General External Environment Analysis

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THE GENERAL EXTERNAL ENVIRONMENT
- Laka Muralidharan

General external environment is composed of dimensions in the broader society that influence an industry and the firms within it. These dimensions can be can be grouped into the following six environmental segments: demographic, economic, political/legal, sociocultural, technological and global segments.

1) Demographic segment
China and India account for 1/3rd of the population and experts believe that they will remain the top two populous countries at least until 2050. China and India would contribute 65 million and 142 million new workers respectively to the global workforce by the year 2020. Both countries offer large, educated, relatively low-cost workforces, and as worldwide quest for talent continues, China and India have become the key elements in global workforce strategies.

China’s workforce brings a variety of strengths to the table beyond sheer size. The country’s excellence in producing technical and engineering talent is well known, as is its relatively low-cost manufacturing workforce and 90% literacy rate.

On the other hand two traits characterize India’s workforce: skill and experience. In the last few years, India’s workforce has become known around the world through the country’s offshore call-centre activities—but this is just one aspect of India’s talent pool. Today, companies looking to India for talent are finding much broader opportunities than they did just a few years ago. India offers a large number of educated, skilled, English-speaking workers. Increasingly, companies have been drawing on the Indian workforce for quality and innovation, as well as for lower costs.

Many large scale companies now have workforce in China or India either directly or indirectly. As this trend continues in the future, the quality of jobs and the cost of labor in China and India will rise. This situation will breed a culture of innovation and development and soon new organizations will emerge and compete against the current multinational companies.

The ethnic mix of countries population continues to change. Through careful study, companies can develop and market products that satisfy the unique needs of different ethnic groups. Changes in ethnic groups also affect a workforce’s composition and cooperation. Projections are that the combined Latino and Asian population shares will increase to more than 20% of the total US population by 2014.

The world’s population is rapidly aging. In North America and Europe millions of baby boomers are approaching retirement. Although emerging economy populations are aging as well, they still have a significantly younger labor force. As workforce in the west ages and education levels rise in emerging economies, the US will likely have to accept larger numbers of immigrant workers.

2) Economic segment
The economic segment refers to the nature and direction of the economy in which a firm competes or may compete. Firms need to scan the health of economy outside their host nation.

US economy declined in 2001 and extended into 2002. In order to stimulate the economy, interest rates in the US were cut to near record lows in 2003. Largely due to the low interest rates, the economy grew substantially in 2004 and 2005. Global trade was likewise stimulated. However high oil prices have dampened global economic additionally, economic growth slowed in 2006 with US GDP growth slowing more than 4% in 2005 to 3.2% in 2006.

However, the US economy, and in fact economies all over the world, came under immense pressure due to the housing bubble and the financial crisis of 2008. Soon the US fell into a tough recession period, which many analysts say is the worst recession since the great depression of 1939. Countries all over the world, showings signs of dependence on one another, came up with many different strategies like drastically lowering interest rates, multiple bailout schemes and new tax breaks (e.g. For...
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