PESTEL analysis is a useful starting point for environmental analysis, encouraging students to think wide. Exhibit 2.2 provides an initial PESTEL analysis of the airline industry, giving students the general idea. The first question asks for additional elements in the analysis. For example, under Political, you might add subsidies for local airports; under Economic, you might add the rise of Asian economies; and under Legal, you could add the trend towards airline privatisation. A key danger to highlight is of long lists of forces or influences that are too unwieldy for practical action. So the second question challenges students to assess which of the forces are likely to be of most significance in driving industry change. Here students should justify their views in terms of the evidence from the past and the likely impact in the future of any particular influence. The end-chapter case example on the European brewing industry also asks students to do a PESTEL analysis. Illustration 2.2
Scenarios help students think long term and very broadly: here the World Economic Forum and its members are looking a decade ahead, and thinking about geo-economics in general as well as just the market in a narrow sense. The question asks about whether companies have more influence over government policy or geo-economics. It then goes on to ask about how companies might influence government. This also obviously touches on issues of corporate social responsibility, pursued in Chapter 4. Companies probably do have more influence on policy coordination, but the issue is which governments they should be talking to (the United States, China?) and whether it is only governments that matter (United Nations, International Monetary Fund, World Trade Organisation?). They should also consider how they can best influence governments, individually or collectively through, for example, the World Economic Forum or the Business Roundtable, the group of CEOs of leading American corporations. To some extent, the power is likely to be exercised negatively: through lobbying against and criticism of proposals for financial re-regulation. It is worthwhile also asking about the influence these corporations can have themselves on geo-economic shifts: some Western company headquarters are shifting away from their home-countries, for example, the global headquarters of American civil engineering conglomerate Halliburton moved to Dubai and Swiss/Swedish engineering company ABB moved its global robotics business headquarters to Shanghai. Illustration 2.3
The Steel Industry
The steel industry provides a fairly easy-to-understand case of rapid structural change, and one led by industry actors. Understanding how the leading companies are making an impact helps to counter a risk of ‘determinism’ in Porterian analyses; in other words, a sense that structures are given rather than changeable. The first question particularly invites a comparative analysis using the radar-plot introduced in Exhibit 2.5. The radar-plot might look roughly like the following, with the continuous lines indicating rough positions in around 2000 (10 years earlier than the illustration) and the dotted lines indicating positions in 2010.
The comparative positions highlight the increasing power of suppliers such as the iron ore producers (negative); the high power of sophisticated buyers, somewhat mitigated by the declining power of the Big Three (mildly positive perhaps); and the beginning of decreased rivalry (positive) as the larger steel companies such as Mittal try to consolidate the industry. It might be said that the new entry threat has stabilised and even reduced, though continued investment by Chinese players may increase rivalry especially if they turn to overseas markets. Overall, comparing the size of the two radar plots over time suggests only a marginal change in favour of the steel producers. With...
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