by the dollar’s rise against the currencies of Mexico, Brazil, Venezuela, and Australia. Generally, a strong or high dollar makes U.S. goods more expensive in overseas markets. This worsens the U.S. trade deficit. When the value of the dollar falls, tourism-oriented firms benefit because Americans do not travel abroad as much when the value of the dollar is low; rather, foreigners visit and vacation more in the United States.

A low value of the dollar means lower imports and higher exports; it helps U.S. companies’ competitiveness in world markets. A falling dollar makes U.S. goods cheaper to foreign consumers and combats deflation by pushing up prices of imports. A low value of the dollar benefits the U.S. economy in many ways. First, it helps stave off the risks of deflation in the USA and also reduces the U.S. trade deficit. In addition, a low value of the dollar raises the foreign sales and profits of domestic firms, thanks to dollar-induced gains, and encourages foreign countries to lower interest rates and loosen fiscal policy, which stimulates worldwide economic expansion. Some sectors, such as consumer staples, energy, materials, technology, and health care, especially benefit from a low value of the dollar. Manufacturers in many domestic industries in fact 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. Table 3-2 lists some advantages and disadvantages of a weak U.S. dollar for U.S. firms.

In contrast to rivals Nissan Motor and Honda Motor, Mazda Motor Corp. based in Hiroshima, Japan, has a strategy to produce more than 80 percent of its vehicles in Japan and export them rather than building manufacturing plants globally. Even if the value of the dollar weakens to 77 yen, Mazda says it can make a profit on its CX-5 vehicles. But with the dollar at 79 yen, Honda and Nissan say they must keep moving production abroad and will do so until or unless the dollar climbs back to at least 100 yen. Thus, value of the dollar versus the Japanese yen is an important factor in strategic planning among Japanese firms.

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 U.S. companies with revenue from abroad were lowered on average 6 to 7 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 U.S. operations see their overseas expenses, such as salaries paid in euros, become cheaper. Another advantage of a strong dollar is that it gives U.S. companies greater firepower for international acquisitions. Another advantage of a strong dollar is that companies that import benefit from greater buying power because their dollars now go further overseas.

TABLE 3-2 Advantages and Disadvantages of a Weak Dollar for Domestic Firms

Advantages	Disadvantages
1. Leads to more exports 2. Leads to lower imports 3. Makes U.S. goods cheaper to foreign consumers 4. Combats deflation by pushing up prices of imports 5. Can contribute to rise in stock prices in short run 6. Encourages foreign countries to lower interest rates 7. Raises the revenues and profits of firms that do business outside the USA 8. Forces foreign firms to raise prices 9. Reduces the U.S. trade deficit 10. Encourages firms to globalize 11. Encourages foreigners to visit the United States	1. Can lead to inflation 2. Can cause rise in oil prices 3. Can weaken U.S. government 4. Makes it unattractive for Americans to travel globally 5. Can contribute to fall in stock prices in long run

Advantages

Disadvantages

1. Leads to more exports
2. Leads to lower imports
3. Makes U.S. goods cheaper to foreign consumers
4. Combats deflation by pushing up prices of imports
5. Can contribute to rise in stock prices in short run
6. Encourages foreign countries to lower interest rates
7. Raises the revenues and profits of firms that do business outside the USA
8. Forces foreign firms to raise prices
9. Reduces the U.S. trade deficit
10. Encourages firms to globalize
11. Encourages foreigners to visit the United States

1. Can lead to inflation
2. Can cause rise in oil prices
3. Can weaken U.S. government
4. Makes it unattractive for Americans to travel globally
5. Can contribute to fall in stock prices in long run

A recent Wall Street Journal article (12-4-12, B4) explains the unfavorable foreignexchange rate environment plaguing U.S. firms. For example, the starch and sweetener maker Ingredion Inc.’s earnings were reduced by 20 cents per share recently by weakness in the Brazilian real, Argentine peso, British pound, and the euro. Similarly, General Motors reported that its third quarter 2012 sales were reduced by about $1.3 billion as a result of weakness in the European euro, Russian ruble, Hungarian forint, South Korean won, South African rand, Canadian dollar, and Mexican pesos.

Social, Cultural, Demographic, and Natural Environment Forces

Asian Americans are now the best-educated, highest-earning, and fastest-growing racial group in the United States.2 The number of Asian Americans in the United States grew by 46 percent between 2000 and 2010, with Chinese Americans becoming by far the largest group. The median U.S. household income is $49.8K, with Asian American’s median being $66K, compared to whites $54K, Hispanics $40K, and African Americans $33.3K.3

The U.S. Fish and Wildlife Service reported in late 2012 that 11 percent more Americans (ages 16 and older) fished and 9 percent more hunted in 2011 than in 2006. The report also revealed that among children aged 6 to 15, 13 percent more hunted and 2 percent more fished during the same period. A variety of reasons account for the shift back to “doing outdoor things,” but this trend is excellent news for thousands of sporting goods companies.

Social, cultural, demographic, and environmental changes have a major impact on virtually all products, services, markets, and customers. Small, large, for-profit, and nonprofit organizations in all industries are being staggered and challenged by the opportunities and threats arising from changes in social, cultural, demographic, and environmental variables. In every way, the United States is much different today than it was yesterday, and tomorrow promises even greater changes.

The USA is getting older and less white. The oldest among the 76 million baby boomers in the USA plan to retire soon, and this has lawmakers and younger taxpayers deeply concerned about who will pay their Social Security, Medicare, and Medicaid. Individuals age 65 and older in the USA as a percentage of the population, will rise to 18.5 percent by 2025. The oldest USA veteran is Richard Everton of East Austin, Texas, who is 108; the oldest USA woman is 114, Teralean Talley of Inkster, Michigan.

By 2075, the USA will have no racial or ethnic majority. This forecast is aggravating tensions over issues such as immigration and affirmative action. Hawaii, California, and New Mexico already have no majority race or ethnic group

The population of the world recently surpassed 7 billion; the USA has slightly more than 310 million people. That leaves billions of people outside the USA who may be interested in the products and services produced through domestic firms. Remaining solely domestic is an increasingly risky strategy, especially as the world population continues to grow to an estimated 8 billion in 2028 and 9 billion in 2054.

Social, cultural, demographic, and environmental trends are shaping the way Americans live, work, produce, and consume. New trends are creating a different type of consumer and, consequently, a need for different products, different services, and different strategies. There are now more U.S. households with people living alone or with unrelated people than there are households consisting of married couples with children. U.S. households are making more and more purchases online.

The trend toward an older USA is good news for restaurants, hotels, airlines, cruise lines, tours, resorts, theme parks, luxury products and services, recreational vehicles, home builders, furniture producers, computer manufacturers, travel services, pharmaceutical firms, automakers, and funeral homes. Older Americans are especially interested in health care, financial services, travel, crime prevention, and leisure. The world’s longest-living people are the Japanese, with Japanese women living to 86.3 years and men living to 80.1 years on average. By 2050, the Census Bureau projects that the number of Americans age 100 and older will increase to over 834,000 from just under 100,000 centenarians in the USA in 2000. Americans age 65 and over will increase from 12.6 percent of the U.S. population in 2000 to 20.0 percent by the year 2050. The aging U.S. population affects the strategic orientation of nearly all organizations.

The historical trend of people moving from the Northeast and Midwest to the Sunbelt and West has dramatically slowed. Hard number data related to this trend can represent key opportunities for many firms and thus can be essential for successful strategy formulation, including where to locate new plants and distribution centers and where to focus marketing efforts.

A summary of important social, cultural, demographic, and environmental variables that represent opportunities or threats for virtually all organizations is given in Table 3-3.

Political, Governmental, and Legal Forces

Figure 3-3 reveals the USA county-by-county presidential election results for the 2012 Barack Obama versus Mitt Romney election, with the red being Republican and the blue being Democratic. The red indicates counties that had a Republican majority vote result, but much of this land is sparsely inhabited. President Obama and the Democrats won both the popular vote and the Electoral College count. Various industries, such as aerospace, and all their supplier firms, typically support and lobby for Republicans, whereas other industries, such as automotive and all their supplier firms, generally support Democrats. National, state, and local elections impact businesses, with ongoing healthy debate concerning the pros and cons of each party’s agenda for business. Should firms take stances on political issues?

Political issues and stances do matter for business, especially in today’s world of instant tweeting and e-mailing. For example, Starbucks’ recent support of same-sex marriage in its home state of Washington was praised by a number of prominent rights activists. Maine, Maryland, Minnesota, Washington, Massachusetts, New York, California, and a few other states all allow same-sex marriage. But the Seattle-based coffee chain’s outspoken opponents, such as the National Organization for Marriage (NOM), has vowed to make Starbucks (along with other companies that support same-sex marriage) pay a “price” for this stance. “Middle Eastern countries are hostile to lesbian, gay, bisexual and transgender (LGBT) rights. So for example, in Qatar, in the Middle East, we’ve begun working to make sure that there’s some price to be paid for this,” Brian Brown of the NOM said. “These are not countries that look kindly on same-sex marriage. And this is where Starbucks wants to expand, as well as India.” In essence, the question needs to be asked, should firms take stances on contentious social issues?

TABLE 3-3 Key Social, Cultural, Demographic, and Natural Environment Variables

Childbearing rates

Number of special-interest groups

Number of marriages

Number of divorces

Number of births

Number of deaths

Immigration and emigration rates

Social Security programs

Life expectancy rates

Per capita income

Location of retailing, manufacturing, and service businesses

Attitudes toward business

Lifestyles

Traffic congestion

Inner-city environments

Average disposable income

Trust in government

Attitudes toward government

Attitudes toward work

Buying habits

Ethical concerns

Attitudes toward saving

Sex roles

Attitudes toward investing

Racial equality

Use of birth control

Average level of education

Government regulation

Attitudes toward retirement

Attitudes toward leisure time

Attitudes toward product quality

Attitudes toward customer service

Pollution control

Attitudes toward foreign peoples

Energy conservation

Social programs

Number of churches

Number of church members

Social responsibility

Attitudes toward careers

Population changes by race, age, sex, and level of affluence

Attitudes toward authority

Population changes by city, county, state, region, and country

Value placed on leisure time

Regional changes in tastes and preferences

Number of women and minority workers

Number of high school and college graduates by geographic area

Recycling

Waste management

Air pollution

Water pollution

Ozone depletion

Endangered species

Beginning in 2014, U.S. businesses will have to offer workers a minimum level in medical insurance or pay a penalty starting at $2,000 for each worker. This is part of the so-called Obamacare legislation. So, thousands of U.S. businesses, such as Pillar Hotels & Resorts, are transitioning to having a larger percentage of their workforce being comprised of part-time workers rather than full-time employees. Pillar Hotels owns Sheraton, Fairfield Inns, Hampton Inns, and Holiday Inns.

A political debate still rages in the USA regarding sales taxes on the Internet. Walmart, Target, and other large retailers are pressuring state governments to collect sales taxes from Amazon.com. Big brick-and-mortar retailers are backing a coalition called the Alliance for Main Street Fairness, which is leading political efforts to change sales-tax laws in more than a dozen states. Walmart’s executive Raul Vazquez says, “The rules today don’t allow brick-and-mortar retailers to compete evenly with online retailers, and that needs to be addressed.”

Federal, state, local, and foreign governments are major regulators, deregulators, subsidizers, employers, and customers of organizations. Political, governmental, and legal factors, therefore, can represent key opportunities or threats for both small and large organizations. Political unrest in the Middle East threatens to raise oil prices globally, which could cause inflation. The political overthrow of monarchies in Egypt, Tunisia, Yemen, and Libya has spread to Syria and even Turkey because people in all nations desire liberty and freedom rather than oppression and suppression.

FIGURE 3-3 County-by County USA 2012 Presidential Results (red = Republican; blue = Democrat)

For industries and firms that depend heavily on government contracts or subsidies, political forecasts can be the most important part of an external audit. Changes in patent laws, antitrust legislation, tax rates, and lobbying activities can affect firms significantly. The increasing global interdependence among economies, markets, governments, and organizations makes it imperative that firms consider the possible impact of political variables on the formulation and implementation of competitive strategies.

The Marketplace Fairness Act (MFA) in the U.S. Senate and the Marketplace Equity Act (MEA) in the U.S. House are likely to pass in 2013, basically reversing the 1992 Supreme Court decision exempting many online retailers from collecting state sales taxes unless they had a physical presence in the state, such as a warehouse. But as online sales boom, states continue to suffer severe budget shortfalls and brick-and-mortar companies cannot compete with online firms, so legislation to tax online sales is expected to pass soon.

Many countries worldwide are resorting to protectionism to safeguard their own industries. European Union (EU) nations, for example, have tightened their own trade rules and resumed subsidies for various of their own industries while barring imports from certain other countries. The EU recently restricted imports of U.S. chicken and beef. India is increasing tariffs on foreign steel. Russia perhaps has instituted the most protectionist measures by raising tariffs on most imports and subsidizing its own exports. Russia even imposed a new toll on trucks from the EU, Switzerland, and Turkmenistan. Despite these measures taken by other countries, the USA has largely refrained from “Buy American” policies and protectionist measures, although there are increased tariffs on French cheese and Italian water. Many economists say trade constraints will make it harder for global economic growth.

Labor Unions

The extent that a state is unionized can be a significant political factor in strategic planning decisions as related to manufacturing plant location and other operational matters. The size of U.S. labor unions has fallen sharply in the last decade as a result in large part of erosion of the U.S. manufacturing base.