Chapter 1
The Dynamic
Business
Environment
Legal &
Regulatory
Economic
Competitive
Technology
Social
Learning Objectives
1.
2.
3.
4.
5.
6.
Business’s profit/risk assumption
Stakeholder roles
Role of entrepreneurship in wealth
creation
Elements of business environment
Competitive strategies
Rise of the service sector
Objectives of Business
Survival
Growth
Profit
Social
Responsibility
Earning a Buck:
Risk Reward Trade-Offs
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Risk is often defined as variation in
expected returns
The Capital Asset Pricing Model
(CAPM) suggests that for increasing
levels of risk there should be
increasing returns
The firm manages risk to reduce
variability and to match the
organizational level of risk with the
market.
Stakeholders:
Those Who Stand to Lose or Gain
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Customers want value
Employees want security
Stockholders want returns
Suppliers want to be paid
Dealers want support
Bankers want returns
Community groups want “equity”
Governments want compliance
Creating Economic Wealth

Five Factors of Production
1.
2.
3.
4.
5.
Land (natural resources)
Labour (workers)
Capital (physical assets not money)
Entrepreneurship
Knowledge
Entrepreneurs Create Wealth By

Joseph Schumpeter (Active) –

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Initiators who create instability through
their actions in a process known as
creative destruction.
Israel Kirzner (Passive) –

Alert individuals who look for
disequilibria in the market place to act
on.
Canadian Entrepreneurs
Name
Worth
Kenneth Thompson
$21 B
Company
Galen Weston
$9 B
Thompson
Corp.
Superstores
Jeff Skoll
$5 B
eBay
J, A & J Irving
$4 B
Bernard Sherman
$3 B
Irving Oil
J.D. Irving
Apotex Group
Business Environment
Legal &
Regulatory
Economic
Competitive
Technology
Social
+ Geographic Environment
Economic Environment
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Tradable currency
Minimum taxes and regulation
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(effects of the political environment)
Imports and exports
Employment levels
Productivity

Ability to make stuff easily
Legal &
Regulatory
Economic
Competitive
Technology
Social
Technological Environment
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Information
Machines and technology for
manufacturing & communication
Databases
Bar codes
The internet
Legal &
Regulatory
Economic
Competitive
Technology
Social
Social Environment
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Ethinic Diversity
Languages spoken
Demographic changes
Family
Legal &
Regulatory
Economic
Competitive
Technology
Social
Competitive Environment
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Customer service
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(warrantys, product selection, sizes)
Stakeholder recognition
Employee service
Concern for the environment
Legal &
Regulatory
Economic
Competitive
Technology
Social
Legal & Regulatory Environment
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Freedom of ownership
Contract laws
Red tape
Regulations for running a business
Elimination of corruption
Legal &
Regulatory
Economic
Competitive
Technology
Social
Geographic Environment
geographical size and east-west spread of
Canada
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effects communications
population density low outside of major urban
centers
Legal &
Regulatory
Economic
Competitive
Technology
Social
Geographic Environment
topographical and climatic challenges
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many areas of Canada not suitable to living all
year round
weather effects growing seasons for food
cost of food effects health and lifestyles
mountains act as barriers to transportation,
communication, and limit habitable land space
Legal &
Regulatory
Economic
Competitive
Technology
Social
Geographic Environment
the "gifts" of our natural resources
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endowed us with timber for logging, lumber,
paper
rich soil for agriculture
coastline for fishing many species of marine
life
minerals to mine, gold, silver, coal, copper,
nickel, uranium, etc
Legal &
Regulatory
Economic
Competitive
Technology
Social
Competitive Strategies

Exceed customer expectations

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Deliver faster (speed)

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Service, new product introduction
Restructuring and Empowerment
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Business is becoming customer driven
Responsibility, authority, autonomy,
training & equipment to front line
Concern for environment
Evolution of Business
 Agricultural/Manufacturing
 Service
Industries
 Future???
Global Environment

Quality

Productivity
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War & Terrorism
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Global Changes
Does Global Experience
Help Your Career?
No Response
5%
19%
Unnecessary
Somewhat
20%
Source: USA Today
56%
Very
Helpful
The Future by 2025
http://www.7revs.org/

SEVEN REVOLUTIONS
is an effort at the
Centre for Strategic
and International
Studies (CSIS) to
identify and analyze
the issues that policy
makers, business
figures, and other
leaders will face out to
the year 2025.
The Future
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Demography
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Key theme is stratification
Grow from 6.30B to 8.30 B
80% will live in countries least able to
support them
Rate of growth will fall to 1%
Developed world is shrinking and older
undeveloped will have young (aids)
Hyper-urbanization
The Future
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Resource Management
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Key theme is not availability but
allocation and distribution
Will increases in productivity keep up
with population growth
Water will be the most scarce resource
Current reliance on hydrocarbons but..
Production in Persian Gulf will decline
 Demand in developing world increases

The Future

Technology

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Three major & simultaneous drivers
1.
Computation – computers will become
iniquitous (homes, on and in the body)
2.
Genomics – diagnostics, therapy
3.
Nanotechnology – movement to the
molecular and even atomic levels
Did you know?

IBM made a computer circuit with organic
molecules so small, 200B fit on a thumbnail
The Future

Knowledge
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Information economy – knowledge will
be dominant factor of production
Knowledge diffusion –breaking down
national barriers & evolving culture
Knowledge gap –will create social
inequities (the digital divide)
Information Flows and Security –
dependence = vulnerability
The Future
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Economic Integration
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Advances in technology have resulted
in a staggering increase in the crossborder flow of goods and services
The benefits of integration will continue
to flow to all
Income will widen not shrink for
individuals
The Future
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Conflict
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Patterns of conflict are changing in an
era when nation states no longer have
a monopoly over super violence
Asymmetric warfare – Sep 11 as herald
of new era of conflict
Cyber-warfare – capacity to destabilize
society
Intra-state warfare will rise
The Future

Governance
 Of the world's 100 largest economic
entities, 42 are now corporations, not
countries
 NGOs (Non governmental organizations)
- Expect more alliances
 Corporations – Will juggle triple bottom
line
 Governments – continue to fall behind
 International Organizations – realities
will outpace the structures
Skill Level Required
58%
Average Skill
Level: 3.6
40%
2%
Level 1
Level 2
Level 3
Level 4
Level 5
Source: Hudson Institute as reported in Arnold Packer, “Retooling the American Worker,” Washington Post
Level 6
Current Skill Level
70.5%
Average Skill
Level: 2.6
16.1%
6.6%
6.8%
Level 1
Level 2
Level 3
Level 4
Level 5
Level 6
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